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Why Are NFTs Valuable?

2022-08-15 Investing

By now you’ve probably heard about NFTs. With everyone around talking about it, it’s hard to ignore. All the biggest celebrities are acquiring Bored Apes, including Eminem and Snoop Dog, and it seems that the NFT bubble is only getting bigger.

You are probably wondering why some weird drawing of a monkey or a cat gif is worth over $200,000? In this article you’ll find an answer to your question – why are NFTs valuable? 

If you’ve accidentally been living under a rock and still don’t know what I’m talking about, here’s a general idea:

Crypto 101: what are NFTs?
NFT stands for a non-fungible token. Yeah, that probably didn’t help either. The gist of it is that NFT is a piece of digital art. It’s a digitalized collectible that is linked to the blockchain system, meaning, it has a unique digital signature and can be traced. What blockchain does is that it allows anyone to verify the NFT’s authenticity and ownership. NFTs are like modern art collecting – you are the owner of a unique digital Picasso and your proof of ownership is a digital public record. This makes your art piece safe from counterfeit, theft, and any other corruption.

NFTs contain several traits that make them popular and valued in the crypto community. They are unique (thus, the word fungible), every one of them is a different piece of digital art. NFTs are invaluable collectibles because of their scarcity. There’s usually a very small amount of them released, so you’d be the holder of a rare and prized possession. 

NFTs are also safe from corruption, meaning they have a public record on the blockchain, and there’s no way for them to be fabricated. 

But What Makes Some NFTs More Valuable Than Others? 

The core of NFT’s worth lies in these five aspects – underlying value, utility value, market value, future value, and sentimental value.

Let’s look at each of these individually:

Underlying value

The underlying value of an NFT lies mostly behind the creator and the ownership history. Value depends on the creator and their identity. If the creator is some up-and-coming artist, a strong brand, or a famous athlete, it is possible that their NFTs will be in high demand, thus increasing the value. Value also relies strongly on the ownership history. What I mean by that is – if an NFT was previously owned by an influential person, it'll be more valuable.

Utility value

This means that NFT is more valuable, the more ways the person can enjoy it. Many NFTs have a bit of interoperability to them, meaning they are not only created for looking at but can also be utilized in various ways.

One way you can squeeze more fun out of your NFTs is blockchain gaming. Blockchain games, or so-called Play-to-Earn gaming, is a decentralized economy where all in-game digital assets are empirically owned by the player, meaning that all in-game items are NFTs owned by the players.

In games like Sorare or F1 Delta Time, you are buying the NFTs to play with – real-life football player cards, or F1 cars. There are also games like REVV Racing that allow you to create your own NFT cars that can be utilized not only in this one but also in other racing games. The ability to use the NFT in a different application raises its value.

Another way to increase utility value is to provide benefits to people who hold your NFT. Lympo is an example of that.

With Lympo NFTs, you are not only the owner of cool sports cards but can also earn extra rewards. You may ask, how can you do so? Lympo and many other platforms provide the possibility of staking your NFTs. Staking is a process where you lock your NFT for a certain amount of time, which means you won't be able to use or sell it. But, it's all worth your while because, at the end of that time period, you get bonus rewards, usually crypto tokens.

There are also some platforms that provide the NFT holders with special benefits, like the ability to vote on important decisions, discounts for events, or even event passes.

Market value

This is as simple as it gets. A lot of NFT value is determined by the similar market value – the value of similar NFTs, as well as other pieces from the same creator.

If a Bored Ape (one of the most well-known NFTs) is usually sold for a hundred thousand or more, it is unlikely that you'll be able to get your hands on one for a hundred bucks.

And at the same time, if other artists list their 8-bit images of cats at a very low price, it would take something very special for yours to be bought for a hundred thousand dollars. 

Future value

It is a potential value of an NFT. It is more or less based on speculation. If the artist of an NFT is up and coming, or if there's something we've never seen on the NFT market before, it might be perceived as more valuable.

Now, there might be some of you who will argue – why should this matter? You never know what's in the future. And you would be right. But speculation is human nature and it's a significant part of the current financial system.

Speculation is not about the guesses, it's a calculated move that can be guided by the price-performance charts of NFT items or by the emphasis of NFTs that usually go high in value. 

Sentimental value

Although it seems stupid, some NFTs have value because they bring sentiments and a feeling of nostalgia to the buyer. For example, if you used to collect baseball cards as a kid, NFT sports cards bring back that exciting feeling of finding the rarest cards on the market. Just with a modern spin. Or if you're a massive Kings of Leon fan, owning their LP in NFT form is the ultimate fan experience. Maybe you're a fan of basketball? Or hockey?

Wouldn't it be incredible to be the owner of an iconic moment in sports history? Yes, it might sound weird, but some teams and leagues sell the legendary game moments in NFT form. For example, LeBron James’ highlight video of a breakaway dunk against the Trail Blazers has been sold for $71,455.

So, the buyer's sentiment surrounding the particular NFT can increase even its financial value. The more sentiment an NFT has, the more excited the fans are to get it, thus increasing the demand.

Concluding Thoughts

So, to summarize what I’ve just said and give you a better understanding of the process – a few crucial parts are playing in the value of an NFT. Those parts are – the underlying value, or the value behind the owner, utility value, meaning what it’s worth for the buyer, the market value, future or potential value, and sentimental value.

NFTs make a popular meme nowadays, and at first glance, it seems that it’s just a ridiculous way to spend your money. I mean, having a tweet or a weirdly drawn picture of an ape as your possession, might seem silly, but silliness is one of the ways that make NFTs fun. As you could probably see from this article, there are attributes that make NFTs so valuable and admired in the crypto world, and what might seem silly to you, might not be so silly to others.

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