Jaiya Gill

Why are NFTs Valuable?

As NFTs become more popular their demand is increasing and they are becoming more valuable. So what makes them so valuable? 

NFTs can’t be copied or replicated. They verify the authenticity of a non-fungible asset, which makes them unique and one-of-a-kind. To learn more about what NFTs are, check out‍ What's an NFT. This irreplaceability is part of the appeal to NFTs, as value is created when things are scarce. 

Some factors that make an NFT valuable include utility, ownership history, underlying value, perception of the buyer, future value, and liquidity premium.  

Utility value depends on how the NFT can be used. This is based on the access, perks, and opportunities they can provide to token holders. This could include exclusive investment opportunities like airdrops or early access to other NFT collections.

Ownership history value depends on the NFT issuer's identity and is usually created by projects with a strong brand or famous artists. This could add to the holder’s social capital and be seen as part of an exclusive club, similar to members-only clubs in the real world. 

The underlying value is the value behind the creator minting the NFT. This includes NFTs by up-and-coming artists, creators, and celebrities. It can also depend on similar market value, and what other pieces from the same creator are selling for. 

The perception of the buyer is what the NFT is worth to the buyer. Most NFT projects have unique traits with a different rarity. If an NFT has a rare trait it could sell for a price higher than the floor. 

The future value of an NFT is the potential value derived from valuation changes and future cash flow. Valuation is driven by speculation and is sometimes the main driver behind price appreciation. 

Liquidity premium (high liquidity) leads to a higher value of NFT. ERC standard NFTs can be easily traded with anyone who holds ETH, increasing the number of potential buyers. 

Ultimately, NFTs have the potential to exponentially increase in value as they grow in popularity and mainstream adoption. This isn’t limited to digital art, and NFTs can also be music, in-game purchases, domain names (like ENS), and even essays (like Mirror.xyz).