NFTs are not the same as some investment portfolios like shares whose values can be accessed using certain metrics.
Over time, NFTs value has been a concept of guesswork and not a logical analysis of its true value. There’s no law on how to access the value of an NFT and most buyers end up relying on the purchasing price of the last buyer to give some indication of what the value can be. Sellers too are left in the dark on the amount they will receive for these tokens.
The scarcity of an NFT as the sole factor which tends to promote its value may be a farce, in the end, the NFT will lose its perceived value.
A highly demanded digital artwork which may seem scarce may eventually be discovered freely on other internet and there will be no more potential buyers left for it, driving the price of the NFT to almost nothing.
Since there is no guiding law for accessing the true value of an NFT, how then do we know if an NFT is worth buying for a certain price or not?
There are certain factors to consider before taking any dime on an NFT, therefore, endeavour to consider these factors before investing in an NFT.
Factors That Determine The Value Of An NFT
Even though the works of renowned artists and tokens associated with reputable tangible assets may have a defined value, most traders still find it tough to determine the value of an NFT. However, considering these factors, one may have an inkling of how much an NFT may be worth.
1. Scarcity:
The first determining factor for the price of an NFT is its scarcity. Basic market behaviour is the price of commodities with the shortage in the supply of such commodities.
It applies to the NFT marketplaces too as the demand and price for an NFT will increase by its speculated scarcity. However, the problem is how to know which NFT is scarce.
Unique artworks created by renowned artists, some game items and tokens minted by top celebrities are very good examples of some scarce NFTs.
The unchangeable proof of ownership gives the owner a great sense of value and uniqueness.
The scarcity factors bring a huge intrinsic value to the NFT. Examples of these types of NFTs are Jack Dorsey’s first NFT and 5000 days by Beeple.
2. Tangibility:
NFTs that are associated with real-life objects give a sense of tangibility, coupled with the ownership immutability of blockchains, it creates tangible value.
NFTs are used to show ownership rights and curb fraudulent activities. Tangible use of NFTs for the real-life projects they are featured in can add great value to them.
NFTs with tangible values are very perfect for short and long-term trading. An example is an NFT which represents the real estate. It can add more value with time.
3. Utility:
This is another great factor to consider when evaluating the value of an NFT. What satisfaction does the NFT give in a real application?
After NFTs are minted, their value can only be dependent on the inherent characteristics they possess. With time, the value grows according to the utility it gives users and the community strength of the project it is used for.
NFTs can be used to tokenize real estate to represent the ownership of virtual lands.
An example is Decentraland NFTs which are used to represent virtual plots of land in the Decentraland metaverse project.
4. Social Proof:
A good factor to consider when evaluating the worth of an NFT is the social proof of such a token. Try checking their profiles on different social media platforms like Twitter and Instagram, use hashtags to search for their online presence on social media, and what people are saying about them. If the numbers are low, it is obvious that they have not gained enough popularity among folks.
Social proof will help you know what people think about a project and it will help you gauge its acceptability for more informed decisions.
5. Ownership History:
The ownership history of an NFT has a great influence on the value. NFTs created by eminent people or corporate organisations tend to have a strong value history.
Working with people or enterprises with strong brand value for issuing NFT is a great way to enhance the NFT value proposition. Reselling NFTs previously held by significant people is another good way to gain traction with the NFT.
NFTs marketplace can also help buyers with the information of previous owners who made a good amount of money from NFTs trading using some kind of simple tracking interface. This will help buyers get valuable insight from them.
6. Interoperability:
Interoperability is the ability of an NFT to be used in diverse applications. This is a major factor that drives value to an NFT because an NFT will be more attractive to people if it can be used in two or more different applications, hence, creating value. The NFTs working on different blockchains will simplify transactions.
However, the property of an NFT being interoperable is not easily discovered but as developers build a vast network of applications on which the NFTs can be used, some attractive cases of usage help iningl interoperability of NFTs.
Developers can also infuse interoperability of NFTs by developing partnerships with other projects for the benefit of people who own their tokens.
7. Speculation:
Though some arguments oppose the influence of speculation on valuation, it’s still an unarguable factor that drives the value of an NFT.
Speculation comes naturally to humans and when it does, the value of the object of speculation rises tremendously.
An example is the price of crptokitty #18 which surged from 9 ETH to 253 ETH in 72hours in December 2017.
The price chart of NFTs can spur speculation and drive prices to an outrageous level.
Therefore, speculation on an NFT is a good factor to watch out for when evaluating the worth of such an NFT.
Conclusion
The NFTs ecosystem is still infant and as such, it will keep evolving and the factors affecting the value of an NFT will keep evolving as well. Therefore one needs to consider all the factors when accessing the value of an NFT.
NFTs are interesting assets with large lucrative opportunities to offer users. As the army of users continues to grow, you shouldn’t wait to be taken unawares. You can take full advantage of this great opportunity by investing in NFTs.
