Trying to wrap your mind around something digital being of value can be difficult. Especially when all the headlines you see about NFTs are pictures of monkeys and pixels selling for big bucks. So, why are NFTs valuable?
NFTs are valuable because they provide a unique and verifiable record of ownership of digital assets. This enables creators to monetize their work while also ensuring its authenticity. Community, culture, and the potential for future appreciation can all have an impact on the value of NFTs.
Nonetheless, there’s a ton more to discover about what makes NFTs valuable. Below, you’ll learn all of these reasons, plus more. Let’s get into it!
Why Are NFTs Valuable?
There are several elements that determine an NFT’s value. Watch this quick video for an in-depth explainer or just continue reading below.
Proof of ownership
One of the main elements of an NFT’s value comes from its ability to provide proof of ownership and authenticity for digital assets. Before NFTs, it was difficult to prove ownership of digital items since it was so easy to copy and share them without permission. NFTs, address this issue by utilizing blockchain technology to create a unique and immutable digital record of ownership.
Another reason NFTs are valuable is that they allow creators to monetize their content in ways that were previously impossible. An artist, for example, can create an NFT of their digital artwork and sell it for a profit, even if the artwork is easily copied and shared online—because the NFT stands as proof of the original piece of art.
This gives artists the opportunity to make a living from their digital creations.
Utility and collectability
Furthermore, NFTs enable the development of new business models and revenue streams. A musician, for example, could create an NFT of a concert ticket that not only grants its holder access to the concert but also lives on the blockchain as a collectible indefinitely.
This implies that the holders of the token don’t just receive access to the concert, rather, they also own a collectible item that represents that specific event and can be resold for a profit—potentially allowing them to recoup what they paid for the ticket originally, plus some.
Or a video game developer could create an NFT of in-game items and sell them to players. This enables the creation of new types of value that go beyond the sale of physical goods or services. I think this concept is easy to understand considering millions of gamers already buy in-game assets online, without technically owning them or having the ability to resell them.
Community and culture
The community and culture that surrounds the NFT space are others factors that contribute to their value. Some NFTs are valuable because they are part of a larger cultural movement or trend, and the hype and excitement surrounding them drive their value. This can result in a feedback loop in which the more valuable an NFT becomes, the more attention it receives.
NFTs cannot be broken down into multiple units like crypto can be. Instead, creators can create a unique piece of data that is rare and limited. Couldn’t any artwork be copied and shared endlessly? Of course, it can be, but the aspect of NFT is that it can be made into a token which means that it has a digital certificate of ownership that can be bought and sold along with the artwork.
This creates the authenticity and credibility of the source of that work or the type of NFT that you are buying. The authentic Picasso will be valuable even if multiple fake copies of it are made and sold and hung in houses or offices. The original will still have value if its authenticity can be proven.
Here are some other factors to consider when determining the value of an NFT:
- Underlying value. (The value behind the creator.)
- Potential value. (Future value, up-and-coming artists and creators, celebrities.)
- Perception of the buyer. (What is the NFT worth to you?)
- Similar market value. (How much are other works from the same creator selling for?)
How Are NFTs Created?
Technically, anyone can create an NFT. Artists, gamers, brands, and musicians all have an opportunity to create NFTs and offer them for sale. They have to create any work and then turn them into NFTs on the blockchain. This process of conversion is called minting.
Once this is done they can put it up for sale on the marketplace of their choice and attach a commission (royalty) so that every time somebody purchases it, they receive a payment. Please do remember that the fees for these transactions can be quite high due to the known gas fees on the Ethereum blockchain.
Each time a transaction happens, the price for energy (gas) taken to complete the transaction is charged to you, along with another fee for the selling and buying. These charges can be extremely high and fluctuate based on the site that you use.
If you want to create an NFT you will have to go on to some of the platforms where NFTs are created and traded. There are many platforms such as Rarible, Ethereum, and SuperRare. These platforms allow you to create NFTs using blockchain technology that cannot be altered. This means that the ownership of the NFT cannot be undone by anybody nor can anyone recreate your creation.
Now all NFTs can be viewed by anyone once it is uploaded on the platform and anyone can sell it or buy it without permission from anybody else. Just like virtual collectibles. The owners of the collectibles can buy and sell them as they wish.
What Are the Different Types of NFTs with Value?
There are multiple types of NFTs that hold a certain level of value, but what exactly are the different types of NFTs with value?
Multiple types of NFTs are authenticating certificates for any digital content such as music, artwork, collectibles, characters, and objects within a video game, etc. All of these can be made into NFTs and ownership can be claimed and verified on them.
Are NFTs Worth the Investment?
With NFTs sudden take off, there are fish biting at the bait making the space crowded with both trash and treasure. So, are NFTs worth the investment?
NFTs are worth the investment as long as the token you purchase has underlying value. The underlying value represents the value of the company or person behind the minting of the NFT. Underlying value also depends on both tangible and intangible assets associated with the NFT.
For example, Twitter founder Jack Dorsey has put up the first tweet on auction. The bidding has reached $2 million online. Artwork by other artists has sold for as much as $50 million and above.
This is proof that there is big money in the NFT space. But ultimately the worth of an NFT is what the market demands that piece. Just like how the artwork has been valued and sold in the real world for ages based on the value assigned by the market, NFTs will also follow suit.
If you’re looking to invest in NFTs, make sure you read this first: How to Invest in NFTs
What Is the Future of NFTs?
It is fairly evident that blockchain technology is changing the future of trade. This will include Bitcoins as well as digital assets such as NFTs. We have just gotten started in crypto art and if top players in art and fashion start participating in this space then it will most definitely explode.
Even companies and brands are jumping onto this new opportunity. Recently, Taco Bell came out with animated gifs and it was sold out half an hour after the launch. Pringles followed close behind and the NBA is certainly killing it using the marketplace NBA top shot where digital collectibles are being traded.
The possibilities of selling virtual jewelry, accessories, and virtual clothing using NFT markets and social media are huge. We have just scratched the surface of this trend. The opportunities that are yet to come are going to be limited only by creativity.
Get an in-depth look into the future of NFTs: Why NFTs Are The Future.
Issues and Challenges
While there is a lot of money to be made in the NFT market there are challenges and issues to be sorted out. One of the major controversies surrounding NFTs is their contribution to the carbon footprint which is creating huge concerns.
A single gif can lead to the consumption of a huge amount of energy and we’re talking about thousands and millions of gifs that will be bought and sold in the marketplaces. The repercussions of these on the environment are simply too horrible to be imagined.
Currently, NFTs are in their infancy stage and not a lot of regulations or rules exist around them. It remains to be seen how governments and regulatory agencies will react to this and the laws they bring about.