Currently, a large amount of digital content is being offered for sale through NFTs in a market that is moving millions of dollars, and we must consider that these digital assets are more than just collectibles, since they offer endless benefits. possibilities of use have been rapidly spreading to almost all sectors of the decentralized industry, becoming a bridge between the physical world and the digital world.
Non-fungible ‘tokens’ or NFTs are unique digital assets, which cannot be modified and cannot be exchanged for another of the same or similar value, since no two are alike. Cryptography, blockchain technology and token smart contracts make it possible to prove that the owner is the sole possessor of the original piece and guarantee its originality.
Taking into account that the NFT market originated recently, determining the exact value of an NFT can be a complicated task, since there is no list of fixed rules to establish it, as there are in other markets. . Generally, the payment made by the last buyer tends to be considered as an indication of value, however, it is difficult to know for sure how much the next buyer could pay, based on their estimates.
Although there are NFTs that can have definite values, such as artwork by renowned artists or tokens associated with tangible assets, in most cases, both buyers and sellers find it difficult to determine the value of an NFT. However, in less than a year the NFTs have reached very high valuations, which has led to the appearance of some factors that facilitate the calculation of their value.
Factors that determine the value of an NFT
Rarity:
The demand for an NFT is directly related to its perceived scarcity, so its uniqueness and the fact that an NFT is seen as something “hard to get”, gives it a sense of distinction that makes it attractive to many. people for their high intrinsic value.
Some good examples to represent the ‘rarity’ factor are unique artwork by renowned illustrators, as well as tokens created by top tier celebrities and some rare video game items.
Everyday’s digital artwork The First 5000 Days by Beeple and early CryptoKitties are great examples of an NFT with an element of weirdness. Genesis was the first Cryptokitty – it sold for 246.9255 ETH, which was worth approximately $117,712 at the time of sale.
Utility:
An NFT must have utility in a real application, to have value, both in the digital and physical worlds. And this utility factor has become a key parameter in determining the value of NFTs, which increases over time according to the utility and popularity of the project of which they are a part.
Good examples of these tokens are NFTs that could be used to tokenize real estate, precious metals, and even securities; also to represent virtual land and properties such as those of Decentraland or game assets such as collectible cards, among others.
The NFT market is still in its early stages, and as it matures, new novel use cases are bound to emerge.
Tangibility:
NFTs that are associated with real-world objects gain immediate value from the point of view of their tangibility, which is backed by the fact that ownership on the blockchain is unalterable. In addition, the practical use of these NFTs within the projects in which they are involved and their usefulness in supporting and consolidating the property rights of any object influences their value.
NFTs that have tangible value are more suitable within the marketplace, based on their functionality, scarcity, and the personal satisfaction it provides users, for short-term trading, such as tickets to an exclusive event, as they have dates of expiration; and others for the long term, such as those representing real estate and collectibles, which can generate greater value over time.
Rarity, utility and tangibility are the three main factors that are taken as a reference when evaluating an NFT. However, there are other features that can add value to NFTs, such as the ones we will mention below:
Interoperability:
This factor is related to the ability to use the tokens in different applications, and adds value to NFTs thanks to the fact that by working on different block chains, transactions are simplified. For example, if a specific item can be used in different games, there is a better chance that the token will accumulate value.
Social proof:
The social proof related to the project within which an NFT is located indicates what people think about that project and helps to make a decision, thus being one of the decisive factors when establishing the value of the NFT, where the networks Social networks can be a platform to check acceptance within the community.
Ownership history:
The fact of knowing the identity of both the creator and the previous owners of an NFT can influence its valuation. For example, tokens created by eminent individuals or known companies, or the resale of NFTs that were previously owned by well-known or influencers, have the benefit of high historical ownership value.
Liquidity:
NFTs with high liquidity tend to have a higher valuation, as higher liquidity will help buyers make their profits easily, which is why they prefer to invest in NFT categories with high trading volume.
It is expected that as the NFT market grows, systems will be put in place to support the liquidity of the assets, liquidity that over time will drive the NFT value proposition.
As we mentioned previously, NFTs are actives with little time in the cryptographic market, which began their initial stage about a year and a half ago and have an ecosystem that is constantly evolving, therefore, the valuation of these tokens is greatly measure a matter of personal perception and is sometimes driven by speculation. In addition, NFTs, thanks to their versatility, offer endless possibilities.
But it must be borne in mind that, despite being in a nascent stage, thanks to the rapid adoption and evolution of the NFTs market, factors have been emerging that can help increase the precision in defining the value of these assets, such as those mentioned in previous lines. And that it’s important to have them in place to make informed decisions, because NFTs are an asset class with endless possibilities and versatility, a wide range of these assets are emerging, making it even more challenging to determine the future value of an asset. NFT.