Non-fungible tokens (NFTs) have spread to practically all sectors of decentralized industry as a bridge between the digital and the real world. As the name implies, NFTs are unique tokens that grant their holders immutable property rights to specific assets. But you may wonder “if anything could be considered as one, how do you know the value of an NFT?” Here we answer you.
Non-fungible tokens, or NFTs, are proof that the cryptocurrency market never stops. It is a new type of crypto asset that is causing a stir in the market. As an asset class that can be attached to a work of art or a collectible in a video game, NFTs have become highly sought after in the cryptocurrency market.
Factors that drive the value of an NFT
Determining the exact value of an NFT is difficult, as the asset class is relatively new. Investors looking for NFT may have a difficult time deciding whether a given asset or collectible is worth their money and if they really want or need it.
This is different than, for example, tangible works of art like the Mona Lisa or physical collectibles. These already have defined values and it is much easier to know if they are worth something or not. But as NFTs make their way into many industries in less than a year and reach high levels of valuation, three main factors have emerged to measure their value.
Utility: The usefulness of an NFT comes from its actual application, be it in the physical or digital world. For example, some NFTs are more than just collectibles, as they can be used in games. This characteristic of NFTs gives them immediate value, which accumulates over time based on the popularity of the underlying project. As the community of decentralized game players grows, more of them will be willing to pay big bucks for a single card.
Tangibility: Some NFTs are tied to real-world objects, providing value in terms of tangibility backed by the immutability of the property. In essence, anything can be backed by an NFT, but that doesn’t make the object unique or in high demand. The underlying value of such an object will be determined by its practicality, scarcity, and the personal satisfaction it provides to users.
In terms of market practicality, these NFTs with tangible value are best suited for short-term market trading. This is because such NFTs can have expiration dates, just like tickets. Meanwhile, other collectibles such as limited-edition sneakers connected to NFT can accumulate value over time as the number of items in circulation decreases.
Rarity is one of the most determining factors
This factor literally translates to how rare and “hard to come by” a specific NFT is. Good examples of rarity are a one-of-a-kind artwork from a famous creator in the digital arts industry, or an NFT created by a famous celebrity. Another rarity factor is the effect such an NFT would provide in, for example, a video game.
People are drawn to such NFTs because of their intrinsic value. This gives a sense of distinction and determines the premium value of an NFT. Examples of such NFTs are Euro 2020 NFT tickets, owned by Decentraland or trading cards like Geralt of Rivia in The Witcher Universe Gwent Card Game.
As with almost everything, value is largely a matter of personal perception. However, intrinsic value obeys a series of market rules. When it comes to NFT, the rules are grouped into these three main factors. Basically, the value of an NFT lies in its short-term and long-term resale value.
In real-world applications, NFTs can be used for anything from verifying airline tickets and voting rights to stamping objects to prevent theft.