Why Are NFTs So Valuable?

The simplest NFTs can be bought for a few dollars, but others run into the millions. As a result, people often ask what the value of NFTs is. In this article, we will look under the hood of NFTs and find out what determines their importance in the market.

May 2014, I wonder if Kevin McCoy and Anil Dash thought their creation called Quantum would go down in history. Kevin registered a video clip on the Namecoin blockchain and sold it for four bucks. Nearly seven years later, an NFT called Everydays: the First 5000 Days fetched no less than $69.3M at Christie's auction house. But the price of this lot started from just $100.

People who, in whatever way, encountered NFTs can be divided into two categories: skeptics and pragmatists. Some imagine NFTs as "magic beans," while others consider them a serious investment. The naysayers are easy to understand - NFT is a relatively new and still mysterious niche in the modern world, and people tend to distrust what they don't understand.

What is NFT?

So, before answering the question: "Why are NFTs so expensive," let's clarify what this mysterious non-fungible token is, for which some are willing to pay tens of millions of dollars.

Let's be clear about what this mysterious non-fungible token is, for which some are willing to pay tens of millions of dollars.

Literally, it is a record in the blockchain, in other words, a piece of code that lives exclusively in the digital space. NFT does not have its material form, and it is a kind of "digital spirit" that can be bought or sold. It is not so much the possession of an object as the possession of the object's ownership.

When wondering what NFT is, many confuse them with cryptocurrency. There are some similarities here. However, as they say, "in the right church but the wrong pew." One bitcoin is equal to another bitcoin, and one ETH is equivalent to another ETH. We can divide a dollar into cents or quarters and a bitcoin into 100,000,000 satoshis, and they will not lose their essence. In the case of NFTs, this is not possible. NFT, unlike them, is not equal to anything else, even another NFT.

As follows from the abbreviation, the main feature of a non-fungible token is its non-fungibility, that is, its uniqueness. It is a one-of-a-kind property, as unique as a fingerprint. It is what allows the NFT to guarantee the authenticity of the digital asset to its owner. That is why these assets are unique and one of a kind.

Millions of copies of the Mona Lisa have been made over the more than 500 years of this masterpiece's existence. However, only the original canvas was created by the great Leonardo da Vinci. Therefore, precisely this painting is unique. There will be no other magnum opus like it.

Why are NFTs valuable?

Time after time, we hear: " Why are NFTs so expensive?" 

So, let's dot the i's and know what makes NFT valuable. 

Today's NFT marketplaces offer products to suit every taste and budget. Some NFTs cost a trifle, but people are willing to pay millions for others. However, in one way or another, the value of NFTs rests on three pillars.

So let's take a look at this colonnade.

Rarity, Utility, and Tangibility.

The first column is an NFT rarity. This factor is akin to a scarcity of something. The rarer a thing occurs in nature, the more difficult it is to get it. Demand, which determines a thing's price, is often side-by-side with scarcity. And the harder it is to get it, the more expensive it is. For example, any rare coin with one dollar denomination will cost much more than a note of such a denomination. For example, let's take a one-dollar note and a rare coin with the same denomination. If you want to pay with this money in a supermarket, then both samples will be valued at the face value of one dollar. For a collector, the coin will have much more weight. The thing is that the seller's perception is often different from the buyer's perception. And this also needs to be taken into account in order to understand at what price and to whom one or another NFT can be sold. The criterion of rarity very often appears with NFTs in collecting. People are willing to fork out for a rare piece that completes a complete collection.

Keep in mind that water in the desert and the supermarket costs differently.

The second pillar is utility or usefulness if you wish. It is a practical application for NFT.

This factor is often reflected in NFTs for games. For example, this NFT may contain a unique character or its upgraded properties. Owning this NFT allows the owner to be head and shoulders above other gamers. A new era of the gaming economy has arrived. Gamers have received significant opportunities to earn money.

It gives NFT wide acceptance in the global gaming industry. NFTs provide access to unique characters, skins, magic, virtual lands, etc. Not surprisingly, many avid gamers are willing to pay a tidy sum for owning such an NFT.

Another manifestation of the utility of NFTs is royalty. NFT gives a severe tool to creative people, for example, musicians. When creating an NFT for a song or video clip, you can provide for the receipt of royalties. It means that, during subsequent resales, this NFT will bring passive income to its author.

The third pillar of this arcade is tangibility. As mentioned above, the NFT itself does not have a material form. But this doesn't prevent us from tying NFTs to physical objects.

For example, you can mint NFTs for jewelry, real estate, or concert tickets. The higher the cost of such an object, the more expensive the NFT. In this case, the product's price is determined not by a smart contract or a record in the blockchain but by the physical entity to which we mint NFT. That is, not technology, but the object itself.

Here we should mention the fact that a physical object has an expiration date. If an NFT is backed to an antique masterpiece, it will likely only increase in value over time. What have we got in the case of NFT tickets to the cinema or the game of your favorite team? After the event, the tickets themselves are worth nothing, as well as the NFT tied to them. These points need to be considered when investing in NFTs.

In addition to the three main factors that determine the value of NFTs, one should not forget about such parameters as prestige, fashion, and image.

Both in the physical and digital worlds, these concepts often play an important role in pricing. People are ready to pay crazy money to maintain their status. Fashionable dresses, luxurious cars, and houses in prestigious areas are reflected in the NFT niche. Let's take a look into the world of NFT games. NFTs for skins, artifacts, and virtual plots of land cost a lot of money.

Don't forget about such factors as hype, reputation, and prospects.

As in any business, you need to clearly understand what the object of financing is in order to understand its capabilities and prospects.

The value of any product is based on what someone is willing to pay for it. The same situation is with NFTs.

Are NFTs worth investing in?

It is worth investing in NFT because it is one of the best investment tools today. It is a relatively new and up-and-coming niche.

This niche impresses with its breadth - art, music, cinema, collectibles, games, social events, etc. Prices for NFTs from these areas reach millions of dollars.

New NFT marketplaces constantly appear. OpenSea, SuperRare, and Rarible are just the tip of the marketplace iceberg.

According to Forbes, in 2021 alone, the NFT market raised about $40 billion. In contrast, the entire art market in the previous few years did not exceed $70 billion.

Chainalysis reports, NFT sales by the second week of May 2022 have already reached $37 billion.

The world has changed. Many people spend more time in the virtual world than in the material. But, of course, this world requires its own tools. One of these essential things is NFT.

In the vastness of the digital world, new concepts have arisen, such as virtual fashion, virtual earth, and virtual avatars. These concepts are in unprecedented demand and allow you to make good money on them.

NFT makes it easy to certify and transfer ownership, and this advantage is highly valued in today's dynamic world.

What directions are the most promising for investing in NFTs?

Today, one of the most promising areas for business development is an investment in NFTs for video games and virtual land.

There are various ways to invest in NFTs for virtual real estate. For example, you can buy ready-made NFT virtual real estate on a platform like A Sandbox or Decentraland and then resell or rent it out and make a profit from it. Another option is to invest directly in a startup or a company already creating virtual land or real estate. There is also a third option - I can make a company for virtual land in the NFT yourself. However, you will need a worthy project to interest buyers and get a decent profit in this case. The task of the marketplace is to create a community that will appreciate the NFTs that are sold on it.

Now a few words about investing in NFTs for gaming. Indeed NFT gaming is currently experiencing an unprecedented rise.

On Axie Infinity alone, sales of NFTs between players have crossed the $4B mark. The new NFT business model in the gaming industry, namely GameFi, allows not only developers but also gamers to earn money. Undoubtedly, this stimulates the development of this direction. Communities of gamers and developers are intensively developing. Their involvement in the game also influences the value of NFTs in the video game to a large extent. NFT creates real value for items from the digital world. Gamers spend vast amounts of money every day on NFTs, characters, artifacts, skins, spells, etc.

Conclusion

The NFT industry is a world that still holds many mysteries. In such a world, you will need a reliable and experienced guide to help you avoid mistakes in planning and implementing your project. It will save you money and time! The best option would be to hire an NFT development company. NFT Game Development Company Zfort Group is your reliable partner in the digital world.

With experience working with a wide range of standards, including ERC-721, our team of professionals is ready to help you complete your project from scratch or get connected at any stage.

If you have an interesting idea or want to be at the forefront of NFT's success - welcome on board!

Zfort Group, at your service!