Non-Fungible Tokens (NFTs) are gaining popularity among crypto enthusiasts. There is also an explosion of new adopters coming into the market daily. If you are coming into the world of NFTs, it is important to understand the value inherent in the concept.
Additionally, you should know how these digital assets create value for investors. This post looks at the different ways that NFTs create value.
What Value is inherent in Non-Fungible Tokens (NFTs)?
Before diving into the value of these digital assets, it is worth giving the concept a background. An NFT is a digital token that represents something special, such as a crypto asset or token. NFTs are unique assets that are easily distinguished from one another.
It could represent anything ranging from collectible digital artworks, limited-edition sneakers, virtual land in online games, and the right of access to a blockchain application. Now, it is crucial to point out that NFTs are not assets in the conventional sense.
Without a doubt, they can increase in price and create value. However, they do not have any intrinsic purpose or utility when created. They are like cryptocurrency. They cannot generate value except they have an audience desiring to interact with them.
The measure of this interaction is derived from metrics and data, including daily active users and raw volume of transactions per second. What does this mean? When there is a demand for interaction with NFT, the value increases and so also does the price.
How NFTs become Valuable to Investors
Non-Fungible Tokens create value by proffering solutions to an existing problem in the gaming industry for many years. That problem is in achieving fairness of game assets. NFT tokens and their platforms offer players the opportunity to collect, buy, sell, and trade digital assets.
The scarcity associated with the creation of NFTs also offers a novel and delightful revenue stream for game developers since they do not have to depend on selling the game. NFTs are intrinsically scarce and are transferrable.
That is where they derive the value from. If NFTs were not transferrable or scarce, then they would be worthless. Let us look at diamonds, for example. Although diamonds have physical properties, their scarcity makes them highly valued.
An NFT is a digital asset and so is the scarcity. Being a virtual asset makes it easy to transfer without modification or loss. The transference of an NFT token involves a network, which can verify the transactions’ validity, and a ledger, which stores transactions’ history.
Based on how blockchain works, non-fungible tokens will always be transferable and unique. That is because blockchains are public ledgers and only one transaction is allowed per time on a blockchain.
What Factors Determines the Value of NFTs?
One of the most important qualities of an NFT is that it cannot be divided. That makes it even more valuable in the crypto world where divisible currencies are quite common. What does this mean? NFTs can represent more abstract digital assets, such as a claim to a share in event tickets or access to services.
Also, NFTs can represent shares for non-digital entities, which makes them more potentially revolutionary and versatile. They have the huge potential to create alternative structures of ownership. Several factors may affect and determine the value of NFTs. Here are some of them.
Some non-fungible tokens are designed as collectibles. This feature of an NFT makes it more valuable because they are rare. For instance, if you buy a digital collectible and store it in your wallet, you will have it for as long as you want to keep it. You can also decide to sell it and gain more value from it.
Scarcity is the high point of NFTs and that is what drives the value. The limited supply of NFTs guarantees the value of each unit. For instance, if there are 100 pairs of shoes available and only fifteen of those are ever released per time, it makes it difficult for anyone else to copy or recreate them. The scarcity also gives a sense of privileged ownership, which comes with a sense of pride.
The scarcity of NFTs is due to controlled circulation. Game developers control the additions of new non-fungible tokens in circulation. When an NFT is perceived to be rare and difficult to get, its value will increase over time.
The value of an NFT is inherent in the token. Although it is not a physical asset, its value is also driven by demand and supply. When the demand is high and the supply is limited the value increases.