Valuation of NFTs
NFTs are soaring in popularity. Between the ape pictures and their slight differences, it can seem outlandish that the prices can be thousands of dollars or higher. What makes some NFTs more valuable than others? To answer this question there are three key factors we need to take into account; intrinsic value, scarcity, and popularity or following.
Intrinsic value can be defined as the measure of what an asset is worth. For NFTs, this means the appreciating of value based on being unique, significant, or irreplaceable. For example, if you have an NFT that marks a significant time in history, it is significant and irreplaceable making its intrinsic value high. On the other side of this, if there is a picture of someone’s lunch there will be less intrinsic value.
What makes NFTs scarce? People can take a picture or download an NFT, print it out, and hang it on their wall. This does not affect the scarcity of that NFT because it is not the original and does not have the code attached to it. Scarcity is directly related to most NFTs being one of a kind. Think of this as art. If a famous artist only created one painting it would be scarce. Compared to if a painter created many prints of the same thing.
The popularity/following of NFTs act much like fashion fads and brand recognition. A T-shirt sold by Nike will have less value than the same brand sold by Target. Also, last year's fashions may not sell for as high of a price this ear as styles are changing. The same is for NFTs. The popularity and following a style or greater has, the higher the value of their NFTs. Another example is, when NFTs started there was little public interest so the values of NFTs were much lower. As they became a public want, the value skyrocketed.
For more information on NFTs check out equa.global.