What Makes an NFT Valuable?

What Makes An NFT Valuable?

Non-fungible tokens, referred to as NFTs, have exploded in popularity in recent years for collectors, investors, and enthusiasts alike. NFTs are unique digital assets that have their own digital signature. They're different from fungible tokens like physical money and cryptocurrencies as they can't be divided and represent an original asset. Using blockchain technology to verify the authenticity and ownership of an asset itself is part of what makes an NFT valuable in the first place!

New and experienced digital investors, collectors, and enthusiasts are all learning how to navigate the NFT marketplace to make the most of its potential. There are a few different factors that impact an NFT's value. Today, we’re exploring some of these factors to answer the question, “what makes an NFT valuable?” and help you determine if they’re worthwhile investments for you.

What Gives An NFT Value?

One of the first questions people tend to have about NFTs is, “what makes an NFT valuable?” Fungible tokens like cryptocurrencies can be divided up into smaller units, while non-fungible tokens cannot. These NFTs can't be duplicated by taking a screenshot or copying and pasting an asset somewhere else. The asset’s digital signature is what determines its authenticity, showing proof of ownership history and giving it value.

While there’s no guarantee that any particular NFT will be valued highly, there are a series of factors to consider to give you a good indication of its potential worth. Some NFT investors focus on creator value, potential future value, and buyer interest when determining whether a certain NFT makes a sound investment choice. Others will also consider current market value based on other tokens the creator is selling and how they could influence an asset’s value in the present.

A few universal factors for answering the question, “what makes an NFT valuable?” include:

  • Social proof
  • NFT Rarity
  • Utility
  • Community

Social Proof

Humans are creatures of habit and often look to the opinions and feelings of the masses when making decisions. This constitutes social proof, which is a psychological tendency where people assume the actions of others represent the correct behavior for any given action, situation, or decision.

This means when it comes to answering the question, “what makes an NFT valuable?” an asset’s worth is often influenced by the actions and opinions of other buyers, collectors, and investors. This is especially true with NFTs, which are still relatively new investment territories for many.

For example, NFTs that have been actively promoted or spoken about through reputable news channels online may have a higher perceived value off the bat, or projects where the IP is being used in entertainment, like Bored Ape Yacht Club (BAYC). The amount of trust that current investors and the public have in specific NFTs often determine how much value can be realized when it comes to NFT sales.

NFT Rarity

NFT rarity is another factor to consider when answering the question, “what makes an NFT valuable?” The fact is, scarcity drives value up. This means that unique or rare NFTs may raise value drastically for popular NFT collections. Many investors love the idea of having something no one else does, so marketing some NFTs as “limited edition” collections is one way that can increase the token's value.

Additionally, there are some NFTs that are more unique than others. A perfect example of this are the Bored Apes from Bored Ape Yacht Club that were mentioned earlier. This limited collection of cartoon monkeys has become one of the most popular NFT collections due to their uniqueness from one another. With only 10,000 individual tokens in the collection, they’re also in limited supply, adding to scarcity and NFT rarity that drives their value.

Certain traits within collections also have higher rarity than others. For example, the “King’s Crown” headgear in BAYC is only on 77 out of 10,000 Bored Apes in the project. When traits are highly coveted because of rarity, or aesthetics, it can drive the value up as well.

Utility

The answer to the question, “what makes an NFT valuable?” isn’t limited to the digital token alone. Some NFTs are linked to physical assets or perks, as well. NFT utility refers to the amount of value an NFT has in relation to any physical assets and perks the token comes with.

For example, a music artist might sell an NFT of their music where the token comes with an exclusive look at their next music video or a ticket to an upcoming event that's only available for those who purchase the NFT.

The range of utility that the NFT provides often influences the value of this non-fungible asset. Artists that create digital art might offer NFTs with an original painting giving the owner a physical asset alongside the digital token itself.

Community

The NFT space is constantly growing, including the community following that some NFT collections have. In a digital environment of viral memes and global connections, there are more opportunities to create a following and boost the value of these tokens than ever before. Some NFT creators already have a substantial presence that helps create more of a community backing or fanbase behind the tokens themselves.

It's important to be aware of what makes an NFT valuable, especially when you're considering them as an investment opportunity. When you buy NFTs, take a look at the backing some NFTs have from the community itself. It can often be a key factor in what makes an NFT valuable now and over time.

Why Are Some NFTs Worth More Than Others?

When you’re new to NFTs and trying to determine what makes an NFT valuable, it can be confusing to see one seemingly less-interesting NFT gain millions in sales compared to another that looks more attractive.

NFT creators are minting millions of tokens, leading to a lot of activity on NFT marketplaces. With the industry growing so rapidly, NFT followers and experts are constantly talking about what's new on the market, what's popular, and what they want to buy. This chatter profoundly influences certain NFTs to gain more value than others.

As a result of this behavior, the NFT markets aren't mature like other investment markets. They’re built on speculation and are sometimes unpredictable. For example, Jack Dorsey sold his first tweet for $2.9 million . The buyer attempted to turn around and sell it themselves only to find the highest bid to be just $6,800! This is a prime example of the potential fluctuation in asset worth if value factors don’t align.

Some buyers are snatching up as many NFTs as they can in hopes the assets they collect will result in at least one of them providing a windfall of financial wealth. This also contributes to their fluctuations in value, but it is likely the NFT market will eventually settle some.

While some wonder about the longevity of NFTs in future years, those experienced in cryptocurrencies and other digital asset investing recognize the potential for a long-lasting market that will continue to expand rapidly.

How Do You Know If An NFT Is Worth Buying?

We can’t discuss what makes an NFT valuable without examining how to know if a specific asset is worth buying. Non-fungible tokens, as we've mentioned, are volatile and it can be difficult to discern the potentially high-value ones from those that won’t maintain their value after purchasing (from an investment perspective).

How do you know if an NFT is worth buying or not? Here are a few things to consider and question when buying an NFT:

  • Uniqueness of the asset
  • Who is selling the NFT?
  • Liquidity and the NFT market
  • NFT seller price performance
  • NFT platform transaction fees

NFT Uniqueness

Part of determining what makes an NFT valuable is considering the token itself and whether or not it has unique properties that are scarce on the market. These NFTs may have a significant level of rarity, which could have a positive influence on future value.

Sometimes, the NFT creator behind the token has a unique skillset or online presence that could rocket in popularity on the market. Spotting a valuable NFT often requires an eye for talent and a knowledge of what to look for when investing. It’s as much future assessment as it is current.

While it's good to be aware of fresh talent, it's worth looking out for NFT creators who already have a reputation in the market or have been considered up-and-coming, as well. While these NFTs may already be at more of a premium, they are also more likely to hold their value or continue to grow.

NFT Seller Legitimacy

Digital ownership is something to consider when looking at NFTs. There are specific NFT creators that provide more value on the market than others. Just like social media platforms, the NFT marketplace has seller verification ticks that confirm a trustworthy owner, which can also prevent you from purchasing from collections impersonating the real one.

It's always important, however, to double-check an asset’s authenticity by looking at the ownership history stored via blockchain technology. The ledger will show legitimate proof of the seller's ownership over the token.

Liquidity and the NFT Market

Another factor to consider for what makes an NFT valuable and worth buying is liquidity and the market. It's important to be aware that NFTs differ from the crypto space. They don't have the same liquidity premium that crypto has. This is because you can't liquidate an NFT into traditional currency like you can with cryptocurrencies.

As a result, the lack of liquidity can be something that puts NFT investors off when trying to make a profit. There's still a lot of growth for this market, however, and its volume is one that could influence the value of some NFTs. As you’ve learned, the more unique and scarce some NFTs are, the more their potential value of the token rises.

NFT Seller Price Performance

The performance of the seller based on other NFTs they sell can directly influence the value of an asset you might be considering purchasing. It's always good to take a look at the seller's account profile when browsing these online NFT marketplaces. These profiles can give you a detailed ownership history of other NFTs and the previous sales that the seller has achieved.

The information provided can serve as a good indicator of how much the NFTs any particular seller has are fluctuating on the market. It can help give more clarity on whether the token itself is worth the investment or if you should look elsewhere.

Platform Transaction Fees

Some NFT marketplaces and platforms have transaction fees that are higher than others. While it may not be the first factor that popped into your mind about what makes an NFT valuable and worth purchasing, it could have a minor or significant impact on the overall value of the NFT itself. It's financially beneficial to be aware of what platforms will provide the highest return for you as an investor.

Are NFTs Good Investments?

Now that you’ve got a better understanding of what makes an NFT valuable, the million-dollar question is, “are NFTs good investments?” It's important to remember that while you can be lucky on NFT sales, either as a seller or buyer, there are still buying mistakes that can be made.

To invest in NFTs, you'll need to get a digital wallet and may want to purchase some cryptocurrency. While many NFT marketplaces only allow transactions using cryptocurrency, there are emerging marketplaces that allow credit card transactions, as well. For example, our platform UCOLLEX is popular for NFT projects and digital collectibles and lets you buy NFTs with a credit card; no crypto required! If you’re using multiple marketplaces, however, it does make sense to keep some crypto in your wallet just in case.

Once you have a means to purchase NFTs, test the waters using the advice from this guide. Getting your feet wet is often better than diving headfirst into any investment, so starting small is a popular way to go. You may find that NFTs are a lucrative opportunity that works in your favor! Conversely, for those that enjoy a hobby, NFTs might offer a personal value to the buyer as a collector, instead.

Ultimately, it's important to remember that investing in NFTs means doing your research to make informed decisions. That said, they could offer a new and exciting way to diversify your investment portfolio.

Like any investment, NFTs take a certain amount of knowledge and research before spending money. Explore the various platforms and marketplaces available that sell non-fungible tokens. There are a number of popular platforms out there, including UCOLLEX, which feature new NFTs and artists regularly. As the NFT marketplace continues to grow rapidly, explore this new way of investing and see what potential it has for you.

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