The NFT sector is moving away from hype and is becoming an increasingly popular topic to users. Many people needed clarification about the utility of NFTs when they became mainstream in 2021. But, NFTs can be significant investments, especially if you understand how they work and how they can gain value.
That’s particularly important as users first consider how they can profit from NFTs. And one of the most popular ways to profit from NFTs is to sell them on NFT-dedicated marketplaces.
Today, there are a variety of marketplaces and platforms where you can create, list, sell, and exchange NFTs, for example, OpenSea. But in any case, they are anything but the same.
Why does the value of an NFT vary?
NFTs’value is primarily given by the demand and secondarily generated by various factors, such as the blockchain they’re minted or their utility.
What is an NFT in a few words?
Non-Fungible Tokens (NFTs) are blockchain-held tokens representing a unique physical or digital asset. NFTs are secured on cryptocurrency blockchains and traded using tokens like Ethereum, Solana, Wax, and many others.
In 2021, NFTs became highly traded and finally gained attention outside a small community. However, they have been there for much longer. The first “NFT” was created in 2014 by Kevin McCoy, who issued a token on the Namecoin network that linked to animation and referred to it as “monetized graphics.”
Obviously, his term “monetized graphics” did not catch on, and non-fungible tokens, or NFTs, came to be.
In a nutshell, NFTs are unique cryptographic tokens that exist on the blockchain. An essential feature that has attracted many users is that they cannot be replicated.
NFTs can represent real-world items like art, physical assets, or real estate. Ownership of an asset is secured by the Ethereum blockchain, meaning that no one can modify the record of ownership or copy/paste a new NFT into existence.
How does an NFT gain value?
Now that we have understood and clarified what an NFT is, let’s shed light on the most important part: how does an NFT gain value?
Sometimes, an NFT price can fluctuate overnight. But it’s hard to determine if it is solely thanks to more people purchasing or other characteristics directly influencing it.
But it is known that the price of an NFT can be influenced by several factors, including liquidity, ownership history, rarity, and utility.
The floor price of a nonfungible token is initially decided by the NFT project’s founder or developer during the minting process. After minting, holders who list their assets on a secondary market determine the floor price.
Of course, the NFTs can be easily minted on NFT marketplaces, such as OpenSea, or Mintable; but at first, the price for minting an NFT may range from $1 to $500 and sometimes go even higher.
From such NFT marketplaces, you can simply buy assets by using online crypto wallets such as Metamask or Trust Wallet.
However, as an NFT project grows in popularity, the floor price increases.
Going further than the minting price, another side of the problem is covered by the fact that some NFTs are representations of real-world objects. That, in turn, may increase their tangible value, which is then boosted by the immutability of ownership. This implies that an NFT can be used to establish ownership rights for anything.
Yet, NFTs can also gain value through community, hype, scarcity, and, sometimes, fraud. And despite the ups and downs of the crypto market, NFTs are still a hot commodity.
How to know if an NFT is overpriced?
The value of NFTs is determined simply by what the market will bear. If you buy one as an investment, you’re essentially betting that someone will eventually be willing to buy it from you for more than what you paid.
Many people enjoy investing in musicians or artists by purchasing NFTs because they appreciate collecting original art or cool digital collectibles. Gamers buy NFTs for various reasons, such as to improve gaming or to obtain expensive in-game items.
Because NFTs are unique tokens that can only be owned by one entity, it gives them the “power” to have a higher value. Unfortunately, they are typically overpriced due to their scarcity and clever supply-demand imbalance.
Also, the costs to develop an NFT can vary greatly depending on the type of market. In that regard, you can use special crypto calculator tools to understand better the value of crypto assets used for NFTs.