WHAT MAKES NFTs VALUABLE
Non-fungible token (NFT) means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different. It is also integral to the NEAR community’s NFT projects, which have exploded in popularity since 2020. When the Aurora team spoke at this year’s ETHDenver conference in February, and they were joined by members of Endemic, Chronicle, and TENKBay.
How do NFTs work?
At a very high level, most NFTs are part of the Ethereum blockchain, though other blockchains have implemented their own version of NFTs. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also keeps track of who’s holding and trading NFTs. NFTs are valuable because they verify the authenticity of a non-fungible asset. This makes these assets unique and one of a kind. Picasso’s paintings are non-fungible. While anyone can make copies of his paintings, the original painting remains irreplaceable and unique. NFTs make digital content irreplaceable, hence valuable.
Unless you have been living in a cave for the past nine months, the explosion of the NFT space will likely have caught your attention. Assets such as Crypto Punks (which were given away for free to anyone with an ETH wallet way back in 2017) are now selling for over $7m USD. Earlier this year, the most expensive NFT ever was sold at auction by Christie’s for close to $70m USD. With NFT sales totaling almost $1.25B USD in Q2 2021, it’s safe to say this asset class is here to stay. It’s also clear that while there is incredible value to be found within the NFT marketplace, it’s less obvious what makes one NFT valuable, and another simply digital inventory. While the NFTs selling for millions of dollars may have whetted your appetite, the average price of an NFT is sitting at a mere $120 USD. Let’s look at some of the core areas where NFT’s.
The NEAR Protocol is the perfect platform for NFTs as it has many benefits. The protocol is significantly faster than Ethereum. Ethereum also has substantially higher gas fees, while NEAR allows transactions to be processed for a trivial fee. These factors make NEAR ideal for buying and selling NFTs. There are already several NFT projects that have been created on the NEAR blockchain. To mention a few, are the Near misfit, mintbase, paras,, Npunks, These are different CEOs in their various platform that found solace with their NFTs with NEAR.
Mintbase allows virtually anyone with access to the internet to make an NFT and make it available for sale in their NEAR NFT marketplace or on NFT marketplaces like OpenSea. Minters can create a smart contract and limit the transferability of the tokens minted, helping prevent fraud or the illegal transfer of unique items. Mintbase is focused on creating an NFT creation experience that is unique, which is why it supports different digital assets. This is contrary to competing platforms that focus on one specific NFT category.
Paras is an all-in-one digital art card marketplace built on NEAR. The platform can validate ownership and give access to every purchase and mint to users. It offers quick and cheap transactions, and it differentiates itself from other marketplaces by offering collections instead of single releases. The platform differentiates itself in the following way.
After the incredible success of Cryptopunks, Solpunks, and Tpunks, NEAR will finally have its own version of the project, called Npunks. As with the original Punks project, there will be 10,000 unique NPunks with their own rarity traits. The collection will have 9 aliens, 24 apes, 88 zombies, and 111 bots. To avoid hoarding and ensure fair participation, everyone has the chance to buy one (or more Npunks). The purchases are made randomly and the identity is kept a mystery until the transaction is deemed complete. Users are free to sell their Npunk in the secondary market post-mint.
The Four Pillars of NFT Value
- Utility
Utility is one of the most hotly discussed topics within the wider crypto space within the context of NFTs. Does it do anything beyond its expected future value? Some really interesting applications of NFTs have begun to appear over the last six months. Be that enhancing video games by adding scarcity/provability to in-game loot or power-ups, through to creating a wrapper for many other token types within one NFT, the utility of an NFT (or its expected future utility) plays a part in its value.
Some NFTs are yield-bearing, giving them value beyond a simple resale. Owning an asset that provides returns will create demand for that asset. Gamifying the yield given raises the value even more because it inserts user interaction and attention into the asset. Synesis One gamifies data farming for AI language learning, for example. A word game on the project website lets players earn their native token, SNS, in exchange for playing the game and building the information database. AI companies can then tap into this data to help teach their AIs. NFTs of individual words give the holder yield every time their word is used by the AI to learn the language data.
- Ownership History
Value depends on the identity of the initial issuer, or the previous owners of the NFT. Those with high ownership history value are often created by famous artists, globally recognized celebrities, or brands. Examples of these are digital artist Beeple, who has three of the top 10 NFT sales of all time, or Sir Tim Berners-Lee who recently sold an NFT of the code for the World Wide Web for over $5M USD.
Judging value can often be difficult if only looking at ownership history. Unless the artist or celebrity is set to be even more famous in the months and years to come, is your asset realistically going to see a 10X increase in value? However, if celebrities and notable individuals have owned the NFT at some point in time, it does increase in value. For example, an NFT of a collectible card that was used by a top player to win a large competition will have sentimental value over a similar card without that history.
- Rarity
Rarity is integral within NFTs as they are, unique. However, some are more unique than others. And this is what we mean when we say rarity. Let’s say that a collection has 10,000 totally unique characters such as Crypto Punks. Some will have different traits, features, or characteristics which make them rarer than others from the same collection. It’s these rarities that drive massive increases in value. Jack Dorsey’s first tweet, “Top Shots” of popular NBA clips, and Beeple’s NFT are very rare, unique, and visible, which is what gives them value.
- Liquidity
High liquidity means a higher value NFT. The liquidity premium is the essential justification for why tokens that are made on ETH have a higher value than off-chain resources. ERC standard NFTs can be exchanged easily across secondary markets, by anyone holding ETH. That being said, if the market for your specific NFT, or NFT collection is not purchased, then you may run into liquidity problems. In other words, if no one wants to buy your asset, you can’t sell it. At least not for the price you may want.
Investors prefer to invest in NFT assets that have a high trading volume because liquidity lowers the risk of holding the NFTs you no longer want.
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Author
Miracle Chinaza
