Where do such non-fungible assets obtain their worth and how are they valued? That’s what we’ll learn about today.
NFTs are relatively new fintech phenomena that are gradually making headlines throughout the world. CNN reported only a few days ago that the average price of NFTs had dropped over 70% from a peak of approximately $4,000 in mid-February to around $1,400 last week. At the same time, several of them sold for millions of dollars, well above the average value. As an example of the commercial potential, the record-breaking Beeple’s “Every day’s — The First 5000 Days” collage was recently sold for $69.3 million.
To be honest, the prices at which NFTs are auctioned are approaching the value of traditional artworks. The most expensive artworks ever sold range in price from $92.2 million to $450.3 million, to give you an idea. As a result, many people are perplexed as to why someone would spend almost as much for the ambiguous virtual ownership of digital art.
NFTs are still the crypto industry’s dark horses, owing to their relatively recent incidence and even more recent public acknowledgment. As a result, let us first define that concept.
A non-fungible token is abbreviated as NFT. Non-fungible things are unique and have no identical alternatives, but fungible commodities may be replaced by another identical item (mutually interchangeable goods).
Any cryptocurrency units are interchangeable, hence fungible when it comes to crypto tokens (tradable assets or services that exist on their own blockchain). Simply said, 1BTC is the same as any other BTC in circulation.
Non-fungible tokens, on the other hand, guarantee that a digital asset is unique. As a result, rather than representing money, NFTs represent digital art or actual items. Photos, GIFs, movies, audio recordings, memes, and even tweets may all be turned into an NFT and exchanged openly.
How NFTs work
NFTs work similarly to other crypto tokens on a blockchain, with the exception that they cannot be directly swapped. Non-fungible tokens are also pieces of software code data saved via smart contracts that contain distinguishing information and can be readily traced and verified in various ways. Every token represents a one-of-a-kind digital or physical object. They mostly use the Ethereum network, although other blockchains have begun to use NFTs as well.
Why NFTs have value
Why would anyone pay for something they can watch, copy, or download for free? This is the major topic that perplexes the general public. The solution is straightforward: ownership. A photograph may be viewed by anybody, yet it only has one owner. In the case of artworks, however, they retain the author’s intellectual property. The owner, on the other hand, has the authority to utilize the piece of art in any way he or she sees fit. Having exclusive rights to use and admire rare goods is the whole idea of collecting them.
Furthermore, NFTs aren’t just for digital art. Tokens made from in-game objects are also popular. Any aspect of a virtual gaming world, including game characters, vehicles, buildings and spaces, ammo, and other items, can be sold. Previously, game producers were the exclusive proprietors of in-game assets; now, players may resell their one-of-a-kind gaming assets.
It is legal and extremely safe thanks to NFTs. Forgery and counterfeiting should not be a concern. Blockchain technology’s clear and open auditing procedures aid in the verification of any item’s legitimacy. As a result, if you buy something as an NFT, no one can accuse you of buying a fake.
The scarcity of NFTs, as well as strong demand from gamers, collectors, and investors, has sparked a lot of interest in tokens recently. People are finally paying notice to phenomena that have been going on since 2017. Furthermore, people are beginning to pay actual money for it.
What separates a high-priced NFT from a low-priced one?
An NFT’s value, like that of other collectibles, is mostly determined by market and demand. It’s quite risky, especially because many exchanges enable you to sell tokens in an auction. Despite the fact that the starting price is determined by the original owner, an exciting bidding process may produce unexpected consequences. Buyers become more competitive as demand increases.
The rarity of an object has a strong influence on demand. Because a collectible card may have several tokens created, not every NFT is a single representation of the thing. Collectors place a high value on exclusivity. As a result, a single-edition collectible token has a higher probability of being found than one with 40 analogs.
When looking at the most costly NFTs nowadays, one can see that they are one-of-a-kind digital pictures generated with NFT ownership, such as Crypto Punks characters or Beeple’s collage.
Another key influence is the author’s popularity (if we speak about digital art forms). For example, the above-mentioned musician Beeple has roughly 2.5 million fans on social media.
In addition, uncommon things gain value over time. As a result, many NFTs have increased in value in secondary markets. Pablo Rodriguez-Fraile, for example, resold an artwork produced by Beeple at a 1000 percent premium. NFTs are a technology of the future, according to those already working in the crypto sector, especially when it comes to new creative forms.
Pablo Rodriguez-Fraile, art collector
A few years from now this could just be how people own art… People have long used art to store value. Crypto extends easily into digital art. This is just a more modern approach to investing in art and using it like someone would use gold or Bitcoin.