Why Are NFTs Valuable? 13 Surprising Reasons
The NFT market is booming. But is it all hype? Why are NFTs valuable, and can we expect prices to continue increasing?
The stats and stories about non-fungible tokens (NFTS) sales in 2021 are eye-watering.
Digital artist Beeple aka Mike Winkelmann, made headlines when his NFT project Everdays: The First 5000 Days sold for an eye-watering $69 million via Christie’s Auction House. Twitter founder Jack Dorsey promoted an NFT of his first tweet, “just setting up my twttr” and attracted bids up to $2.5 million.
Meanwhile, digital art Chrome Squiggle #7583 sold for 922 Ether in September 2021. This is equal to roughly $2.8 million. And that was for a project that cost approximately 0.02 ETH (less than $1000) to mint over a year ago.
Former Christie’s auctioneer Charles Allsopp told the BBC:
“The idea of buying something which isn’t there is just strange. People who invest in it are slight mugs, but I hope they don’t lose their money.”
So, is it all hype? Why exactly are NFTs so valuable, and can we expect prices to continue increasing?
1. We’re Early
Global sales of arts and antiquities reached $50.1 billion during 2020, despite a global pandemic.
In August 2021, NFT marketplace Opensea reported $95 million in cryptocurrency transaction volume over two days. That exceeded its total for all of 2020.
Forward-looking Art collectors and investors are transitioning to NFTS and attracting new users.
If you get into an asset on the ground floor, generating higher returns is much easier. Think investing in Amazon or Google in the early 2000s.
In terms of adoption, users, and use cases, NFTs were at the same stage as Bitcoin in 2012-2013. For context, Opensea is the most popular NFT exchange, but it currently only has several hundred thousand users. So, we have a long way to go yet, and early adopters are taking advantage.
2. Successful NFT Projects Are Limited In Supply
Most digital art NFT projects will fail. But when a community accepts a project, it inherits the value from users and collectors. These are proven drivers for future growth.
For example, only 10,000 items exist for popular NFT avatar projects like CryptoPunks and Bored Ape Yacht Club. Once all 10,000 NFTs in a project are minted or collected, it’s impossible to buy any more unless you pay a premium on a secondary market. As a result, successful projects become super rare commodities for collectors and increase in value.
3. NFT Projects Reward Holders
Many blue-chip NFT projects provide owners with regular monetary rewards. They also airdrop future NFTS into the digital wallets of community members and holders. The goal is to fuel the success of a project and encourage owners to hold their pieces of digital items so value increases.
For example, Cyberkongs Genesis NFT token owners received airdrops of Cyberbongz Babies and VX free. They can either hold onto these airdrops or flip them for a profit.
Cyberkongz Genesis holders also receive a daily airdrop of banana tokens worth several hundred dollars. That translates into the average yearly salary of a corporate executive. And you get this simply for holding the admittedly expensive token.
4. Some NFTS Are Pegged To Real-World Assets
Those new to the world of digital art or NFTs worry about paying for what looks like a JPEG. Heni is the first NFT collection by British contemporary artist Damien Hirst, and it’s correlated with real-world assets.
The 10,000 NFTS in this project corresponds to 10,000 pieces locked in a secret vault… somewhere in London.
The project has generated over $26 million in sales since July 2021 and has a floor price of 75 ETH. That’s nearly $2.5 million per piece.
5. NFT Projects Reward Creators In Perpetuity
Artists don’t receive royalties for sales of their work on the secondary market. Not with NFTS. Creators earn a residual income from future sales of an NFT, usually around five to ten percent. This turns popular NFTS into a recurring revenue generator for creators.
They can create a project, sell it directly to fans and live off residuals without going through an intermediary like a label or dealer.
Not only that, but creators don’t need a project to attract millions of customers and fans. The built-in scarcity of successful NFTS means they need to acquire several thousand, several hundred, or even one fan.
Say goodbye to the days of the starving artist.
6. NFT Owners Get Early Access To Other Projects
It’s easier to earn a return on an NFT investment if you can mint it when it launches on the Ethereum blockchain. For example, it costs somewhere between .02 and .04 ETH to mint many of the most expensive NFT projects today.
That said, upcoming NFT projects have a huge demand and not enough supply. Try to mint a public-facing curated Art Blocks release; you compete with thousands of other prospective buyers. What’s worse, you could end up paying the cost of gas and still fail to mint a project due to network congestion.
However, holders of premium NFTs usually get access to a private Discord channel for their project of choice. Owners and holders share information about future, potentially valuable projects and explain how to get early access.
Higher-profile projects like VeeFriends, The Doge Pound, and the 888 Club also strike up partnerships with future NFT project leaders and grant their holders access before a public mint.
7. NFTs Offer Owners A Sense Of Belonging
Holders of popular projects are happy to evangelize their projects on Twitter and in Discord channels. This is because they have a financial stake in a project. If it succeeds, the owners and holders win.
For example, the NBA Top Shop NFT project generated a reported $200 million in sales without much marketing from project owners. Instead, enthusiasts were happy to buy these digital collectibles and tell other basketball fans about them.
Sure iPhone owners feel like they belong to the cult of Apple, but owning a physical luxury good and the success of a large corporate is less correlated than digital art and its owners.
9. Holders Can Vet New NFT Projects More Easily
Vetting new projects involve lots of work. You’ll need to apply criteria like
The number of Twitter followers
The number of Discord members
How active the Discord channel is
Who’s involved with the project
What the artwork looks like
The project roadmap
Mint price and available tokens
Queue spending hours on Twitter and random Discord channels. However, by holding onto a valuable, proven NFT, you can find out about other NFT projects more easily through a premium Discord channel.
Plus, you can ask members questions about alpha projects, safe if the knowledge that scammers are far less likely to become members of premium NFT Discord groups.
10. NFTs Unlocks Digital Prestige
Avatar NFT projects serve as a means of communicating your identity online. They also grant access to an exclusive club of other digital art and avatar holders.
The CryptoPunks avatar project signals prestige too. It’s instantly recognizable by anyone familiar with NFTs.
Six and seven-figure projects are beyond reach for most NFT investors. However, Many more affordable avatar projects exist, with varying degrees of prestige for owners.
Whether you value digital prestige or not, that doesn’t detract from how others perceive it.
11. You Can Take An NFT With You
If you’ve ever played video games, you’re probably familiar with the idea of buying in-game power-ups, weapons, and skins for a few dollars. Avid gamers happily pay for these digital assets as it saves time. But they can’t take their digital assets from one game to another.
NFTs, change that. As they exist on the blockchain, you gain access to online virtual worlds and games and potentially take your NFTS from one world or virtual game to another. Although it’s several years away, these assets can follow you across the metaverse.
12. Owners Prize Their NFTs
To the untrained observer in the 1950s, a Mark Rothko painting looked like a series of abstract colors painted on a large white canvas. But Rothko’s works are worth up to $70 million today.
A skeptic may not see much value in a piece of digital art that sits on a hardware or software digital wallet. Still, the market and collectors think otherwise. Their beliefs and desires imbue an NFT with value, in the same way, people believe in the value of a Mark Rothko painting… or a football team.
13. NFTs Serve As Collectibles
Anyone can save a JPEG of an NFT to their computer or phone and admire it. The screenshot or digital file offers a type of hedonic reward that passes as soon as the person puts away the image.
However, the blockchain determines a holder or holder as the owner of an NFT or piece of artwork. That appeals to a subset of art fans in the same way that collecting comic books, coins, stamps, and original Star Wars toys appeals to other audiences.
High Risk, High Reward
Cryptocurrency has gone through at least three boom and bust cycles since 2012. Expect similar prospects for the value of NFTs.
Although digital art projects offer rich returns for early investors, many will go to zero. It’s a risky investment in that many projects and Discord channels are open to scams and hacks.
Still, NFTs are changing how content creators and their fans connect online. Beauty is the eye of the beholder.
I have created a video to support this article which you can watch below. And make sure you check out the other videos on my YouTube Channel.
This article was originally published on The NFT Brief.