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NFTs aka Non Fungible Tokens have created huge waves in the crypto space. The idea or the thought of digital ownership made me very curious about it.

But the biggest challenge (still a challenge)I faced when I got into NFTs is “How do I value an NFT project?”.

Why are some NFTs selling for millions of dollars? Why are some not even worth a dime, once bought?

Even if you got a basic idea of the tech behind NFTs, like the blockchain, Ethereum, Smart Contracts, etc. what’s even hard to grasp is what drives the value of an NFT.

I don’t have an exact answer to it. But I’ll try my best to give an approximate answer to this question in this article. Let’s have a look at some of the key factors that brings value to NFTs.

Art & Scarcity

If Leonardo Dicaprio is alive, he would have minted Monalisa’s painting as an NFT and sold it for billions of dollars. I’m sorry, I meant Leonardo Da Vinci.

Because the art is unique, one of a kind, and is quite famous the value would be higher. Just imagine being the only holder of Monalisa painting on the planet.

“NFTs are the new status symbols”

And just imagine putting that art in a gallery in Metaverse (only the holder can do that. Right-click save doesn’t work) where people can visit.

The same can be said for Picasso’s art.

And the same happened with the Beeple Art. His art project “Everydays – The First 5000 Days” was sold for 69 million dollars. From Day 1 to Day 5000 he created art every day and put all the art pieces in a collage and sold it for an amount that brought NFTs more craze.

Well, in the end, it’s still a JPEG. But the point is no one can ever replicate the art. And more importantly, no one can ever replicate the story. At least not that easy. It would take 5000 days to do that.

The person who bought the Beeple art, Metakovan aka Vignesh Sundaresan said this to CNBC:

“This NFT is a significant piece of art history. Sometimes these things take some time for everyone to recognize and realize. I’m OK with that. I had the opportunity to be part of this very important shift in how art has been perceived for centuries.”

Art and scarcity (or rarity) are what drove the value for NFTs initially.

Historic Value & Innovation – Blue Chip NFTs

Why is CryptoPunks worth more than Primate Social Society (My first NFT purchase)? You’d be pretty much shocked by the difference between the floor price between these two.

Bored Ape Yacht Club‘s floor price is 50ETH as of writing this article. And that means you need a minimum of 200k USD to buy an ape.

Punks and Apes have a historic value.

Created by Larva Labs, there are only 10,000 punks, all of which were procedurally generated and claimed for free when the project launched in 2017. And these are well known for the first 10k avatar collections in the NFT space.

And 2021 which is the year of 10k NFT projects (we have seen tons of it), saw punks getting bids in millions of dollars.

World of Women NFT project is being considered the first mainstream NFT project by Women. And so that floor price is around 2 ETH as of writing this article.

So, you get the point. If a project does something different and then the other projects adopt it, then the project that started the whole trend becomes a highly valued NFT.

“Innovative NFT projects are valued highly”

Utility

The simple way to understand the utility factor in NFTs is “when a token gives you access to something”.

Let’s say Sylvester Stallone releases 100NFTs and what if one of those holders gets a chance to meet him in person? “NFT as a lottery”. I’d definitely buy it even if it’s a 1 in 100 chance (assuming that it’s affordable to me).

But the most basic utility is community. You get to connect with like-minded people when buying NFTs from a collection (1k, 8k, 10k avatars, etc).

So if I buy a cricket NFT, I get to meet (online first) other people who are interested in cricket and we most probably can play together by arranging a meet-up once a year. I don’t know, just saying.

Anyways, the point is, at a certain level, NFTs are all about people and building relationships.

What most people get wrong about NFTs is they don’t have real-life value. But that’s not true.

VeeFriends (NFT project by Gary Vaynerchuk) was the first project to use NFTs as a conference admission ticket.

Enigma Economy, one of the NFT projects that I was part of is gonna share the mining rewards (ETH, BTC, etc) with all the members who staked their NFTs. With the initial sales, the founders bought mining equipment.

So, you get to become part of something when you buy an NFT. And that’s the utility factor. It can be an experience (community, getting a book signed by the author, etc.) or money (passive income with tokens, mining rewards, etc.).

Gaming

Gaming also comes under the Utility part but has the highest leverage I think. Many crypto enthusiasts say that NFT gaming is the future. Gaming is already a big industry generating billions of dollars.

The value of the video gaming market in the US alone, in 2021 is 65 Billion dollars. Now, this when combined with NFTs is gonna generate a huge value.

Just imagine owning the character Trevor in GTA 5 (Grand Theft Auto) or owning land in Fortnite. So, the point here is if I own land, I am gonna make the rules and provide value to the other games who visit my land, for which I am gonna get paid, in tokens.

It’s all about creating value and getting paid and at the same time eliminating those middlemen (big companies) who want to take a part of our pie.

Metaverse

An NFT can be a ticket to enter a metaverse. But again, Roadmaps are just promises and I’ve seen many projects that are promising their NFT projects as tickets to virtual worlds which they are gonna build in the future. Since the metaverse phase is too early, it’s hard to comment on this aspect of value to NFTs.

Conclusion

I hope you got a basic idea of how some NFT projects are valued very high and some very low. Understand that we barely scratched the surface, and there is more to come in the NFT space in ways we haven’t even thought of.