The crypto market is ever-evolving and always in flux with new asset types constantly emerging. Examples of these are stable coins, altcoins, and other project tokens. Every few years, a new type of crypto asset makes waves in the market, triggering fast-rising valuations and inventing new use cases. This time around, those assets are NFTs.
NFTs have spread across almost every sector of the decentralised industry as a bridge between the real and digital worlds. NFTs are unique tokens that act as digital certificates of ownership for specific assets.
As an asset class that can be attached to a pair of sneakers, artworks, or video game collectables, NFTs have become highly sought-after in the crypto market.
However, as a relatively new asset class, it can be tricky to precisely value an NFT. While art pieces and physical collectables like Pokemon cards have a defined value, investors looking to NFTs may struggle in deciding whether an asset is worth their money or whether they need it.
That's where we come in. This article will explore the three main factors that have emerged to gauge the worth of an NFT. By the end, you'll have a better idea of which crypto project will be worth your time.
1) Rarity
Put simply, the value of the NFT is directly linked to how rare or "hard-to-get" a specific project is to obtain. An excellent example of a rare NFT is a first-of-its-kind artwork from a famous digital creator or celebrity. Another source of rarity the effect said NFT would have say, in a videogame. Rare collectables with powerful buffs will inherently be more valuable to players.
People are drawn to NFTs for their intrinsic value, where the owners of the blockchain (digital) proof of ownership. This gives the owner a sense of distinction and determines the premium value of then NFT.
Examples of the unique effect in the crypto industry are the first CrytoKitties, virtual luxury sneakers, The First 5000 Days project and others.
2) Utility
The utility of an NFT is derived from its real-world application, so an NFT is more valuable the more use cases it has. For instance, some NFTs serve as more than just collectables, most prominently used in videogames, NFTs can be used to unlock virtual lands, spells, and unique characters. This characteristic of NFTs gives them immediate value, which can accrue over time depending on the popularity of the underlying crypto project. As the decentralised gaming player community grows, more of them will be willing to pay top dollar for unique items and buffs.
The versatility of an NFT as an asset class shines through in the endless possibilities they carry, over just being a collectable or digital representation of an object. NFTs are now being used for anything from concert ticket verification and voting rights to stamping objects to prevent theft.
The more use cases an NFT offers its holder, the more valuable the asset will be.
3) Tangibility
In certain instances, NFTs are tethered to real-world objects, giving them value in terms of tangibility backed by ownership immutability. Speaking simply, anything can be backed by an NFT to solidify ownership rights to that object.
However, the ownership rights in themselves do not make the object unique or highly valuable. The object's underlying value will need to be determined by its exclusivity, practicality, and the personal satisfaction (utility) that it gives its user.
For example, having an NFT ticket to a red carpet event full of celebrities is considerably more valuable, both intrinsically and personally, than owning an NFT tethered to a t-shirt.
In market terms, such NFTs with tangible value are better suited for short-term trading on the marketplace, as they usually come with an expiration date. Meanwhile, collectables like the NFTs tethered to exclusive sneakers can gain value over time as there will be less of them in circulation.
Closing
The value of an NFT is largely subjective and a matter of persona perception, but the intrinsic value does follow several economic rules. When it comes to NFTs, the rules are locked to the three main factors: rarity, utility, and tangibility.
Armed with this knowledge, you should be in a better position to judge which crypto projects would be worth you investing in.
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