What Makes Non-Fungible Tokens (NFT) Valuable?

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You may have heard much about NFTs thanks to the many iconic internet moments, memes and compelling artwork that are being transformed into high-value digital assets. You wouldn’t believe it! Everyone is talking about these assets, whether they are celebrities or reputable news outlets.

However, this sudden exposure opens the door to many questions. What exactly is an NFT? What is it? What are the steps to buy it? What is the NFT value?

The good news is that the answers are easy to find. These rapidly expanding digital assets can be accessed by a few key points.

Here’s some information to help you understand the process.

What’s an NFT?

NFT is an acronym for non-fungible token and describes a type digital asset that uses blockchain technology. These tokens are uniquely identified through metadata and the corresponding signatures.

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An NFT, as the name implies, is not fungible. This means that it can’t be replaced by or reproduced by any other item of its type. Each NFT is unique in its own way. This uniqueness is what drives the enthusiasm for such blockchain tokens.

This is why, when an NFT has been attributed to a digital asset or property, it creates a token on the blockchain that contains its metadata and associated details. This allows the token of the asset to be represented digitally. The digital form can also be used to prove ownership between the seller and buyer of the property.

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Anyone who creates or purchases a single NFT of an item has full ownership rights to the asset. This ownership claim is valid regardless of whether the asset exists as a digital or tangible property. NFTs have become very popular due to the ease of transferring ownership claims.

What Assets can be turned into an NFT?

You can think of cryptocurrency, such as Bitcoin, as fungible assets. It can be exchanged for another unit. A piece of real property is a great example of something unique when it comes to non-fungible assets.

NFTs can therefore be attributed to a variety of non-fungible or distinct assets, which include but not limited to the following.

  • Digital sketches and oil paintings are examples of art.
  • Online content, such as opinion articles and social media posts.
  • You can find music content like songs, remixes and background scores.
  • Video content, including short-form and longer-form videos.
  • Real estate, including residential and commercial properties.

Practically any unique form of an asset can be converted into an NFT, and its status on the blockchain preserved. An NFT represents the asset and its owner. This gives people flexibility when it comes to what assets they wish to convert to NFTs.

NFTs are not limited to single-owner arrangements

NFTs are often viewed as a one-owner arrangement. Anyone who has an NFT is considered to be the sole owner of the asset. This notion may be true in some cases, but it is not always valid. Many times, it is possible to convert shared property into multiple NFTs.

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These arrangements allow for multiple NFTs to be created for different items or shares of ownership. Apartment buildings can have distinct NFTs for each unit and then sell them to different buyers. This flexibility does not limit to a property’s unique ownership segments. A single piece of jewelry, or a rare collectible, can have multiple NFTs that are attributed to it. Each NFT shares a fraction its ownership and value.

This mechanism transforms NFTs from a one-token arrangement to a multi-token system and allows them great flexibility. This allows NFTs to be used in multiple forms such as shareholder agreements, private equity arrangements and commercial property distribution.

What gives an NFT value?

The next question you might ask about NFTs is their cost, value or price. For those who are new to NFTs and blockchain technologies, this is a common question.

Fair enough, it’s a very natural question because NFTs don’t limit themselves to traditional assets like paintings that have a real-world worth. They can also be used to create digital content, such as social media posts, which are often free of charge.

The type of asset an NFT represents on the blockchain will determine its value. If the asset is tangible, such as residential real property, then its real-world value is shown through the NFT on blockchain. However, if the asset is digital content and doesn’t have a pricing label then its value will be purely speculation. It’s worth depends on market conditions, supply and demand.

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This is a way to think about it as if you are dealing with a particular type of artwork. The market sentiment and the price that potential buyers will pay for each piece determine its value. The seller has the right to set the price for their artwork at any level they choose. It is not clear if the buyer will cover the cost to acquire ownership of the asset.

These two factors, namely the seller’s asking price and the buyer’s willingness to pay or willful costs, determine the speculative value for an NFT. This applies to all assets that do not have a price tag in real life. This includes digital artwork, digital trading cards and social media posts.

Large Prices Can Be Attained for NFTs with Speculative Value

One of the most well-known examples of NFTs of digital content being sold at significant values is a tweet from Jack Dorsey, Twitter CEO in 2006.

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The post is regarded as the first tweet from Dorsey and one of the most famous pieces of web content. This digital item was made into an Ethereum blockchain digital asset, which allowed the tweet’s NFT to be purchased at more than $2.9 million. The bids for this tweet were made at $1 on December 15, 2020.

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The transaction mechanism surrounding Dorsey’s tweet-turned NFT shows that an NFTs price can start at the lowest possible amount. You can expect amazing things to happen if you have interested buyers who are willing to pay more. The bidding can be as high or low as you like, as long as there is a high demand in the market for the asset/NFT.

The sky is the limit for NFTs whose prices are not tied to real-world assets. These NFTs are able to exceed the wildest dreams of original sellers because their value is determined by how much buyers will pay.

Cryptokitties are digital cartoon cats that can be collected on the Ethereum blockchain. This is another example of NFTs’ value going beyond anyone’s imagination. For the excitement they brought, these digital beanie babies were once called “digital baby boomers”. These cats are still a popular form of NFTs, along with other forms of digital art like NBA Top Shot trading card for what it’s value.

Other than the uniqueness of the NFT, other attributes like the signature of the content creator or any other distinctive details can be important.

The importance of the asset associated with an NFT is what drives its value. A seller’s chances of selling their NFT at higher prices is greater if there is more interest in the asset or property. This is especially true for NFTs without a starting value in the real world. This includes, but is not limited to, social media posts, unreleased songs, and digital art.

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The type of asset being sold determines the value

The value of an NFT depends on its real-world market price, speculation, and generally it is dependent on that. This allows for highly fluctuating values in digital content and tangible assets for different types NFTs.

Real-world value is the reference point for tangible assets, while speculative value plays an important role in digital properties. However, this is not always true. Both factors can be important in determining the asset’s value.

An NFT is used to transact real estate properties. The asset’s actual value determines the price, but the actual asset cost is determined by a variety of market factors. It gives you the NFT’s primary value as it is represented on the blockchain.

However, if you deal in an NFT that is based upon digital content or media, the value of your NFT doesn’t begin from the tangible property price. It is important to note that there is no initial value. The NFTs value, therefore, is entirely speculative and dependent on the market sentiment. Many tweet-based NFTs start their bid as low as 1 USD.

These points are important to remember whether you’re buying or selling an NFT. You could end up buying an NFT for too much or selling your NFT for too little. These factors will help you make informed decisions that maximize the value of your NFT.

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Which NFTs can you trade?

NFTs are built on blockchain technology. This makes them extremely secure and guarantees their uniqueness over time. This makes them stand out from other cryptocurrencies that also use blockchain technology. These include, but aren’t limited to, Bitcoin, Ethereum and Litecoin.

These cryptocurrencies are not fungible and cannot be used to replace the NFT. However, cryptocurrencies are still able to be used to make payments for the NFT seller. NFTs that are based on Ethereum can accept Ether payments. This is the default cryptocurrency for the blockchain. You can also make a note of your preference to accept payments via other methods.

It is not easy to create, sell, or buy NFTs. You can choose a platform that specializes in selling or buying a specific type of asset, depending on what you are looking to trade.

A platform like Valuables By Cent is perfect for you if you need to make an NFT using a tweet, or purchase another’s tweet. Rarible, however, is better suited for those who are interested in digital artwork sales.

Similar to the above, when you make an NFT from a high-value asset like real estate, you might need to use specialized platforms to verify its price. OpenSea put up a California house for sale in April 2021. The NFT was also available along with artwork.

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You can search for a platform that suits your needs and buy NFTs made by others. It is possible that there will be new platforms that cater to different types of content, assets, and properties as the market has just begun to grow. This would increase the accessibility and convenience for both buyers and sellers of NFT.

Where are the NFT Values Going?

We can expect transactions to be completed for regular amounts and exceptional value as more assets are converted into NFTs or transacted through the blockchain. This applies to collectibles purchased for pleasure and not for functional purposes, as well real estate units and equity offerings that are tied for real-world or commercial use.

Some digital artwork might be sold at regular prices, while others may fetch increasing amounts. Similar to the above, real estate properties might be successful due to large transaction volumes, but the price of real-life paintings could exceed the imagination of their owners. It all depends on what type of asset is being sold on the Blockchain and how much demand it has.

NFTs will be a major player in both cases, particularly for those who view online transactions or digital collectibles as the next big thing. Blockchain technology could be the next big thing in order to survive and expand into mainstream media by tapping into the market for rare and valuable artworks and other real-world property.