With the crypto space exploding as never before, more companies, creators, and businesses are tapping their potential to seek opportunities. Particularly, the arena of online gaming is coming up with exuberant ideas. Developers are looking for newer ways to innovate, trade, and do more with crypto.
The emergence of gaming tokens is the most prominent occurrence in the crypto industry. Furthermore, the imminent Metaverse and Web3 are waiting to unlock the bountiful opportunities for creators and investors.
This article delves into what non-fungible tokens (NFTs) are, what makes an NFT valuable, why are some NFTs more valuable than others, and more.
Let’s get started!
Non-fungible tokens (NFTs) – Explained
Non-fungible tokens or NFTs have carved a niche for themselves. So, what are NFTs? Well, in the crypto space, there are two classes of tokens – fungible and non-fungible. Fungible as in anything that can be replaced or exchanged. For example, you can give 1 BTC in exchange for another 1 BTC. Likewise, you can trade 25 ETH for another 25 ETH.
So, these are interchangeable, meaning fungible. Now, let’s take another example. Think of a Picasso painting or a Van Gogh painting. They are unique. Someone may create a million copies of Picasso’s painting, but still the original is only one. That makes it unique! Such items which cannot be replaced with something are called non-fungible.
In the crypto domain, non-fungible tokens are digital assets stored on the blockchain. It could be anything – audio, video, music, images, collectibles, art – literally anything but it is stored on the blockchain as a unique asset. Someone may create a thousand copies of the digital file, however, when it is stored on a blockchain, it receives a unique identifier and metadata that contains the information on the owner or creator. It is the concept of ownership and uniqueness that makes NFTs so valuable.
Another property that enhances the worth of NFTs is their scarcity. In economics, it is a rule of thumb that as a commodity becomes scarce, more people get eager to purchase it, thereby increasing its demand and price as well. Some NFTs are rare in some ways which makes them invaluable to their collectors and thus they sell out for millions of dollars or even more.
What makes an NFT valuable?
Non-fungible tokens or NFTs offer uniqueness and grant ownership rights to the creator. It is the fact that they reside on a blockchain and are capable of validating the authenticity of the digital asset that makes them so valuable. As mentioned in the earlier example, while someone could create innumerable copies of Van Gogh’s painting, the original is unique and remains irreplaceable. The same logic applies here and that’s what makes an NFT valuable.
Why are some NFTs valuable and others aren’t?
The fever around NFTs is only on the rise. As more people are turning into NFT artists and collectors, the marketplaces are also booming with NFTs. This dilutes the concept of scarcity which is what makes an NFT valuable. When there are few NFTs of some rare attributes, created by celebrities or talented artists, their price increases tremendously.
The artists often keep talking about their upcoming creations on social media channels, arousing interest and curiosity among their fans and collectors. This in turn causes the price of the NFT to rise which is called Pump and Dump. This refers to the practice of creating speculative purchasing hype around the NFTs in an attempt to inflate their price.
On the flip side, NFTs that are not backed by celebrities or great personalities or which don’t go through the Pump and Dump movement usually don’t tend to achieve monetary success.
What makes NFTs popular?
It is a general belief that a strong community is an indicator of a genuine and good project. The most engaged projects are likely to succeed better. NFTs don’t just refer to the ownership of a piece of art or collectible. They belong to the community which creates a unique culture that in turn generates a following.
How to pick the NFTs you must invest in?
The secret ingredient in the success recipe of most investors is thorough research. Regardless of whether they invest in conventional assets like shares or in modern investments like cryptocurrency, you must track the origin of the investment, conduct dedicated research on its background, and more. Some of the factors you should take into consideration before selecting the NFT are:
The creators are the most crucial elements in the success of NFT as an investment. If creators are well-known, then the NFT will most likely be a success. However, for the lesser-known or those creators who are relatively new to the industry, you must check their other work and background. Ask questions like:
- What other projects have they worked on?
- Did those creations or projects go well?
- What is the opinion of other people in the NFT industry on the work of these creators?
Even before you buy the NFT, you need to check the product well. This is achieved by going through the metadata which includes asset information like names, images, videos, etc. You can check the metadata directly on the smart contract or by extracting it from the NFT marketplace where it’s listed.
For a project or an initiative to succeed, ample support from the community is vital. To know more about your project, particularly if the creators are not very famous, check out the conversations and discussions related to the project on social media channels. Try understanding the attitude and perspective of the community members towards the project. As a matter of fact, you must collaborate with the community and if possible with the creators to get a clear picture, if you are interested in buying the NFT.
Note that continuous spam messages by bots indicate a spurious nature of the project. It’s a good idea to look for projects with proactive community managers.
If you are looking for NFT projects or startups, you must study their whitepapers and other documents very carefully. Projects would try their best to attract more investors but you must do your homework before embarking on the journey. Ask questions like:
- What are the goals of the founders?
- What is the meaning of the brand?
- Do they plan to have limited tokens whose value will increase with time or is their supply unlimited?
Though this is not an aspect that is covered under research, it is equally important. You must invest only as much as you can afford to lose. Don’t be emotional or greedy while selecting the NFT projects. Do your thorough research and make informed decisions.
The NFT industry is on an astronomic rise and shows no signs of slowing down. From art to music and real estate to collectibles, everything has been covered under this space. However, to succeed in this domain, investors must understand what makes an NFT valuable and which are the best ones to invest in.