Why Are NFTs So Expensive? A Value Proposition

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1 year ago

NFTs became a household name starting early to mid-2021 when a couple sold for expensive prices hence drawing massive public attention. Since then, the NFT market has grown from an obscure market of $15 Billion in trading volume to a massive one averaging $50 Billion by 2022.

NFTs’ biggest value proposition is that they introduce scarcity into the digital art realm, where there was none. Anyone can download a JPEG of a punk but only one person owns a verifiable copy from the original collection, which makes it exceedingly valuable.

NFTs allow their owners to capture value in the virtual digital world, in ways that were not possible before. Real-world asset value has now been demonstrated as NFTs, a feat that opened an entirely new crypto subsector.

Current NFT Use-Cases

Gaming and Music NFTs are on the verge of breaking into their respective markets in big ways, partly because of the value that they introduce and partly because of the fervent followings that each of those industries command. digital cards and other collectors’ items are also other common present-day applications of NFTs.

NFT transactions are completed using ETH, on which most NFT collections are also built. Every NFT transaction appears on an open-source public digital blockchain, a ledger that also displays previous ownership and the price progression for each individual piece.

Smart Contract-NFT Integration

Being that NFTs are built on the ETH blockchain, they can have smart contracts integrated into them, a feature that can have the originator of an NFT earning further returns after the initial sale, as the NFT gets transacted around in the secondary markets. The smart contract can automate all future payments to send back a percentage of the sale price to the originator of a digital piece of art as an NFT.

NFT artists, therefore, enjoy the potential of being way better paid due to these future royalties executed by the smart contracts on-chain.

So Why Are NFTs Expensive?

1.       Scarcity - most collections drop a given number of NFTs, which by definition makes them scarce from the get-go.

2.       Authenticity – the NFT blockchain contains records that authenticate every NFT, which guarantees the originality of every NFT.

3.       Transferability – NFTs exist in a global market on the internet, which means that they can be owned by anyone in the world, geography notwithstanding.

4.       Utility - NFTs have started to be used as collateral for liquidity, as well as media of exchange for large purchases such as cars and houses. It is only a matter of time before the financialization of NFTs takes root, ushering in a whole new era of the NFT market.

5.       Immutability – NFTs are impossible to erase from the ether once their details get on the blockchain, which records all the financial and history of every NFT.

How To Spot A Good NFT Project/Collection

1. Previous Sale Profile

Blockchain data will often indicate a history of bids made, offers accepted, previous transactions, and previous owner records. the higher the profile of such data, the more likely the NFT would fetch a higher price in the future. besides, previously successful NFT creators are also more likely to be successful with future NFT drops.

2. Social Profile of Previous Buyers and Sellers

Famous people and popular personalities automatically boost the profile of any NFT that they purchase, own, and trade. More popular crypto-native communities also tend to boost the NFT profiles for pieces traded amongst them, compared to pieces traded amongst more anonymous traders. Traditional art institutions like Sotheby’s and Christie’s also lend a level of credibility to art pieces that they become involved with, like Beeple’s ‘Everydays’.

3. NFT visual features

Even within collections, the individual features make some NFTs rarer than others. Not all punks smoke, and not all bored apes have shades or a cap. Little details like this within the collection could potentially also bump up the price of some pieces from the same collection more than others.

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