Most people will view NFTs as part of the “greater fool theory” where they believe that demand is the main reason of the value while disregarding its other value creation functions. I agree, demand has significant influence, whatever the crowd goes to buy everyone else follows but it is not all the value driver.
Unlike random files, an NFT is a programmed file with metadata (unique identifier) that is kept in its holder’s wallet/account through the blockchain technology. This NFT information is public to everyone which means everyone can identify the current owner of the NFT along with more information.
Ok NFT can be owned unlike a file, why is it valuable?
The ability to identify the ownership of an NFT basically opens the door for creators like artists, brands, gaming and entertainment companies to use this technology for, building communities, adding value to the holders, and even operational efficiencies.
After few months of being involved in buying NFTs (my NFT Twitter :D), the more I experience it the more I believe in this technology and its value. I have put together this post for you to show why NFTs can be valuable.
The first thought comes in mind is when buying an NFT is that its easily copied or taken screenshot of. But will this make any difference?
Let us first look at the main uses of NFT, as web 3.0 emerge websites will be able to identify what is real and what is fake through your wallet. So whoever have a fake NFT or a stolen picture will never be able to benefit from the utilities/returns associated with the original NFT project. It is like saying I will print out a fake Mona Lisa and sell it for millions. It just wont work…
Just remember whatever NFT you buy, you own it. And what you own will stay with you even if the project collapsed (unless you get hacked) but you will always have it.
Convenient to Store, Showcase and Trade
We are living in a digital world where everyone is glued to their devices and are spending majority of their time on social media. Technically, if you think about it, people spend more time with their friends online than actually meeting them in-person.
With NFTs being a digital asset that you can easily store, showcase and even trade with your friends, it will eventually be more valuable because buying a digital comic NFT of Spiderman for example will be seen by more people (more flex) than having it sitting inside your cupboard that only your close friends will see.
Liquidity Premium (Easy to Buy/Sell)
When it comes buying and selling collectibles, the learning curve can be steep. For example, in case of trading cards like Pokémon the buyer will have to go through multiple steps to confirm that the card is original, check its conditions (which some sellers can mislead even with pictures), check multiple website prices and take on the shipping risk.
In contrast when buying an NFT, all the user has to do is to review the metadata check the creator details, item edition and he is ready to buy it instantly.
The convenience and trust in buying and selling NFTs allows more trading and more money getting into the circulation which increases its value.
Built Around Communities
Once you dig deeper into NFTs you will realise that most of the successful projects are all built around communities. They are interacting with each other on social media like Twitter and Discord sharing their interests and supporting each other.
The strong connection and engagement in communities (sometimes supported by influencers) accelerate the value of the NFT by producing the sense of belonging to the holders and allows them to be connected in a deep level because they all want the value of the NFT to go up.
Ownership History Record
You know when in football/soccer the lucky fan who could get the T-Shirt of a famous player like Ronaldo or Messi, that T-shirt would worth much, and if it was signed this would mean a lot. But if you want to sell this T-shirt in reality, its hard because there will be lack of evidence it was the real one (the seller could be cheating).
When it comes to NFTs, because the transactions are recorded on a public ledger, we can identify all the transactions that happened to this NFT and owning an NFT that was owned previously by a famous person would definitely increase its value.
Creator, Rarity, and Properties
When buying branded accessories, the buyer is always after a well-known brand and its uniqueness. When we say watches for example most of the time Rolex will comes to mind as the brand to go to.
The same applies to NFTs, metadata in the NFT allows the buyer to know who is the creator of the digital asset, how they made it, and what makes it unique. In fact, because everything is recorded and numbers are limited and the properties of the items are specified it would clearly add value to the buyer to hold the item.
For example, Disney released its Disney+ series of “Golden Moments”. Which had the first appearance of multiple shows like the Simpsons, Frozen, Wall-e, Star Wars, and Mickey Mouse.
These items are expected to hold their value because they are created by Disney as a brand and they have the property of being the first appearance which can never be replicated.
Utility (Endless Potential)
I kept the best for last because here is where I believe NFTs potential is limitless. The utility of the NFTs come from the idea that the creator of the NFT decides to give practical value to the holders whether it is through rewards, accessibility, entertainment, record keeping and much more. Let us look at examples:
Imagine if you have the best sword in a game and because of the technology, it is not only used on one game only, but it can be used on multiple other games that accept items from this publisher. This means the effort someone does in one video game could yield value in multiple video games that accepts this NFT.
Now the players will be incentivised to buy an NFT related to a game because they will be expecting to use it for multiple games in the future. Who would not want to use his Fortnite skin on another video game?
That is not the case with gaming only, imagine going in a store where it has a digital screen that can only work by connecting it with a certain NFT. And this NFT gives you exclusive offers to buy from the store.
Creators can link their NFTs to physical items providing access and offers for their holders. For example, imagine (just imagine not real) a McDonalds cheeseburger NFT can provide you a lifetime 10% discount on their cheeseburger. This is going to have almost unlimited value!
In social media users share their degrees, where they travelled and their work experiences. Unfortunately, some tend to lie about their information. For example, many provide fake information about their current job position whether it is their title or even the company they work in, and the only way to know if its real is when the recruiter ask for references.
But with NFTs, employers can be the creator of the job position the users share that provides authenticity and trust. With such verification model everyone can identify and analyse accurate information from the holders account or the official website of the employer.
This does not just apply for jobs, but it can apply to any identification related to the user. His landownership, car, I owe you contract with a friend or anything.
NFT can be used to allow transparency and reduce the possibility of fraud.
Bonus: Why creators put Much Effort?
I am sure you noticed above that there were much benefits for the buyers of the NFTs. The creators on the other hand also achieve monetary and non-monetary returns.
NFT creators make money from initially selling the NFTs to the holders on the marketplace and they also make recurring income as royalties from the sales transactions between users (e.g. Opensea is up to 10%). Not only that, but they also basically gain a strong that is willing to support the NFT project which is free marketing.
NFT is becoming a valuable asset class due to the win-win structure it positioned itself in for the buyers and creators.
This technology is most likely going to be there in the future I can’t imagine that there will be any online digital ownership technology that will be replacing it “yet”. However, it is not clear which blockchain is going to be the winner and which NFT projects/creators that will survive in the long-term.
- Cryptocurrency for Dummies – Everything I learned About it
- Are NFTs a Pyramid Scheme? 4 Reasons Why it Feels Like it
- Is NFT a Cryptocurrency? NFTs vs. Cryptocurrencies Explained
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