How Do NFTs Gain Value?

In March 2021, digital artist Beeple sold an NFT for $69 million. These left many people, even those in the art world, flabbergasted as to how a digital image that anyone could copy and paste was worth that much. If you are wondering how do NFTs gain value, read on to find out.

Understanding How NFTs Works

To understand why NFTs even have value, you need to understand how they work. In essence, an NFT is a non-fungible token, which means it is unique.

For instance, while you can take photos of the Mona Lisa and share them online, there will only ever be one original Mona Lisa. NFTs obey the same principle. Their uniqueness means that they can be bought and sold, just like any other property.

With traditional digital files, they can be easily copied endlessly. However, an NFT is tokenized, which means that there is a unique digital certificate of ownership, which cannot be replicated.

The record of who owns this certificate is stored on a public ledger that is cryptographically secured. NFTs also often come with a smart contract, which automatically gives an artist a cut of any future sales for the rest of their life.

How NFTs Gain Value

Many factors cause an NFT to gain value. However, the two most important factors are rarity and utility.  

Rarity

Rarity is how rare a particular NFT is compared to all other NFTs in the world. A good example of this is the “Everydays – The first 5,000 days” NFT by Beeple, which sold for $69.3 million.

The art was so unique, and nothing like it had ever been attempted before. Additionally, Beeple himself had already made a name for himself as a digital artist.

Utility

Their utility is another important determinant of how NFTs gain value. One good example of this is the NFTs in the Axie Infinity project. These NFTs can be used to breed other NFTs, which gives them their value since they have utility. Another good example of this is the VeeFriends NFTs.

These NFTs are both unique and have utility. Holders of the NFTs gain access to exclusive events hosted by Gary Vee, which increases the value of the NFTs.

How Do NFTs Gain Value?

NFTs can potentially increase in value based on scarcity and speculation. AS such, if a rare NFT is put on the market, its value is likely to rise significantly as speculators bid on it. For instance, when the CryptoPunks NFT collection was launched in 2017, the value of each NFT was as low as $1.

However, the collection’s value has since grown, mainly driven by speculators. Many of these NFTs are currently worth hundreds of thousands of dollars.

How to Invest in an NFT

While some of the NFTs are worth millions of dollars, there are still some cheap NFTs in which you can even with just a few dollars. The first step to investing in NFTs is to create an account on one of the leading NFT platforms such as OpenSea.

Search for an NFT that is within your price point and begin trading in NFTs.