The NFT space explosion during the previous nine months should have caught your attention unless you’ve been living in a cave. In 2017, assets like CryptoPunks, distributed for free to everybody with an ETH wallet, are now trading for over $7 million. Christie’s sold the most expensive NFT at auction earlier this year for about $70m USD. But why do some NFT value more than others?

In Q2 2021, NFT sales came to approximately USD 1.25 billion, proving that this asset class is here to stay. It is also evident that, despite the enormous value that may be found in the NFT market, what distinguishes useful NFTs from those merely digital inventories is less clear.

Although the millions of dollars that NFTs have sold for may have whetted your appetite, the average cost of an NFT is only USD 120. Let’s take a closer look at some key areas where NFT’s perceived value might be found when searching for your subsequent acquisition.

The NFT Value’s Four Foundations

1. Utility

In the context of NFTs, utility is one of the most highly debated subjects in the larger cryptosphere. Does it go above and beyond what is anticipated for the future? The usefulness of an NFT (or its predicted future utility) plays a part in its value, whether improving video games by adding scarcity/provability to in-game loot or power-ups, by building a wrapper for numerous other token kinds within one NFT. Over the past six months, some extremely intriguing applications of NFTs have emerged.

Some NFTs have worth that goes beyond simple resale since they are yield-bearing. Having an asset that generates income will increase demand for it. The value is increased even more by gamifying the yield supplied because it adds user participation and attention to the asset. For instance, Synesis One makes data mining fun for AI language learning. Players can acquire their native token, SNS, by participating in a word game on the project website and creating an information database. Then, AI businesses can use this data to train their AIs. Every time a word is used by the AI to learn the language data, NFTs of certain words give the holder yield.

2. Ownership Background

Value is based on the initial issuer’s or the NFT’s former owners’ identities. Those with a high ownership history value are frequently produced by well-known artists, internationally renowned figures, or companies. Digital artist Beeple has sold three of the top ten NFTs, and Sir Tim Berners-Lee is two examples of this. The latter recently sold an NFT containing the World Wide Web’s source code for more than USD 5M.

If you consider ownership history, determining value can frequently be challenging. Is it fair to expect your asset to increase by 10 unless the artist or celebrity is expected to become even more well-known in the months and years to come? However, the value of the NFT does rise if celebrities or other notable people have held it in the past. An NFT of a valuable card, for instance, will have sentimental worth above a comparable card without the history of being utilized by a top player to win a significant competition.

Also Read: How Will NFTs Evolve In The Future With Such Volatile Market?

3. Rarity

NFTs have a built-in rarity since their distinctive nature makes them rare. But it’s becoming evident that some are more distinctive than others. And by rare, we mean something like this. Consider a collection like CryptoPunks that contains 10,000 entirely distinct characters. Some will be rarer than others from the same group due to unique traits, features, or characteristics. These oddities are what cause the value to rise dramatically. The rarity, distinctiveness, and visibility of Jack Dorsey’s initial tweet, Beeple’s NFT, and the “Top Shots” of well-known NBA footage are what give them worth.

4. Liquidity

An NFT with high liquidity has a more excellent value. The liquidity premium is the primary explanation for why tokens created on ETH are worth more than off-chain resources. Anyone with ETH can easily exchange ERC standard NFTs across secondary markets. Having stated that, you can experience liquidity issues if the need for your particular NFT or NFT collection is not purchased. In other words, you can’t sell your asset if nobody wants to acquire it. Not at the price you may wish to, at least.

Because liquidity reduces the risk of keeping NFTs you no longer want, investors prefer to invest in NFT assets with significant trading volumes.

Conclusion

There are countless millions of NFTs available on the market. One strategy to choose your next NFT buy is to choose ones with solid provenance/history, albeit it might not be the best option. By comparing your upcoming purchase to one or more of these pillars, you will have a much better chance of choosing an item that appreciates.