With the rising popularity of NFTs, more and more people are paying attention to the value of NFTs themselves. Many newcomers to crypto world are left asking, how does an NFT have value? What is the value of NFT worth investing in?
What are NFTs?
NFTs are Non-Fungible Tokens, unique representations of the ownership of assets immutably recorded in blockchains. Early adopters are using them to represent their claim on digital collectables, artwork and many other unique assets.
Fungibility means that an asset’s individual units are interchangeable and essentially indistinguishable from each other. It’s this information that makes each NFT unique, and as such, they cannot be directly replaced by another token. They cannot be swapped like for like, as no two NFTs are alike. Banknotes, in contrast, can be simply exchanged one for another; if they hold the same value, there is no difference to the holder between, say, one dollar bill and another. On the other hand, NFTs are unique and contain information that identifies them as unique in smart contracts.
Value in NFTs
Proof of ownership
NFTs are used to prove digital ownership of a particular asset. What NFTs provide is irrefutable ownership status that’s recorded securely onto a blockchain and can be traded. There is a common scepticism about NFTs that someone can just take a screenshot of the image, or download a digital file of it. However, the same argument applies to any famous piece of art. Like visiting a museum or exhibition, you can take pictures or get a copy of exhibit. It doesn't mean you own the art. People have always been, and always will be, willing to pay for original work.
Furthermore, NFTs are a representation of ownership of an asset and do not necessarily represent the asset itself. The smart contract will provide details of where the associate digital asset can be found. NFTs are like certificates that verify owners as owners. These certificates can be used to trade assets in new and innovative ways.
Scarcity
If something is scarce, it definitely has a limited supply. Most famous pieces of art are one-offs and their scarcity doesn't make themselves valuable.
Not only does scarcity derive from the way the NFT is minted, but from the composition of the image itself. The collection has certain common traits, within which there is relative scarcity. Most limited release NFTs are designed in unique types and styles which magnifies scarcity and uniqueness. In some way, that's why people are so obsessed with cryptopunk-led digital avatars.
Intrinsic Value
Not any items can be NFTs. Why arts have value? If a child paints on a paper and sell it, no one values it but only his parents. Because parents found his intrinsic value. It is hard to define intrinsic value for it is on the basis of subjective appreciation. Parents think their children have artistic talents while others think the child only do a doodle with his imagination.
Why famous paintings are 'famous'? Because they are unique and cannot be reproduced. Different eras endow different works of art with unique historical value as they are products of era.
Marketing Power
On June the 10th 2021, a 24 x 24 pixel digital image of a punk alien was sold for the equivalent of $11.75 million, which equates to over $20k for a single pixel. It drew people’s attentions and expanded to various industry. From art to games, from social media to clothing brands, from collections to galleries, you can find various-type NFT in diametrically opposed fields. Hype could be inflating the value of NFTs as they simply becoming more commonplace, decreasing the marginal value of simply being an NFT.
Innovation
With increasing NFT exchanges and marketplaces, the NFT market is becoming saturated. As NFTs can be traded in different ways and blockchains, artists all try to carve their own niche. Beyond collectible art, NFTs are playing a huge role in the Metaverse type games that are currently being built on a play-to-earn model.
NFTs can also be used to add a new dimension to the business models that power most of our digital lives, enabling secondary markets for on-demand and subscription services. The opportunities are endless, so long as the ownership of, or rights to something can be defined in a Smart Contract, it can probably be traded as an NFT.
Closing thoughts
With the popularity of NFTs growing, there's a good chance to take a deep thought in NFT. Start from discussion of NFT's value, you will get a fresh view to invest in NFT. If you wanna explore more about NFT, let's move on and jump into NFT world!
