What Makes an NFT Valuable?

What Makes an NFT Valuable?

Non-fungible tokens, or NFTs as they’re more commonly referred to, are everywhere.

Your favourite celebrities flaunt them, sports athletes release entire collections of them, the news mentions them, and your friends mint and buy them.

NFTs are here, they’re part of your present world, and a major part of your future. You’ve realised this and you want to get in on the action, but first you need to understand what makes an NFT valuable.

As with everything in the crypto space, you need to DYOR when determining whether that NFT you’ve been eyeing has significant value.

Today we'll look at the four key elements you need to consider and a few honorable mentions. These include:

1. Full Ownership Rights

2. An NFT’s Utility

3. How Rare They Are

4. The Community

5. Honorable Mentions

Full Ownership Rights

The first pillar of NFTs that gives them value is the fact that you can verify their authenticity.

You’ll often hear people who don’t understand NFTs call them jpegs that they can simply make copies of and display.

Sure they can make copies, but they can’t prove ownership of the authentic NFT, as these are unique digital assets with data at their core.

An NFT’s authenticity can be determined by looking at its data, such as its policy ID, and ensuring that it corresponds to the policy shared by the asset’s creator.

You own the full rights to your genuine NFT, just like you would own the full rights to a property you’ve paid and obtained the deed for. A total stranger can come along and take a selfie in front of the property, but that picture doesn’t hold any value. The fact that you hold the verifiable deed does

An NFT’s Utility

For a token to have true value, it has to have utility, meaning you have to be able to use it for something.

Possible kinds of utility include:

  • Art: These digital assets are generally meant to be displayed, just like tangible works of art. They can be showcased in virtual galleries or as PFPs.
  • Gaming: Some NFTs are meant to be used as items for online or virtual games in a metaverse.
  • Music: Other NFT projects are dedicated to providing holders with ownership of a song and cutting out industry middlemen who traditionally take a large chunk of an artist’s earnings.
  • Finance: Certain projects allow members to earn financial gains simply by holding their NFTs.
  • And many more.

Some NFT collections, Like ADA Ninjaz, provide multiple forms of utility for their holders such as:

  • Music
  • Manga series
  • Anime series
  • Voting rights to decide on the story development

How Rare They Are

NFTs rarity is determined by:

  • Attributes they have that are hard to find in an NFT collection.
  • The number of other NFTs with the exact same attributes.

In some cases, you’ll find two or more NFTs in a collection with the same details. These assets still hold some value as they have verifiable policy IDs and hold some form of utility, but their value just isn’t the same.

In many people’s eyes, these similarities immediately reduce a token’s value. That’s why you’ll find these types of assets closer to or at their collection’s floor price when looking to buy an NFT.

A non-fungible token’s rarity is often determined in terms of percentages of how frequently attributes appear.

ADA Ninjaz rarity chart
ADA Ninjaz rarity chart

You’re better off investing in 1 of 1 NFTs from collections with a wide range of attributes. No two NFTs are alike and hence they remain more valuable.

Its Community

One of the simplest and fastest ways to determine if an NFT you’re curious about could have great value is to look at its community.

Ask yourself:

  • Is the community large enough?
  • Do a lot of people (wallets) hold NFTs from a collection?
  • Does the community continuously engage with the project?
  • And in turn, does the project engage regularly with its community?

If others see value in an NFT, then it’s easy for you to see it too.

Significant adoption and a strong community can exponentially increase an NFT’s value.

what makes an NFT valuable
Key Elements of NFT Valuation

Honorable Mentions

We’ve looked at the four pillars of NFT valuation, but it’d be remiss of us not to mention the following elements:

  • An NFT’s Creator(s): Value is intrinsically linked to trust. It’s important to ask yourself if the person or team behind the asset you want is reliable. Can they deliver on the promised utility? Are they even real people? Doxed people and teams provide NFTs with more value.
  • Personal Perception: Ultimately the value lies with you. Do you like what you see? Do you want to own it? Are YOU willing to invest in it?

And there you have it. The components to look at when trying to determine an NFT’s value.