Before looking into the level of value an asset has, it’s best to know what exactly it entails. NFTs is an acronym for the term ‘non-fungible tokens’ which refers to unique represented assets. They are tokens that can’t be swapped for other cryptocurrencies but can stand alone. So why are NFTs so valuable?
NFTs are valuable because they help authenticate ownership of digital assets. The uniqueness of a non-fungible token makes it impossible to be exchanged with other assets. For instance, Picasso’s paintings are non-fungible as you cannot make changes to the original copy even though there are numerous copies out there. NFTs make digital items valuable by making them unique and irreplaceable.
The whole concept of why are NFTs so valuable might still sound technical. Let me break it down further by explaining the concept of fungibility and non-fungibility.
What is Fungibility or a fungible asset?
When an asset is fungible, it means that you can easily swap it with an asset of equal value. Take for instance you have $45,000 at the bank, you could easily exchange it for a car of the same value. In the case of crypto, Bitcoin is fungible because you can exchange it for another coin of equal value or purchase goods and services.
What is non Fungibility or non-fungible asset?
In the case of non-fungibility, a piece of art is not interchangeable with any other piece of art. You can’t just go to your local art gallery and buy a painting from a famous artist like Pablo Picasso (that’s if you see original pieces hanging on local shelves). His paintings are non fungible due to many reasons including their uniqueness and scarcity. This is where NFTs come in handy.
NFTs are like a certificate of ownership of digital assets. If you own a digital image, you can prove it by showing your NFT. It’s also important to note that NFTs are not limited to only art. They can be anything from collectibles, rare books, antiques, etc.
What makes NFT Art Valuable?
When looking at why are NFTs so valuable, we need to look at key factors such as:
The first factor that makes NFTs valuable is scarcity. When looking at physical assets, scarcity is one of the most important factors that determine its value. A scarce item is something that people want to possess and hold onto. In the case of NFTs, it’s the fact that these assets are extremely hard to get as such, everyone wants to own them.
The outstanding attribute of any digital collectible makes it very valuable that you just want to have it. Most assets come with unique characteristics that set them apart from other items in the same project. For instance, a profile pic collection might have 10,000 avatars that look almost identical. But each one will have different backgrounds, colors, accessories, and more. Such uniqueness is what makes it valuable.
The popularity of the digital artist
Another reason why NFTs are so valuable is because of the popularity of the artists behind these projects. For instance, people will most likely buy digital art from famous artists like Beeple (creator of Everydays: The First 5000 days) than buy the work of a less popular artist. The popularity of the creator plays a big role in determining the price of the NFT.
You can also earn recurring income on your already sold NFTs as an artist: here’s all you need to know about NFT royalties.
A community around an NFT helps increase its value. This includes how many people are talking about it, how much attention it gets, and even the number of transactions. With this information, you can estimate the demand and supply of the asset.
Your perception as a buyer
Lastly, the value of an NFT depends on your perception as a buyer. If you think that the digital asset has no value, then chances are you won’t pay much for it. On the contrary, if you believe that the asset is worth a lot, you’ll probably pay a premium for it.
Minting of NFTs
Like other crypto assets, NFTs are powered by blockchain technology. However, unlike other cryptocurrencies, NFTs are minted using smart contracts. Minting means creating new digital tokens which represent the ownership of the asset. To do this, you’d need access to a crypto blockchain and an NFT marketplace. Marketplaces such as Opensea, Rarible, and Zora are readily available for the generation of non-fungible tokens.
Did you know that you have to pay gas fees every time you mint an NFT? Here’s a quick guide on how NFT gas fees work.
What Is The Future Of NFTs?
It is clear that blockchain technology is going to change the way we do business in the future. This includes Bitcoins as well as other digital assets such as non-fungible tokens (NFTs). We are only getting started with crypto art, and if major players in art and fashion begin to participate, this field will undoubtedly explode.
Even businesses and brands are taking advantage of this new opportunity. In the past, Taco Bell came out with animated gifs, and they were sold out in half an hour. Pringles came in second, and the NBA is killing it with the NBA top shot, which is where digital collectibles are traded.
NFT markets and social media can be used to sell virtual jewelry, clothing, and accessories. We’ve only scratched the surface of this new trend. The possibilities that lie ahead will be limited only by one’s ability to think outside the box.