What is NFT, and what exactly determines its value?

2 mins read

Undoubtedly, in the last few years, the entire crypto community and many lay people have begun to take a mass interest in NFTs. These three letters, which represent non-fungible tokens, can often be seen throughout the internet community.

But what do these NFTs mean? Why does almost everyone nowadays seem obsessed with these unique tokens? What exactly determines their value, which can reach up to several million dollars? First of all, let’s see what NFTs are, shall we?

Non-Fungible Tokens – definition and explanation

Non-fungible tokens, or NFTs, represent financial security that includes digital data stored on a distributed ledger known as Blockchain technology, where its ownership is recorded. Owners or NFTs can transfer them, sell them, or trade them. Any individual can create an NFT since it requires few or no coding skills for creation.

NFTs contain references to digital files such as audio, videos, and photos. Nonetheless, nowadays, NFTs can be almost everything, from tweets, memes, and GIFs in digital form to real estate.

Many NFT experts claim that these tokens provide proof of ownership or a public certificate of authenticity. Nonetheless, legal rights conveyed by a Non-Fungible Token are mostly uncertain. The blockchain defines the NFT ownership, but that doesn’t grant any copyright, property, intellectual rights, or numerous other legal rights over that digital file it associates with.

Keep in mind that an NFT doesn’t restrict copying or sharing of its associated digital file nor prevents the creation of non-fungible tokens that reference identical files. Since NFTs are known to be “uniquely identifiable”, they are pretty different from other cryptocurrencies such as Ethereum or Bitcoin that are fungible.

See also  How to Ensure Safety During Online Transactions?

Fungibility meaning

Fungibility means a property of a commodity or a good whose individual units are typically interchangeable. Each of these parts is indistinguishable from another part. When it comes to fungible tokens, it means that they are able to be replaced or exchanged.

For instance, a $100 note can easily be exchanged for twenty $5 bills. On the other hand, non-fungible tokens cannot be exchanged like that.

What determines the value of one NFT?

The market value of one Non-Fungible Token is directly associated with the digital file it references. After an NFT is minted, it draws value from its inherent characteristics. The value accrues over time, depending on the community and the utility strength of the underlying project.

Keep in mind that the rarer the NFT, the more expensive it is. For example, legitimate rarity tools are among the most commonly used for determining the rarity of NFTs. When it comes to excellent examples of such tokens, they are Decentraland NFTs. They refer to virtual land plots in the project.

Just like any other item, NFTs are priced largely subjectively. Their price depends on the law of supply and demand. So, the more people are interested in a particular NFT, besides its rarity, the higher its price will be.

How to know if one NFT will go up in value?

Social proof is one of the most efficient ways to know that one NFT will go up in value. The social proof associated with the NFT project represents one of the decisive factors that have a lot of influence on NFT’s value. So, checking their profiles often across legitimate social media platforms like Instagram and Twitter does help one gauge their acceptability.

See also  How Much Does Renters Insurance Cost and What Does It Cover?

Leave a Reply