What Makes an NFT Rare?

What Makes an NFT Rare?

Rarity when it comes to NFTs is important because it can contribute to the value of that NFT. Owning a rare NFT could lead to a substantial profit when selling it. As a collector, that could be down the line, however investors see rare NFTs as potential opportunities for faster profits.

What makes an NFT rare? How do you know whether an NFT is rare or not? As a decentralized market, there are some non-fungible tokens that will be rare and others that won't. There are, however, factors that contribute to NFT rarity that you can look into.

In this guide, we'll look at what factors contribute to NFT rarity and why it matters when investing in this type of digital asset. There are many benefits to having a rare NFT in your possession that may inspire you to invest in NFTs in the future.

NFT Rarity Explained

Non-fungible tokens, or NFTs as they're more commonly referred to, are unique digital assets. The information for these digital assets is stored on blockchain technology. All records are stored on a digital ledger that can never be edited, modified, or deleted. The information of the creator and all future buyers will be there forever, giving proof and value to its ownership.

So then what makes an NFT rare? As NFTs are unique in themselves, they can already be considered as having a rare quality. The more unique they are, however, the more scarce they become on the NFT marketplace. The fewer variations of a popular NFT available on the market, the rarer it’s considered. 

NFT rarity contributes to what makes an NFT valuable, providing more potential profit for the owner at a multiplier above NFT floor price. There are other elements that make NFTs rare, as well. Researching this information is important when shopping for NFTs on the market. The fewer duplicates an NFT has, for example, the rarer it is.

Some of the ways rarity can be determined include:

  • Rare features
  • Scarcity
  • Collection size
  • NFT demand

Rare NFT Features

NFTs that exhibit unique identifiers may add to NFT rarity. For example, it could be an art collection that uses a specific style of digital artistry that stands out from the rest of the market. The level of rarity that an NFT has can depend on what rare features it has.

Like any kind of trend, however, what constitutes rare features in demand is constantly changing. It's good to keep up with the NFT community, especially when you're new to the market, to see what is currently being classed as a rare feature.

NFT Scarcity

Put simply, people enjoy having something unique or of limited supply. The same goes for the NFT marketplace. While rarity is made up of many different factors, scarcity of supply can play a large role in NFT rarity. A unique or limited edition NFT is more likely to be prized for its rarity and fetch a higher price if the owner decides to sell it.

Size of the NFT Collection

Some NFTs are part of a wider collection. For example, some might be part of a collection with 1,000 pieces while others are part of an NFT collection with 10,000 pieces. The fewer tokens within the collection, the rarer it becomes. This goes hand-in-hand with scarcity as a factor for what makes an NFT rare.

NFT Demand

Lastly, part of what makes an NFT rare is the demand for it! Supply and demand is an economic principle that correlates to value for goods of any kind. The NFT marketplace is no different. Short supply combined with high demand for a certain type of NFT means it’ll be more likely to have a higher NFT floor price. It may also yield more leverage in a trade, being worth multiple NFTs in return versus a one-to-one transaction. 

Since the NFT marketplace is ever changing, demand and supply can change quickly, as well. This means it’s important that your research be up to date if you’re looking to make the most informed decisions as an investor, collector, or hobbyist.

How Do You Know If an NFT Is Rare?

You’ve now learned how NFT rarity is based on a variety of factors. But how do you know if an NFT is rare? For that, you may wish to use something referred to as the rarity score to help understand how rare an NFT is.

There are a variety of NFT rarity tools that have been devised in order to help investors calculate how rare NFTs are in comparison to others. One of the most popular is Rarity.Tools. The formula for the rarity score varies, but typically it'll look at the individual NFT and how many traits it has that make it unique compared to the rest of its collection. The ones with the most unique features are labeled as the rarest.

Whether or not you've purchased an NFT before, calculating with some form of rarity score can be helpful in spotting the rare NFTs. It’s a much better strategy than simply navigating the market blindly. Some NFTs may be considered rare but might not actually be for sale, which isn't helpful if you're on the market to purchase. For those that are for sale, it's important to do your research to ensure you’re getting a fair price.

Does Rarity Matter With NFTs?

Why is NFT rarity important? While NFT hype sounds like fun, going around and collecting NFTs hoping that they turn out to be financially beneficial can be risky for your money. As with any form of investment, it’s important to do your research and use all the tools available to you in order to make an informed decision.

Rarity is important to factor in when looking for investments in the NFT space. A high rarity score can help drive demand and offer more excitement when there's a super rare NFT that everyone's fighting to bid for.

For NFT creators, it's just as important that there are rare NFTs on the market because it keeps investor interest high and can subtly dictate the direction for new NFTs to take. As the NFT market continues growing in popularity, more tokens are registered and sold meaning more rare NFT options are available. It's a cycle that benefits itself over and over again.

The Benefits of Owning a Rare NFT

Now that you’ve gotten a thorough understanding of what makes an NFT rare, what benefits do rare NFTs have? As a new investor to NFTs, how much of an impact might NFT rarity have on the individual who owns it? Some of the most common benefits of rare NFTs include:

  • Long-term investment value
  • Improving the NFT floor price
  • Better leverage for trading opportunities
  • Collector bragging rights

Long-Term Investment Value

Rare NFTs are often considered a great long-term investment. If the NFT market continues to improve in the same way that cryptocurrencies have, rare NFTs could become super rare NFTs further down the line, driving their value further up.

Even though they're a volatile digital asset, the NFT market could significantly go in your favor. If you purchase a rare NFT for a few thousand dollars, it’s possible that the future value could be worth many times more. While everyone hopes this for their NFTs, there are examples of this happening so it’s not a pipe dream.

A perfect example is CryptoPunk #4156, which was purchased for $1.25M and later sold for $10.26M. Not a bad investment by any means!

Improves the NFT Floor Price

NFT floor price, the term for the lowest price an NFT is selling for, can benefit from a rise in rarity. A floor price helps the seller avoid underpricing their tokens by assessing real-time data while listing their NFTs.

Better Leverage For NFT Trading Opportunities

When it comes to trading NFTs, having a rare NFT could put you in an advantageous position for making offers on non-rare NFTs. An owner who is selling multiple NFTs as a collection may consider a rare NFT to be a worthwhile exchange to make or more than one of another, less rare collection.

Having this leverage is something that could help you win over certain deals or result in higher future profit potential.

Bragging Rights For Collectors

Like any kind of collectible, owning rare NFTs like digital trading cards, memes, virtual fashion, or anything else, comes with bragging rights. Owning someone rare or unique is special and can be a major talking point.

Particular NFT purchases will often have a social relevance, and for those who have an online presence, owning a rare NFT could benefit them on the social ladder they're climbing.

The Drawbacks of Rare NFTs

While rare NFTs might be great to have, there are some drawbacks that come from having rare NFTs on the market and owning them personally. While there are plenty of benefits that come with owning rare NFTs, there are potential downsides to be aware of, as well. Some of the drawbacks of rare NFTs are:

  • Rare NFTs can lose value
  • Outpricing some NFT investors
  • May be harder to sell based on the NFT market

Rare NFTs Can Lose Value

There's never any guarantee that NFTs will remain rare on the market. They could lose their demand as more of the features or traits that made them a rare NFT begin to pop up on the market. It’s the same with any investment, really. The best way to see the highest value is to get in on the ground floor for groundbreaking NFTs but sell before the market becomes saturated with similar tokens.

Rare NFTs May Outprice Some Investors

For some investors, rare NFTs may end up being too expensive for them to afford. This prices them out from the opportunity to buy, making it more difficult to sell a rare NFT in your possession. Not all rare NFTs are extremely expensive, but some can be priced in the millions! Prices like that severely limits the buyer pool, making them harder to sell.

Harder to Sell Based on the State of the NFT Market

The NFT market is always changing. Like cryptocurrencies, a digital asset can drop in value without warning. Depending on the state of the market, rare NFTs may be harder to sell and you may be left holding your token until the market picks back up again.

Are Rare NFTs Expensive?

Rarity score does affect how expensive some NFTs are. Not all rare NFTs are going to be expensive, however. It's more about which ones get picked up in the community and talked about. Social proof can play a huge part in the perceived value of an NFT. Just because an NFT is rare doesn't immediately make it costly. It could simply be rare but have no demand for it, making it less valuable as a result. 

Rarity plays an important role in the NFT marketplace and helps buyers and sellers assess their willingness to accept certain prices. Just because an NFT is rare, however, doesn’t mean it’s of high value. It’s important to always do your research when exploring the NFT marketplace to see if a token is worth the investment. When you’re ready to jump in, head to a popular NFT marketplace like UCOLLEX to get started with your NFT investment journey!

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