Apart from being digital collectibles that guarantee ownership rights, NFTs can also be created and issued on the blockchain by anybody. Innovators are creating new use cases and applications for NFTs ranging from play-to-earn, loot models, and avatars.
New use cases are coming up and cutting across different industries. As an NFT collector, the first thing to understand is that NFTs are not the same.
Therefore, it is crucial to evaluate the value of the NFT projects you want to invest in before putting in your money. So, how do you evaluate the NFT project? This post provides the answers you need.
5 Key Factors to Evaluate NFTs Value
For a start, many factors influence the value of an NFT. To help you make informed decisions regarding the value and lifespan of your preferred NFT for your collection, here are five key factors to consider.
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The Utility of the NFT
This comes from the real application of the NFT. It cuts across the physical and digital world and as the gap between both worlds shortens, a digital asset should have the capacity to convert its value from the digital world to the real world.
The utility is at the core of any digital asset and without it, a digital asset is devoid of any use cases, which ultimately leads to low demand. A non-fungible token with durable and strong utility has upfront value, which can even increase with time.
Today, gaming NFTs hold the highest utility, and the value continues to grow in the gaming ecosystem with the new formation of communities and players. Another important factor that adds to the value of an NFT is the strength of the collection.
It is crucial to note that it is not every NFT that forms a part of a bigger collection. NFTs within a larger collection of NFTs can influence one another and thereby affect each others’ value.
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The Rarity of the NFT
Also known as the uniqueness, the rarity of an NFT is its integral quality. Some NFTs represent real-world assets. First, all NFTs are unique in their rights, and you can verify their authenticity and ownership.
It’s impossible to alter them, though ownership can change through sales, trading, or gifting. In-demand NFTs attract investors. Therefore, they sell at higher prices, which increases their value. The law of scarcity and supply and demand dictate the rarity of NFTs.
Understanding how rare an NFT is before investing in it is critical if you want something valuable at the end of the day. You can find tools online that will help you estimate the rarity of an NFT, considering different factors such as the number of owners, trading volume, and popularity.
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The Provenance of the NFT Projects
This has to do with the origin of the NFT. It is crucial to learn about the creator of an NFT before investing in it. You should research the origin of the creator as well as the back story of the digital asset.
Knowing the prominence of the creator in the market is also an important step to take. Interestingly, it is pretty simple to research a creator. You can browse through the community followings and creative pages to measure the growth prospects of the creator. Prominent creators always have a higher chance of creating valuable NFTs.
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The Size of the Community
The community is a critical factor when evaluating the value of an NFT. That is because it influences the volume of potential buyers and users the NFT has on the market. A larger community means the project will attract more word-of-mouth and generate buzz.
An NFT with high awareness will have more value because more buyers are interested in it. You can check the size of an NFT community by checking its subscriber count and official social network pages.
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The Prospects of the NFT Projects
The prospect of an NFT refers to its growth potential based on its community size and rarity. You can estimate the growth potential by considering the supply and demand of the digital asset.
Non-fungible tokens with high community support often become highly valuable. That is because the project will continue to gain traction and maintain momentum with time. This will continue to increase demand and make the digital asset rarer and more valuable.
Conclusion
It is no longer news that non-fungible tokens (NFTs) are gaining popularity as new use-cases and applications are launched in different industries. NFTs are digital assets. They are unique and immutable, and easy to establish proof of ownership. This post provides five factors to consider when evaluating the potential of NFT projects.
