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NFT Investing: How Do NFTs Hold Their Value?

NFT Investing: How Do NFTs Hold Their Value?

November 30, 2022

Non-fungible tokens (NFTs) are on the verge of becoming much more prominent in the blockchain world. All of this is happening while many still do not understand what NFTs are. This is not terribly surprising, given that NFTs are a reasonably new concept. Nevertheless, with their popularity on the rise, it is worth taking some time to understand what they are and how they hold their value.

NFT For Beginners

Fungibility means that one unit of a currency is interchangeable with another. This is the case with Bitcoin, for example. One bitcoin is worth the same as any other bitcoin.

With NFTs, this is not the case. Each NFT is unique and, therefore, not interchangeable with another. This uniqueness can be for a number of reasons. It could be because the NFT represents a piece of digital art or a limited edition item.

It could also be because the NFT is linked to a physical item, such as a concert ticket or a piece of sports memorabilia. NFTs can also represent things like in-game items or reward points. Presently, among the most popular NFTs are the gold-backed ones. These NFTs get their value from the underlying asset, in this case, gold. Each gold-backed NFT is backed by a certain amount of gold, which is stored in a secure vault.

The key thing to remember is that NFTs are not interchangeable. This is what gives them value.

What Are NFTs?

So, what exactly are NFTs? NFTs are basically digital assets that are unique and cannot be replaced. This makes them perfect for things like digital art, music, collectibles, property ownership, and other high-value items.

The uniqueness of NFTs can be verified using blockchain technology. Blockchain is the same technology that powers cryptocurrencies like Bitcoin. You can go to the blockchain and see that a certain NFT is recorded on the digital ledger. This is one of the things that makes NFTs so valuable. It is also why they are becoming more popular. When you buy an NFT, you can be sure that it is the only one like it in the world.

Blockchain technology also allows NFTs to be traded over the internet. This makes them very convenient. You can buy and sell NFTs without worrying about shipping or storing them.

What Is NFT Minting?

NFT minting is the process of creating an NFT. This can be done on a number of different platforms, but the most popular ones are Ethereum and OpenSea. To mint an NFT on OpenSea is a relatively easy process. It only involves a few short steps. You first need to open and connect your crypto wallet to OpenSea.

Once you have connected your wallet, you then have to fill in the requested information and click the “create” button. Next, you need to upload and name your digital file. Finally, you get to choose your preferred blockchain and hit “complete”. Now you’ve minted your very first NFT

What Makes an NFT Valuable?

Now that we know what NFTs are and how they’re made, the next question is: what makes them valuable? There are a few things that contribute to the value of an NFT.

First of all, NFTs are backed by the blockchain. This means that they are very secure and cannot be counterfeited. Secondly, NFTs are unique. There is only one of each NFT in existence, which makes them rare. Thirdly, NFTs are convenient. They can be stored and traded online, which makes them very easy to use.

As a result of all of the above benefits, NFTs hold two kinds of value:

Hedonic Value

Hedonic value is the value that NFTs hold for their owner. This is the personal enjoyment that comes from owning a particular NFT. For example, an NFT collector may get a lot of pleasure from owning a rare and unique NFT. People also derive pleasure from showing off their expensive NFTs to others.

Functional Value

Functional value is the value that NFTs hold for their utility. This is the practical use that an NFT has. For example, NFTs have a high-profit potential. This is because they are still a new and emerging technology, so their price is likely to increase as more people learn about them and use them. Also, real assets can be tokenized and put on the blockchain as NFTs. Artworks, music, and real estate have all been tokenized and sold as NFTs. 

Here’s a more in-depth look at the functional value of NFTs.

  • NFTs For Intellectual Property Rights: One reason NFTs are special is that they can be used to show ownership of creation. This is because, unlike trademarks and copyrights, NFTs are unique and cannot be replicated. Because NFT blockchains are unchangeable, you can always show you are the creator of content.
  • NFTs For Investment: Gold backed NFTs are a great example of NFTs used for investments. These NFTs are backed by actual physical gold, making them a great way to invest in gold without having to store it or worry about its price fluctuating. You are also able to prove ownership of the NFT and can sell it at any time.
  • NFTs For Real Estate: When you tokenize property deeds as NFTs, you can prove your ownership and transfer deeds without stress. NFTs for real estate can help reduce paperwork and make property ownership more secure. Using blockchain technology, you can also show when the property was built, who built it, how many renovations have been done, and when, and any other relevant information.
  • NFTs For Gaming: NFTs can be used in video games to show ownership of in-game items. For example, the game “CryptoKitties” uses NFTs to represent digital cats. These NFTs can be traded, sold, or even bred with other NFTs to create new digital cats. Cross-platform playability is also possible with NFTs. This means that you can take your NFTs with you if you switch to a different game that uses the same NFT standard.
  • NFTs For Medical Records: Healthcare professionals can now store medical records on the blockchain using NFTs. This is important because it can help reduce medical errors, as well as make sure that patients’ records are accessible to them when they need them. NFTs can also be used to store other sensitive information, such as insurance policies and birth certificates.

These are some of the ways that NFTs can be used. As you can see, NFTs have a lot of potential and are already being used in various industries. We will likely see even more uses for NFTs in the future as they become more popular.

What do you think? Are NFTs something you would be interested in? Let us know in the comments!

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