NFT is a digital representation of works of art, music, video, property and game items, usually using cryptocurrencies for transactions. They are different from cryptocurrencies. Each NFT is unique and cannot be exchanged. This feature endows NFT with irreplaceability. This feature also endows NFT with great value. Perhaps you will wonder why the price of NFT is so high? This article discusses this problem from the following six aspects.
1. Scarcity
Scarcity is a basic aspect of economics. It refers to the gap between supply (limited resources) and demand (theoretically unlimited demand). Society must judge how to allocate resources effectively to meet basic needs and further desires.
Each NFT is unique, and there is only one of each. This makes them scarce, increasing the value per unit of demand. In fact, the number of specific NFT series is limited, which means that once they are all sold, their value will increase, because there will be no more NFT available for purchase.
The most famous example in this regard is the crypto punk project. At that time, there were only 10000 unique crypto punks. Each punk has the same combination of attributes (hair, eyes and skin color), some of which are more rare than others, which makes some encrypted punks more expensive than others. Other NFT projects replicate this series of releases, with different attributes and limited provisioning methods.
2. Social identity
When you buy or sell NFT, the blockchain will record the evidence of your presence during the transaction. Your wallet address and the price you pay for a specific NFT will remain on the blockchain forever. Some people even find it attractive to be the first owner of an NFT, so they buy it for "hype" and social recognition, or boast about their ownership on social media.
3. Authenticity
The ability to track NFT legitimacy through the blockchain is one of its basic characteristics. The uniqueness of each NFT can be reflected in its metadata, ensuring that no one can copy them. Since there is no way to forge copies of NFT, their overall value increases.
A digital artist can create two different NFT artworks, representing the same physical or digital artworks. However, the prices of these two works of art may be different. For example, the creator's first NFT may sell more than the NFT launched later.
Since each token contains verifiable information and transaction logs that help to show evidence of ownership, it is possible to confirm the legitimacy of each NFT. In addition, the blockchain ensures the security of these tokens by ensuring that all data is secure and almost impossible to copy. This authenticity is particularly important in areas where the rule of law is weak.
4. Combinability
Composability allows creators to build different applications on top of each other. NFT collectors and creators can expand the utility of their non functional digital cameras by integrating additional digital assets into their non functional digital cameras. This can improve their NFT works and produce narrative around the main works. In theory, creators can set a basic fee for their works, which is intrinsically related to the value of the entire NFT project.
Combinability allows collectors to combine several assets into a unique NFT collection. In the inevitable Web3 era, this is an innovative way to combine practicality and creativity. Society always attaches great importance to social symbols, and composability may be a useful method to assign social symbols to creators and buyers of NFT. Adding more tokens to NFT can increase its price and encourage potential buyers to continue to add color to future NFT auctions.
5. Market foam
In the context of economics, market foam is a situation where the price of assets differs greatly from their intrinsic value. The economic basis of the company - including income, growth rate and relevant standards - is used to calculate its valuation.
Every time a new technology is introduced, the market foam will follow. Many investors came here with funds after they learned about the high price of new technologies or celebrities who have bought new technologies. They buy assets without fully understanding them because they are only interested in the potential profits of reselling them. When several investors buy NFT only to resell them, the foam in the NFT market leads to an increase in the price of goods, which is why many new NFTs have been cut off. The cut off NFT refers to the purchase of NFT that is sold at a price lower than its value because the seller does not know its scarcity.
6. Utility
Another factor that increases the value of NFT is its practicality. Digital assets that provide functionality in multiple ways can add value. The following examples provide users with real value. It is not difficult to see why people pay for them.
summary
In general, the value of NFT comes from various factors, such as scarcity, social recognition, authenticity, composability, market foam, and utility. However, users need to be alert to scams in the password field, especially in the NFT field. In the final analysis, like all assets, the price of NFT is the price that others are willing to pay for it.
