Login
Author Image Robbie King

Robbie King

Jul 25 2022

What Makes an NFT Valuable?

Ethereum logo in a glass box as though it’s in a museum
Categories: Technology, NFTs.
Why do people buy NFTs? We have all seen the headlines telling us how much NFTs are selling for. But to the layperson, it’s hard to pinpoint why. NFTs aren’t gold bullion. They’re not traditional stocks backed by performance metrics and stats you can assess. And they’re not currency.
For these reasons and the fact that NFTs are brand new in the “scheme of things”, we’re all in the dark about how to interact with them. As we’ll outline below, a lot of an NFT’s value is subjective. That said, there are several common areas of value — some of which are objective — that (if understood) can be a key ingredient in winning the NFT game. Read on for the definitive answer to the “what makes an NFT valuable?” question. But before we address that, let’s first quickly define what an NFT is.

A quick definition of NFTs

NFT stands for non-fungible token. A fungible token has the same value as any other token of the same variety and can therefore be easily replaced. For example, one bitcoin is worth the same as another bitcoin. One dollar is worth the same as any other dollar. Meanwhile, NFTs are all unique (and hence, non-fungible).
You may have thought that NFTs are just digital artwork. But a more accurate description of an NFT is a digital record of ownership applied to a specific digital asset. NFTs can be used to determine ownership of art, music, games,
metaverse real estate
, and more.

NFTs can be valuable for the same reasons that art can

NFTs aren’t digital art. However, they can often be conflated with digital art as their mechanism lends itself so well to the distribution and trading of digital art. Here are some of the big drivers behind NFT value that the traditional art world shares.
    Creator status
Even if
the stories
aren’t true, the very suggestion that Picasso paid for his restaurant meals with doodles he did on napkins indicates that anything made by Picasso would be expected to have serious value. Damien Hirst
is capitalizing on this phenomenon
today by boldly entering the NFT space. But famous artists are just one group that uses creator status to pump NFT value.
A token created or even previously owned by someone of high status will earn a boost to its value. E.g a token owned/created by a well respected brand, a celebrity, etc. Even
the NFT depicting Tim Berners-Lee’s world wide web source code
has gained traction from its creator status.
    Does it have cultural significance?
This painting below is
The Oath of the Horatii
by David; it depicts Roman soldiers pledging their allegiance to the state. During the French Revolution, it held particular significance as a defining image of the uprising and a symbol of patriotism, despite depicting characters from over two thousand years prior.
Oil on canvas painting by the artist, David
Today we don’t have a bloody revolution to fight. But we still have images that capture and probe the sentiment of the age. Beeple certainly tapped into the zeitgeist with “
The First 5000 Days
.” The images of grotesque and comical public figures were particularly well received during peak COVID months. The fact that these images were “of the time,” certainly contributed to the work fetching over $69 million at a Christie’s auction.
    Is it on trend?
Some artwork is in. Some isn’t. As an artist, if you were to mimic the pop art-esque work that Banksy was doing 20 years ago, you may not get the attention you’re after. It’s the same with NFTs. Over recent months, pixel art and 3D are some of the trends we’ve seen fetch decent valuations. So that could mean that in a few months/years such styles will be far too 2022 for most people’s tastes.
    Is it original?
Similar to an NFT’s ability to capitalize on trends is its ability to be original, or in some cases start trends. Monet moved the needle by pioneering Impressionism. And similarly, if you’re creating or buying an NFT that vastly differs from the norm, then it should gain more traction than its comparatively bland, homogenous peers. If in years to come, it’s recognized as one of the founding works in an NFT movement, then its value could be pumped beyond belief.
    Is there quality craftsmanship behind it?
One semi reliable influencer of an artwork’s value is the care and skill required to execute it. People are naturally impressed by things that look like they took effort and expertise. The reception that old master paintings receive is certainly supported by their incredible attention to detail and delicate brush strokes. If an NFT makes people stop and go “wow” then it’s already one step ahead of the competition.
However, as with the regular art world, an NFT can skip the craftsmanship and still be visually appealing. Ultimately it’s all down to taste, a belief that the MFers collection has certainly cashed in on.
stick people sitting in chairs
Source: OpenSea

Whilst being (arguably) charming, pretty much anyone could have drawn these. But that hasn’t put a dampener on their popularity, or their price tag.
    Is it rare?
Whether it’s art, cars, land, or Star Wars figures, the less there is of something, the more it’s usually worth. Whilst the
resale value
of Jack Dorsey’s first tweet
paled in comparison
to its original price, the fact that there was only one version to buy no doubt influenced the price. This collection of
LeBron James moments
, is averaging around $45,000 per NFT at the time of writing this; there are just 59 in the collection.

Other factors that influence NFT value

On the whole, these factors are a little more tangible and less dependent on taste and the whims of an art market. Some of them are factors that you might use to assess a more traditional business or financial product.
    The link to a real world experience
NFTs are now being used as tools for engaging with real world experiences.
Ticketing
has been made easier, namely in an NFT’s ability to repel scalpers. Some restaurants also use NFTs for
reservations
amongst other things. There are even cases of NFTs being tied to ownership of
traditional real estate
!
    What kind of liquidity is there?
As is the case with many a financial asset, a high volume of trading on a secondary market is a good indicator of value and helps to boost the price. Few people want to buy something that’s hard to sell. Strong liquidity means a) people are interested in your NFT of choice and b) it will be easy for you to resell your NFT should you choose to.
Secondary markets provide a venue to trade
ERC
or
BSC
standard NFTs in a frictionless manner, immediately giving access to buyers. Traders prefer to put their money in NFT categories with a high trading volume as more liquidity helps them claim their profits with ease.
    Is there a pre-existing community or any social proof?
If there are hordes of people already interested in an NFT project, then that can mean more people are likely to want it and buy it. It’s also a sign the project is, for want of a better word, quality.
Bored Ape is a great example
. They have built a tight knit community that your Bored Ape NFT will give you access to. Make sure you check to see that the community is engaged though. A subpar NFT project could easily be pumping their social followers with bots.
Even if there isn’t a pre-existing online community, if the creator has a good track record or fan base then this can be just as helpful — in much the same way that the aforementioned “creator status” is. Our NFT collaboration with global architecture studio PLP Architecture is backed by decades of urban design expertise and a solid base of PLP Architecture enthusiasts.
    Could you rent out or license the NFT?
Some people might only have a temporary want for an NFT. This is often the case for those that want one-time access to the perks that an NFT offers. To skip any hassle and avoid the cost of purchasing the NFT, it makes sense to rent it from the owner. A nice tactic for those that wish to attend
Gary Vee’s Flyfish Club
.
Similarly, intellectual property can be licensed out using an NFT mechanism. For example, parts of songs can be owned by NFT owners, allowing them to collect a percentage of the royalties should the song be used in a commercial setting like an advert or a film.
    What utilities does it have?
This is a big one. And something alluded to already. NFT utilities come in a variety of forms. From the community access angle mentioned earlier to other areas like exclusive content and digital assets. For example, the NFT that VerseProp created with PLP Architecture gives owners access to exclusive content created by the PLP founders themselves. Higher tiers will receive a physical model of the NFT and for the rarest tier, a metaverse building designed bespoke by PLP.
Other utilities for NFTs might include access to exclusive events, discounts on future NFTs and other products,
early access to things
, etc. Often these utilities are so strong that the NFT value rises month after month as their owners refuse to sell. This phenomenon can even make some NFTs yield-bearing, allowing owners to receive value in addition to their resale potential, similar to owning stocks that pay dividends.

So why buy NFTs?

Especially when you can just play it safe with the S&P 500? Or any other traditional financial product? Well, besides the potential for
astronomical gains
, investing in NFTs is exciting and different. Pick them well and they open you up to a world of opportunity, new people, and insider perks. They can offer the kind of utility and experience that you and your friends will enjoy talking about over dinner AND they look pretty impressive too.
As mentioned earlier, VerseProp has collaborated with world-renowned architecture and design studio PLP Architecture to launch its own NFT collection (The Skyscraper Collection) and help marry the world of cutting edge architecture and traditional real estate with metaverse design and virtual property. If you would like to know more, click
here
for further information on our NFT mint, and click below to sign up to our email list so you can receive content on all things Web 3 and metaverse real estate.