What’s the value in NFTs?

Early this year, a piece of art called Everydays: The First 5000 Days was auctioned and sold for $69 million at Christie’s Auction House. It is not surprising to see eight-figure art sales, however, this one has drawn a lot of attention as the piece was sold as a non-fungible token (NFT) – a unique  cryptographic tokens that cannot be replicated. To put it simply, someone paid $69 million for a picture on the internet.

Thenceforth, NFTs have started to pervade pop culture in various ways.  Hundreds of millions of dollars of NFTs are being sold each week through various public marketplace such as Nifty Gateway, OpenSea, Foundation.

Since the public could download a copy of image from the internet at no cost, many people wonder how tokens on the internet, specifically NFTs, could be worth money at all. To appreciate NFTs, we have to look through all angles and see what they actually are and what types of market opportunities they facilitate.

NFT Marketplace Development

The market for digital assets has been fundamentally changed by NFTs. There were no methods to distinguish the actual owner of a digital artwork. Markets could not operate without precise property rights: Who has the right to sell it? Who has the right to transfer ownership to the buyer? NFTs helped to iron out this problem by giving parties something they can agree to represent ownership. As such, they allow to build markets around new types of transactions, transactions that are more valuable and efficient.

NFTs are not interchangeable and unique, as the name suggests. They are traded via Blockchains, which allows for prior ownership tracing. NFTs not only provide a form of digital “deed”, but their current features could also expand their purpose over time as blockchains are programmable. That is, NFTs can exist in both digital spaces and the physical world.  

Therefore, NFTs can operate like membership cards, providing access to events, providing digital keys to online spaces whereby holders can engage with one another. All these gave NFT holders value above simple ownership; creators also have a vector to frame a highly engaged community around their brands.

NFT-based markets can emerge and gain traction swiftly compared to other crypto products. This is due to NFTs’ standalone value and the value established among a community of potential owners which can be relatively small, whereas cryptocurrencies require wide acceptance in order to provide value or become a medium of exchange.

 

The NFT landscape

As many marketplaces has emerged around NFTs, creators have taken advantage of their possibilities in various ways.

The most known examples are the digital art market and digital collectable platforms as mentioned above. But what’s emerged more recently is a model of active ecosystem-building around NFT-native properties, leading to novel organizations developed entirely within the NFT space. These products start with an NFT series but lay out a roadmap under which holders of the NFT gain access to an expanding array of products, experiences and activities. Revenue generated from initial and subsequent NFT sales is channelled back into the brand, which in turn drive up the value of NFTs.

People often pay more attention when it comes to their personal identity, such as using NFT images as profile pictures on their social media platforms. Each NFT community lies different personalities and purposes. There are so many NFT groups these days that it would not be hard to fit in one, this way, NFT ownership provides an immediate shared text that people utilise to connect with one another.

On top of that, ownership also conveys partial or full commercial rights in these communities. This means that the members can stack on properties on top of their NFTs that help grow the overall brand. Essentially, this creates a channel by which engaged fandom can channel back into the brand itself. The combination of these benefits makes owning the associated NFTs more valuable.

How can an NFT Project Succeed?

  1. Inherit value in the NFT technology
  2. Leverage a community of users
  3. Project members to generate and provide confidence to users
  4. Maintain community engagement

Since the crypto markets are volatile and is constantly surrounded by ever-changing regulatory frameworks, this may affect the demand for NFTs, which again underscores the importance of building community and other value for NFT ownership.

The future of NFT is still uncertain in the long run. More explicit legal frameworks around NFT ownerships need to be established. NFTs enable new markets by granting new forms of ownership. The more engaging communities grow and become part of people’s personal identities, the more value it enhances.

If you would like to know more about NFTs, or create a community of one, speak to one of our specialist today.

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