There are two sorts of tokens in the cryptocurrency industry: fungible and non-fungible. Fungible tokens are similar to money. Regardless of the serial number on the dollar bill, one dollar is consistently one dollar. Any other one-dollar note can be used to replace a one-dollar note. Non-fungible tokens (NFT), on the contrary, are one-of-a-kind and cannot be substituted by any other token. NFTs may be used to represent one-of-a-kind digital assets, such as CryptoKitties and Decentraland’s virtual buildings. NFTs are appealing because their uniqueness and ownership can be validated, used across multiple organizations’ applications, and exchanged quickly on secondary markets. These characteristics open the door to new business models and application cases.
The following general formula determines the value of NFT:
Utility + Ownership History + Future Value + Liquidity Premium = NFT Value
How do they create value?
Each of these four components contributes to the NFT’s value differently. An NFT developer may utilize this paradigm to think about ways to increase the value of NFTs to attract users and investors, as well as investors. To summarise, NFTs provide a flood of new possibilities for wealth creation for both developers and asset owners.
Value
The value of the NFT’s utility is determined by how it may be used. Game assets and tickets are two primary categories with significant utility value. A rare and potent Crypto Space Commander battleship, for example, was bought for $45,250 in 2019, and the price of an NFT ticket is equal to the cost of an event ticket. The possibility to employ the NFT in a different application is another aspect of usefulness. Consider how much more valuable a battleship would be if it could be used in another game. However, achieving compatibility is quite tricky. 90% of NFT game players only play one game at a time. This is because developers must first create a vast gaming environment with appealing use cases. Both Dapper Labs and Engin are working on this approach. Although there are many unknowns and a significant amount of time and work required, the industry as a whole is excited.
Possession background
The value of an NFT is determined by the identity of the issuer and prior owners. Famous artists or firms with a strong brand typically make or issue NFTs with a high ownership history value. There are two ways to increase the value of your property.
The first is to issue NFT tokens in collaboration with firms or individuals who have a strong brand. This automatically attracts users and traffic to the ecosystem. The first approved NFT representing a Formula 1 vehicle, for example, was sold for $113,124.
The second option is to resell NFTs that influential persons previously held. It’s now difficult to determine the prior owners, even though this is vital on-data information. To boost the value of NFTs, marketplaces and sellers can provide an easy-to-use tracking interface. OpenSea, for example, may highlight the addresses of investors who earn the most significant money trading NFTs and identify the other NFTs they hold. The future value of an NFT is calculated using both valuation changes and future cash flow. Speculation drives valuation and is sometimes the primary driver of price appreciation.
In December 2017, for example, the price of CryptoKitty #18 surged from 9ETH to 253ETH in only three days. Some may claim that price movement based on valuation is harmful to NFTs. However, speculating is a natural aspect of human nature and an essential part of the existing financial system. With the right mix, developers can increase NFT value and attract new customers. Valuation rises due to a lack of supply and speculation. NFT products’ price-performance charts may be used to encourage speculation, emphasizing NFTs that have risen in value. StockX, a sneaker marketplace, is valued at $1 billion in part because it encourages consumers to bet on the price of sneakers, creating an unusual sneaker market.
What’s keeping people from plagiarizing digital art?
Nothing. Millions of people have seen Beeple’s artwork, which sold for $69 million, and it has been duplicated and shared several times. In many circumstances, the artist keeps copyright ownership of their work, allowing them to continue producing and selling copies. However, the purchaser of the NFT receives a “token” proving ownership of the “original” work. It’s been compared to purchasing a signed print by others.