I was stunned to learn that people were paying hundreds of thousands of dollars for grainy jpegs. Who in their right mind would spend so much for a digital photograph when they could as right-click the image and save it to their desktop?
I succumbed to curiosity. I fell through the NFT rabbit hole. As I went more, more NFTs and the value associated with them became clear. What I discovered about what makes an NFT valuable is listed below.
Some NFTs are worth hundreds of thousands of dollars thanks to a combination of the following:
- Perceived value
- Exclusivity
- Timeliness
- Scarcity
These components give NFTs the potential to be long-term collections, investments, social signals, access passes, and other things to collectors. I’ll get into each aspect in this essay and discuss why I think NFTs will keep their worth and become much more common in the future.
But first, let’s address the elephant in the room.
For transparency’s sake, let’s talk about my journey. Two years ago, I brushed off NFTs as a cash grab. Today, I own hundreds of them.
To be clear, I’m not attempting to persuade you to accompany me down the rabbit hole before you start brandishing torches and pitchforks. In this article, there are no sales or affiliate connections.
Making something instructive is my main objective. Because there is so much unreliable information, it can be difficult to determine what to believe. I had trouble finding unbiased sources when I was conducting my research. You might be, too.
I consider it a victory if you leave having gained more knowledge. And that would be more than enough for me if I could at least lessen the stigma associated with NFTs.
Perceived value
We must discuss actual vs perceived value before we can even start comprehending why some NFTs are worth exorbitant sums of money (to the proper people) while others aren’t worth a dollar.
The cost of an item without the influence of outside influences can be calculated as its actual (or true) value. So, if we’re talking about a work of art, its actual value would be the price of the paint and canvas it was painted on and (perhaps) the artist’s time.
The value society assigns to anything is perceived (or intrinsic) value. As a result, when discussing art, it refers to the price an investor is willing to pay for a particular work of art.
It’s occasionally absurd how much actual value and perceived value differ. Although the Mona Lisa is valued at $850 million, Leonardo da Vinci did not spend $850 million on supplies to create it.
Let’s discuss gold, which society has viewed as having a ridiculously high perceived value for thousands of years, while we’re on the subject of abnormal perceived values.
There is more than 11 trillion dollars worth of gold globally, yet only 8% have practical applications. You may counter that making jewellery is a use for gold, but the only reason we choose to use gold over other materials for jewellery is that we’ve been convinced that gold is precious. And the only reason we consider gold valuable is that society does. I suppose it’s a vicious circle. Gold is the most precious meme ever created because, for some reason, we have all fallen for the same myth.
Most NFTs have little actual worth, much like famous paintings or money. A penny can be used to make an NFT; if you’re interested, I go into greater detail regarding NFTs and their creation here.
Some NFTs, however, have astronomical perceived values. Everyday: The First 5000 Days by Beeple is one of the most valuable NFTs. By 2021, it had been sold for $69.3 million.
In light of this, it’s vital to remember everyone’s perception of value is unique.
Even if I had that kind of money, I wouldn’t spend $850 million on the Mona Lisa. Everyday: The First 5000 Days is probably not something you would spend $69.3 million on. Though someone would, it’s finished now.
No NFT just has perceived worth by being present, of course. It progressively gains (or loses) because of a combination of the other factors I discuss below.
Exclusivity
I hear you saying, “Okay, but there is only one Mona Lisa. Any given NFT has likely been copied and pasted by millions of individuals. What, therefore, makes this JPEG unique?”
Keeping with the analogy I started with, it’s critical to clarify that creating a replica of a work of art doesn’t lessen its worth as long as you can identify it as the original (I’ll get to this in a second). NFTs also possess this quality.
The original Mona Lisa is unique. You are welcome to go to the Louvre Museum and snap pictures there. You can get an exact match replica and hang it on your wall. You can even make copies of your copies, which you can then make copies of indefinitely. But doing so doesn’t make the Mona Lisa yours. You cannot sell your replica for $850 million, either.
You may do the same with my NFTs by saving them to your phone. If you like, you can even share my NFTs on social media. However, I alone can vouch for my ownership of mfer #8099.
I keep it in my digital wallet, but I can sell it whenever I choose. The value of my NFT is unaffected even if everyone who reads this message decides to copy+paste my mfer and use it as their profile picture on every social networking platform, much like with art.
Unexpectedly, you might contribute to the value of my offer rising.
How well-known (or infamous) anything is determined by its perceived value. My NFT is becoming more and more prominent as it is spread. It is conceivable that collectors will find it more appealing as it grows in popularity. The TL;DR version of what distinguishes an NFT from a standard jpeg is exclusivity, which I discuss in further detail in my first post. The owner can demonstrate their ownership of the item and their exclusivity as the owner by presenting a hypothetical “bill of sale.”
Timeliness
Everyone desires to contribute to making history.
Since I was a child, I’ve gathered baseball cards. The renowned T206 Honus Wagner is a prized possession for every card collector. A crazy $7.25M is the value of this card.
Yes, the Honus Wagner card is expensive because it is hard to find. But more crucially, it has a compelling narrative about Wagner being the first athlete to sign endorsement contracts. This card will continue to be influential in culture as long as professional sports do.
You cannot pretend to be timely. Most NFTs won’t be effective for more than a few weeks until they gradually lose significance and disappear. The majority, though, will serve as significant historical turning points.
Since CryptoPunks was the first project to create collectible avatars and is considered a turning point in blockchain history, some collectors believe it will endure.
Due to their status as some of the earliest blockchain-based generative art projects, other collectors believe initiatives like Autoglyphs, Fidenza, and Ringers will endure.
And given that the Apes feature in books, comics, a series of movies, a video game, and other media, some believe that initiatives like the Bored Ape Yacht Club could become the next Disney in terms of intellectual property (some of the owners are already using their Ape as branding for new restaurants, beer, and coffee beans).
Whatever your thoughts on the Bored Apes may be, they are constantly a topic of discussion on blogs and social media after stars like Snoop Dogg, Justin Bieber, Jimmy Fallon, and Post Malone purchased an Ape.
Will the Bored Apes grow to be a media force comparable to Disney? Most likely not! However, some collectors drawn to BAYC are betting on the brand’s long-term survival and rise to greater cultural relevance.
So yes, NFT collectors want their artefacts to appreciate, but it’s not usually intend to sell them for money. Sometimes, all that matters is possessing a piece of history.
Scarcity
Do you still have any Beanie Babies? Ty developed those instantly identifiable small plush animals in the 1990s and popularised the idea that Beanie Babies were hard to come by.
It was a clever plan that might have worked if they hadn’t later oversupplied the market with toys and destroyed their scarcity.
I can’t help but wonder if Beanie Babies had been minted on the open blockchain, would they have stayed more culturally significant?
It’s difficult to say, but let’s consider it logically:
- The public would know exactly how many babies were in the collection and who owned them, and no other babies could be added to the original collection.
- They would be operating under additional scrutiny. If they decided to make a second collection, the public would know about it immediately (and the backlash would be real).
- Buyers wouldn’t have to worry about the babies’ condition or the possibility of counterfeits because it would be easy to prove authenticity.
- Sellers wouldn’t worry about taking pictures, getting their collectible officially graded, or shipping to the buyer. There’s a lot of risk in that process!
- If Beanie Babies were purely digital property (vs physical objects), you could buy and sell them more quickly and efficiently.
I believe that at least a portion of this process would have contributed to Beanie Babies’ longer shelf life. At the very least, increasing the process’s transparency would have been beneficial.
That is already apparent in NFTs. You may buy, sell, and trade 10-second video highlight “moments” from your preferred NBA players using NBA Top Shot. They appeared to keep producing these year after year, diluting the pool. However, NBA Top Shot drastically revised its position on its future supply in response to demand from the collectors in public.
Many of the current NFT projects are probably destined for these niche communities.
Also read about How To Create An NFT
The short answer is… I don’t know. The long answer is… what do you consider valuable?
Given the factors mentioned above, the answer to the question “will it be worth a lot of money?” is a resounding “maybe.” But it requires some research, business expertise, and a little luck, just like making wise investments in cryptocurrency.
Nevertheless, from my observations, most collectors continue to acquire because they genuinely enjoy their NFTs and regard them as a store of value. Because of this, many towns are thriving despite challenging economic times.
NFTs are sometimes criticized for being flypaper for bigger fools. Investors are seduced, and they purchase items at exorbitant prices to resell them for a profit (and thus get rich quickly). That was undoubtedly true in August 2021 and again in January during the NFT frenzy cycles, but it’s less typical these days.
What we’re seeing right now is that most short-term speculators have lost money. Money can still be produced, but it’s not quite as simple.
If you’re interested in that value, NFTs have worth beyond their price. Here are a few methods I use to determine the worth of my collection: