NFT has been around for a long time. They are tokenized versions of real-world objects stored on the blockchain and can be traded like normal cryptocurrency assets.
The only difference is that NFTs are fungible. This means that NFTs can represent different real-world objects. Some of these include pictures, documents, music, or art. As a result, different NFTs have different values. Two NFTs from the same creator do not necessarily need to have the same value.
Another difference is that NFTs have no fixed value. The value of an NFT relies instead on the seller and the bidder. An NFT bought for as little as a dollar can be resold for a million.
This is not true as with regular cryptocurrencies, where one unit of bitcoin will always be equal to another.
The idea of NFTs having no fixed value, however, may pose some problems to investors and enthusiasts. How does one determine how much an NFT is really worth? How do you know if an NFT you intend to buy is worth it? How do you know if you paid too much for that picture of a cat in a shirt?
How to Determine the Value of an NFT
Gone are the days when the only items on sale on the cryptocurrency market were regular cryptocurrencies. Nowadays, anything from regular cryptos to land in a virtualized world to NFTs can be sold on the market.
There is no single rule as to how to determine the real value of an NFT. We have seen NFTs being sold for prices some might call ‘ridiculous’.
The simple answer is that value is relative. Different things have different values for different people. The above may be true, but you do not have to find something valuable to make a profit from it.
There are a few factors outside of relative value that might help you make the right choice when it comes to choosing to buy an NFT or not. Below are some of them.
How rare is the NFT you intend to purchase? It might be useful to remember that a rare commodity is a valuable one. This rule doesn’t apply to NFTs alone. Cars, collectibles, real-life paintings, and even regular money get their value from how hard they are to come by.
So the next time you intend to buy an NFT, it might be better to check how many of those are laying around. If an NFT is one of its kind or from a famous creator, then it is bound to be relatively more valuable.
Some NFTs have use cases that extend to the real world. Some gaming ecosystems offer NFTs as rewards for achievements. Some of these NFTS can be sold in the real world for a profit, while some of them can be used to make more profit.
Without use cases, an NFT may have low demand, as few people would want them. The relationship between demand and price applies in this case, as a rare commodity with high demand would be very valuable indeed.
Sometimes the community involved with NFTs can do a lot to influence their worth. NFTs with larger demands by extension would be very valuable. This is because an active community provides more people who would be willing to buy in case you ever need to sell.
How much can you potentially make from the NFT you intend to purchase? Future valuation is one of the major driving factors for the sales and purchase of NFTs. While it may not be wise to purchase something simply because you ‘hope’ it might be worth more in the future, speculation remains one of the driving factors in investment. Investors do not always ‘know’ that their investment will yield returns. Most simply go with their gut. If your gut tells you an NFT will be worth something in the future, then by all means go ahead and purchase it. But only after rigorous research.
People buy NFTs for several reasons. Some of these reasons can include plans to make a bigger profit or plans to add the NFTs to a collection. The common ground between any reasons people have for buying NFTs is that these digital pieces have some value to their investors.
While there is no surefire way to make sure that what you intend to purchase will yield returns, it is important to consider the factors stated above before making a choice.