NFTs are non-fungible tokens. In economic terms, a non-fungible asset is something of value that cannot be interchanged. NFTs are becoming valuable and the demand is steadily increasing. Let’s find out why they are so valuable.
NFTs are valuable because they verify the authenticity of a non-fungible asset. This makes these assets unique and one of a kind. Picasso’s paintings are non-fungible. While anyone can make copies of his paintings, the original painting remains irreplaceable and unique. NFTs make digital content irreplaceable, hence valuable.
To understand the value of NFTs further it is necessary to understand ‘fungibility’ better.
‘Fungible’ is the term used when you are able to exchange an asset that you own with another asset of equal value. Currency is an example of a fungible asset. For example, imagine you have $20 and you get two 10 dollar bills in exchange for the $20. You still have the same value but you have exchanged your asset and received a new asset.
Bitcoin is another example of a fungible asset. You can exchange Bitcoins for getting valuable goods are products and services. The difference between NFTs and Bitcoin is the non-fungibility of the NFT. NFTs are unique and non-fungible.
Ok, let’s go back to the example of the artwork by Picasso. Since Picassos’s artwork is unique and irreplaceable its value depends on multiple factors. Usually, the value for non-fungible assets will depend on the utility, ownership history, future value, and liquidity premium.
A painting or artwork is in fact, just the arrangement of colors in a specific manner. But the feelings it evokes and the impact it creates are central to the valuation of that piece of art. Recently a digital-only artwork by Beeple was sold for $69 million. What does the buyer get? Nothing tangible — only a virtual picture. But there was a value to these pixels as much as $69 million.
Image: Medium.com crypto trade & exchange
What makes NFT Art Valuable?
There are a few different key aspects when it comes to determining what makes an NFT valuable. So, how do you know if a non-fungible token holds value?
Here are some factors to consider when determining the value of a non-fungible token (NFT):
Underlying value (the value behind the creator.)
Potential value (future value, up and coming artists and creators, celebrities.)
Perception of the buyer (what is the NFT worth to you?)
Similar market value (what are other pieces from the same creator selling for?)
So continuing with the contrast with cryptocurrencies which are fungible – Fungible tokens are divisible into smaller units. Some examples are Bitcoin and Ethereum. For example, you can split up Bitcoins into Satoshis and Ethereum can be broken down into base units known as Wei.
NFTs cannot be broken down like Bitcoins into smaller units. There is a unique piece of data that is usually rare and limited in number. Couldn’t any artwork be copied and shared endlessly? Of course, it can be, but the aspect of NFT is that it can be made into a token which means that it has a digital certificate of ownership that can be bought and sold along with the artwork.
What this does is create the authenticity and credibility of the source of that work or the type of NFT that you are buying. The authentic Picasso will be valuable even if multiple fake copies of it are made and sold and hung in houses or offices. The original will still have value if its authenticity can be proven.
Source: Cyber Scrilla