What is NFT, and why is it valuable?
August 21, 2023
Bitcoin was the digital answer to The currency markets and became famous and expensive through the years; NFTs are now the digital answer to collectibles. First, with the introduction of cryptocurrencies and now NFTs, Blockchain is a perfect technology to leave you wondering what’s going on here. Blockchain introducing new concepts like NFTs becomes more complicated. We have witnessed a picture of the ape being sold for tens of millions of dollars which will leave you wondering what an NFT is anyway? At Aron Groups, we are providing you with a thorough guide on what an NFT is and why it is valuable to help you make a more diversified portfolio.
Table of Contents
What is an NFT?
The short answer is no fungible token, but I understand it’s not a comprehensible answer. NFT is an asset that is stored on a blockchain. The main and most important difference between an NFT and cryptocurrencies like Bitcoin is that these are non-fungible tokens we are talking about. Non-fungible tokens are unique and cannot be replaced with something else. On the other hand, Bitcoin, Ethereum, and other cryptocurrencies are fungible means you can trade one Bitcoin for another one, and you will have the same thing. In other words, the Bitcoin you’re holding in your wallet is not different than the Bitcoin I have purchased and is stored in my wallet.
When you’re talking about fungible assets and fungible tokens, you can use them interchangeably means you can swap a $10 note for two $5 notes, and you will still possess the same amount of money.
On the other hand, when you’re talking about non-fungible assets, this is impossible to change an asset with something else because it has unique properties and cannot be interchanged with something else.
For example, let’s say you own the Mona Lisa, which is a one-of-a-kind portrait, and there is nothing like it in the world, so can you interchange Mona Lisa with any other painting? No, because it is a known fungible asset, it is unique, people can take photos of the Mona Lisa or buy a print of it, but there won’t be another original painting.
So, to put it simply, we should say that NFTs are one-of-a-kind assets in the digital words that are traded like any other piece of property. And the digital token represents a certificate of ownership for virtual or physical assets. NFTs can be used to represent ownership of a variety of digital assets, including music, videos, tweets, and artworks. Creators using NFTs can monetize their digital creations, and collectors will be provided with a unique way to own and invest in unique digital assets.
Read more: What Is Cryptocurrency Mining
How do NFTs work?
Before the emergence of blockchain, collectors were trading works of art and paintings in the traditional market because of their innate value. Pieces of art are one of a kind and cannot be interchanged with anything else.
With NFTs, the owner of a digital Find ensures the digital files cannot be duplicated. The owner can tokenize artwork and create a digital certificate of ownership that can be traded. NFTs use blockchain as a shared ledger to store information; as thousands of computers worldwide maintain the ledger, there is no way to forge records. On the other hand, the artist or the creator can use a smart contract to get a cut for any future sales of the token.
How much are NFTs worth?
When talking about NFTs, generally, anyone can tokenize their work to sell as an NFT, but the news is bombarded with multi-million-dollar sales. When it comes to determining the value of an intangible token, many factors are involved. Because for every person, the term valuable is defined differently. Some argue that non-fungible tokens are intangible and usually represent digital items rather than real-life physical assets, so they shouldn’t be valuable.
But no one can argue that humans are spending much of their time in the digital world, and it is natural that these people find digital items valuable. Since creators can finally attach ownership and authenticity to digital items, they can have value.
What is the point of NFTs?
To understand the value of non-fungible tokens, you need to specify your position as an artist or a buyer.
NFT for an artist
NFTs are great tools that allow artists to sell work they otherwise might not be much of a market for. So NFTs are perfect for monetizing digital artwork, and the artist can make sure to get paid a percentage every time their NFT is sold or changes hands.
NFT as a collectible
As a buyer, you will financially support your favorite artist by buying his art. on the other hand, when you buy an NFT, you consider to be the owner of the artwork you have purchased, and you can use it however you want. You can also restore it and hope that the value of it goes up one day and you can make a profit.
What makes an NFT valuable?
Some primary considerations already contribute to the value of a non-fungible token.
Scarcity
One of the most important factors when determining the value of a non-fungible token is scarcity. Generally, everything ends in supply and demand when it comes to trade. The fewer number and non-fungible tokens available, the more valuable that token will be., because collectors and buyers are willing to pay a premium for something rare.
Non-fungible tokens allow for proof of ownership using blockchain technology. As it is possible to prove the authenticity and ownership of a non-fungible token, it can be traded many times.
People agree it is valuable.
Another factor determines the value of non-fungible tokens or people and communities that collectively agree that something is valuable.
The number of non-fungible token projects coming out is rising, and the number of items sold determines their value. The more people pay attention to a non-fungible token, the more expensive it becomes.
Authenticity
Another fact determining the value of an NFT is authenticity. As every related information on a non-fungible token is stored on the blockchain, collectors, and buyers can ensure they are buying an original, one-of-a-kind asset. Collectors can ensure whether they buy the original asset using blockchain technology before buying an NFT.
Rarity
Rarity, just like scarcity, is another determining factor of the value of an NFT. Something that is unique and cannot be replicated will be worth more. For example, the first tweet ever sent by Twitter CEO Jack Dorsey was sold for millions of dollars because it cannot be replicated.
Creator reputation
If the creator of an NFT is a famous figure, the value of his NFT will be higher. When the creator is a well-known figure in his industry, collectors may be willing to pay more to purchase his NFTs. In this case, the creator’s reputation adds value to the non-fungible token, making it more desirable to buyers.
Cultural significance
Non-fungible tokens that are culturally significant are more valuable because they represent a piece of history or culture that is important to people.
Usage
The utility of a non-fungible token can also contribute to its value. If the token comes with exclusive benefits, such as access to special events, it will be more valuable and desirable to buyers.
Historical significance
historical tokens are irreplaceable; for example, an NFT represents the first photograph ever taken and is more valuable and desirable for collectors interested in photography’s history.
The Bottom line
A non-fungible token, better known as NFT, represents an item’s digital ownership. The scarcity, arity, cultural and historical significance, authenticity, utility, and popularity of the creator are all determining factors when evaluating an NFT’s value. Blockchain technology paves the way for digital currencies like Bitcoin and introduces other interesting products like Defi, dApps, and NFTs. As all the information related to a non-fungible token is stored on the blockchain, it cannot be replicated or copied, which ensures that they are authentic. The creator reserves the right to buy or use it in any way.
Cryptocurrency Trading, you can consider non-fundable tokens as a perfect investment opportunity; here at Aron Groups broker, we provide you with a demo account to test your trading strategy and to create a diversified portfolio. Remember that investing in Forex allows you to trade different instruments, including cryptocurrencies, NFTs, currencies, commodities, and gold. Before trading real money, establish a trading strategy and learn everything you can about Forex Trading.
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