Non-Fungible Tokens are the talk of the town concept in today’s crypto realm. Its ability to provide immutable ownership rights to the holders has made people in the crypto sphere celebrate NFTs. But unlike the metrics used in traditional investments or conventional standards of private entities, these assets cannot be assessed for their value. But, at the same time, we do not have any particular SOPs to assess the value of NFTs. So how would one be able to get the value? Simple, you would know that very quickly!
Parameters that Influence the Value of NFTs
Though NFTs are driving the buyers and sellers in the market crazy, the actual truth is that the majority of the prices of NFTs are derived from guesswork. This is because no one is confident enough to quote it for a proper reason, and due to the auction mechanism, the price surges over expectations.
However, it is mandatory to make these guesses fair enough instead of making them overpriced. So the following are the imperative parameters that help you assess the value of your NFTs.
The rarity of NFTs
We know that scarcity is one of the primary characteristics of NFTs. So if you try to assess the value of some NFTs in a collection with a total of 10,000 NFTs, then rarity rank is the first thing to check. Depending on the traits of the NFT (background, accessories, headwear, eyewear, etc.), the rarity rank will be provided. The rarer the NFT, the higher its value will be.
In the other case, if you purchase it directly from a creator/artist, it depends on how renowned/rare the artist is and what the asset is.
Utility
Even though NFT is considered an asset, people expect a return favor for purchasing this asset. People are not ready to spend thousands and thousands of dollars on an NFT to just hold it in their wallet for years and years to see the surge in the price.
Instead, the projects have started providing utilities to the holders. These are real-time benefits/perks offered for owning the NFTs. The higher the perks, the higher the value of NFTs.
Tangibility
NFTs have the potential to represent both tangible and intangible assets. If they represent any real-world objects, then it adds an element of tangibility. Imagine two NFTs, one representing a ticket (which will expire), while the other represents a real estate property or land. The latter has more real-time tangible value than the former, as real estate can reap more value over time.
Interoperability
If the NFT has a cross-chain function or an interoperable nature, then the value of that particular NFT is high comparatively. We know that NFTs are unique, but NFTs with an interoperable nature have the ability to be supported on more than two platforms. Consider a weapon in a game as an NFT. If it is interoperable, it will be supported across different gaming platforms and accrue a higher value.
Social Proof
Reaching out to the social handles of a project/artist will help you know the level of community support for them. You can roughly analyze the demand for the NFTs of the project/artist, and this will assist you in gauging the acceptability. If the numbers are high, then the value of the NFTs may also be high, and demand would be high as well.
Ownership History
The ownership of an NFT plays a crucial role in determining its value. The identity of the creators and owners of an NFT will help you know the value of NFTs. The higher the number of owners, the higher the demand for the NFTs. The majority of the marketplaces will highlight the addresses of previous owners who made good profits from the NFTs and show valuable price insights overall.
Liquidity
The liquidity factor has a good influence on deciding the value of the NFTs. The higher the liquidity, the higher will be the value of NFTs. The owner can easily liquidate the NFTs to fiat when required to meet their financial challenges. To be precise, this factor has a direct relationship with the demand of the people who wish to buy it.
FAQs on How to Assess the Value of NFTs?
Q. How do I know if my NFT is worth buying?
Assess the value of NFT using the above factors. If it is a piece from a promising project (with a clear roadmap and plans) or from a reputed creator (in any domain), half of your problem will be solved. They possess some real value, and they are worth buying. If not, do your own research before procuring them.
Q. What brings value to NFTs?
The first thing that brings value to your NFTs is their potential to represent you as the real owner of that particular asset. It stores the ownership right in the blockchain and makes it immutable. So, you are the proud owner of an asset in this world.
Q. How to find the authenticity of an NFT when I buy an NFT in a secondary market?
This is a good question because procuring NFTs in a secondary trade has higher risks, and it is hard to believe an individual is a rightful owner without proper research. In this case, use a blockchain explorer of the network used in the project. For example, Ethscan, Polyscan, Bscscan, etc. It clearly shows you the past transactions of that particular NFT. Tracing back these addresses to the first owner (creator) will help you know if an individual is a legitimate owner or not.
Wrapping Up
It is imperative to know the value of any asset you hold. It is this value that determines whether an NFT is suitable for both long-term and short-term profits. When you decide to buy an NFT, it is mandatory for you to spend time on quality research to assess its value and to know if the project/individual is the ideal owner as well. This gives you more clarity and confidence to make your first investment in NFTs. Cheers to your upcoming journeys in the NFT realm!
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