Ever wondered why an NFT gains value? Artist, scarcity, and hype all feature prominently when it comes to driving the price upwards. Read our latest feature on how NFTs can appreciate in value and what to look out for when investing.
Non-fungible tokens (NFTs) are an evolution of cryptocurrencies. They are unique crypto tokens that are linked to digital assets—making them highly secure and tradable—and can be used to invest in various online-exclusive items. So, how do NFTs gain value? Let’s find out.
Investing in NFTs has become a growing trend. Hitting a market peak in 2021, NFTs are a new form of investment that can be used to fractionally own physical assets.
Still wondering how NFTs gain value? Well, the value of an NFT depends on the underlying asset, with some digital collectibles now worth substantially more than their original price. Although some people trade just to get their hands on more valuable pieces, using NFTs to fractionally own real-world assets has been found to be a good way to democratize investing.
The value of an NFT is also derived from its uniqueness. Each piece of digital art is one-of-a-kind. To prove that an asset is exclusive, the owner can use anti-tampering identifiers or time-invariant characteristics recorded on the blockchain.
Creating value for NFTs is a lot like establishing value for any other product. This involves many different factors. Identifying which NFTs are worth buying and selling can help reduce risk when trading.
The first and most obvious indicator of value is scarcity. The more scarce an asset, the more valuable it is. A digital asset with limited supply can be traded for a much higher price than a similar item with unlimited supply. Take CryptoPunks 2924, for example. Sold in November 2020 for $71,403, the item was recently resold in September 2022 for a whopping $4.45 million.
Another important factor is the creator or founder of the NFT. This person should be able to demonstrate how the asset has utility. This may include a storyline, a roadmap, or even a team of influential individuals. Additionally, you can’t overstate the effect of hype. Some high-end collections receive a lot of attention online and can fetch significant sums of money.
Whether you are looking to invest or simply interested in seeing how this new market has evolved, there are several ways to gauge value. As the market is a highly speculative class of investment, NFTs can be profitable for those willing to take the appropriate risks.
Investing in NFTs is an exciting new investment opportunity. However, there are risks to consider—none more so than the possibility of losing everything in the event of a market crash.
It's important to do your research before putting your money into any asset. Ensure that you choose projects that are backed by strong brands and influential figures, such as the Bored Ape Yacht Club.
In addition to choosing projects that are backed by strong brands and influencers, you should also consider the size of the community. A project with a large community is likely to be more beneficial than one without.
You should also look for a project with a roadmap. A roadmap is the best way to determine whether a project is legit or a scam. Scam projects often set unrealistic goals that can't be reached within a short period of time.
Despite a current lull in the NFT market (sales are down when compared to 2021) due to external bear market conditions, there’s still a lot of exciting opportunities within the industry. In fact, NFTs are still only in their infancy, despite having already made serious progress towards maturity.
One of the key driving factors of industry growth is the ability for consumers to buy digital assets with their tokens, with El Salvador becoming the first country in the world to accept cryptocurrency as legal tender.
When first launched, many critics viewed the NFT and crypto markets as a passing whim. Today, more than 100 countries have committed to developing a CBDC (central bank digital currency), as industry potential begins to crystallize.
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