When digital artist Beeple made headlines selling an NFT for 69 million dollars at Christie’s auction house, undoubtedly many rushed to find out exactly what was going on. The previously bubbling under world of cryptocurrency art sales has suddenly exploded into the mainstream.
Leaving many of us wondering: ‘How do I get a piece of this?’ Perhaps first asking: ‘What is an NFT?’
NFT stands for non-fungible token. Put simply, it’s a unique digital asset, the ownership of which is traded and recorded via blockchain databases. Purchasing an NFT is similar to buying cryptocurrency, only where cryptocurrencies are interchangeable (or fungible), NFTs are unique (or non-fungible).
Anyone can create, sell, and resell an NFT. They’re most commonly traded in the cryptocurrency Ether, which can make determining value tricky for the outsider. Many NFTs available today are forms of artwork. They’re hosted and approved for sale on online marketplaces, and when purchased the ownership is transferred.
With such a wide open marketplace, there’s much interest in how this can be used for profit. Cryptocurrencies are gaining widespread interest as investments, and NFTs are seen as a similar prospect.
However, as a non-physical asset, it’s hard to understand exactly why the top-selling NFTs are so expensive. How do you know if an NFT is valuable?
Before discussing how to know if an NFT is valuable, it’s necessary to acknowledge that the value of an NFT is subject to constant change. This is similar to any form of art trading.
An NFT can drop or gain value for numerous reasons, related to both the platform hosting it and the asset itself.
An NFT is only ever worth what someone is willing to pay for it. As a relatively new system, there isn’t the long-established history to guide us in determining the value of an NFT. That isn’t to say there aren’t features to look out for.
Perhaps the first factor to consider when looking for valuable NFTs is the creator of the asset. If you’re new to NFTs and looking to invest, then this should be your starting point. While to many NFTs may seem like a sudden craze, online artists have been establishing themselves and their work for years.
NFTs are simply providing them with another way to sell art. To be sure an NFT is valuable, look for those created by artists who have already made a name for themselves.
These will sell well, because there’s a built-in audience looking to buy. And this is your best shot of ensuring a growing interest in the future as well.
While it may be a dream to discover an artist and get in early, you can never be sure how popularity will grow. Looking for NFTs created by a person or group with a history of good sales and audience involvement is the quickest way of finding an NFT with value.
Of course, the related option is to look for assets made by celebrities. From actors to musicians to sport stars, celebrity personalities are turning to NFTs to connect with fans and make some money. A well established celebrity can charge a fair amount for an NFT, and they’re likely to only grow in price.
An NFT with higher value will be directly linked to the creator. Look for celebrities with a large online presence, and some form of recognizable branding.
Think of it as similar to buying merchandise, and what concepts relate to a higher price. Personal touches, rare items, and behind the scene’s intimacy are all popular merchandise concepts both online and off.
Alongside popular celebrities, it’s also worth considering those with a great deal of notoriety. Currently, NFTs are mostly popular in certain spaces of the internet.
These places value the controversial and the shocking. Popular and valuable NFTs often tap into this subversion.
Many of those being sold for high prices are doing so because of the accompanying social intrigue. As a general trend, the buyers are future thinkers who see themselves as outside of the box.
Buyers are looking for bragging rights. This might seem strange, but remember that true crime collectibles form an entire industry called murderabilia.
So, look at the creator as the first step of finding value. An established creator means an established audience, providing a greater (and longer lasting) value.
The next step to knowing if an NFT is valuable is looking at the history of sale. To many of us NFTs may seem like a sudden fad, but they’ve in fact been around since 2017. Many high-priced works will have established a value in that time.
Early works may, at this point, have already passed through several hands. The prior sales should be documented via a blockchain database, so you can see when a piece sold, and for how much. This is perfect for knowing if an NFT is valuable, because it shows that value has been agreed on by multiple parties.
A good history of sales can be seen as proof of strong future sales. While they do have a longer history than some may imagine, NFTs are still fairly a new trading system. It’s inevitable that some selling now for large amounts will eventually be seen as foolish investments.
Conversely, some selling for next to nothing will later gain value. However, an asset that has already shown to have good, strong reselling prices will probably continue to grow in value. Look for gradually increasing sales over one giant jump in price. This shows a sustained interest.
It doesn’t just have to be the piece itself. This is another step where you can refer to the creator. A creator with a strong history of selling and reselling will indicate a pervasive interest in their work. Value can be seen in how many NFTs they’ve sold, and how well those have resold.
Something to be wary of is assuming value based on an emulation of style. There are certain identifiable trends in NFTs that have a strong history of sales. While these are worth keeping an eye on, they aren’t an immediate indicator of value.
Valuable NFTs such as CryptoPunks are easy to mimic stylistically, but these copycats are unlikely to be worth very much because they don’t have the creator or history.
While there are definitely trends in NFT styling, that doesn’t mean anything mimicking those styles will sell. Think of how a child’s splatter painting won’t auction for anywhere near the same amount as a Jackson Pollock.
You can also get an idea for the value of an NFT from its utility and functionality, but perhaps not as we know it. There isn’t much real world application for most of the NFTs being sold, but we can perhaps expect that to change in the future. That doesn’t mean that there’s no current use for NFTs at all.
For a start, consider the world of video games. An NFT could be any item, decoration, or character that can be used in a video game. This is definitely still a growing marketplace, but you can get an idea of if an NFT has value if it can be used across different platforms.
There’s also some consideration of utility in terms of future copyright. This is still a slightly gray area. Copyright law as it pertains to the internet has proven to be slow reacting. NFTs could be a way of changing this. With some NFTs being auctioned, it’s hard not to see where a buyer may have an eye towards copyright.
Look at Jack Dorsey’s first ever tweet, which sold for millions, or the internet meme Nyan Cat, which netted over half a million dollars. Neither asset has much function, but it may lead to returns from copyright. There could be value in an NFT from its role in internet history, and how an owner may utilize that.
As with any form of investment, much of the value of an NFT will be in it’s trading value. Already in just the few short years since their creation, NFTs have been shown to have a resale value.
Early crypto purchases are being traded for much higher prices than the original investment, netting an attractive gain for those who were able to get into the game fast.
To understand the trading value of an NFT, then bring to mind old-fashioned baseball cards. These items had no real use, and no real design skill, but some of them are worth hundreds of thousands of dollars. Why? Because they’re rare, and they’re part of a collection.
The trading value built up over time, as people wanted to own a collection based on an interest that had unique aspects. We can see these same principles in NFTs.
Some creators are actually focused on making what are essentially trading cards - look at William Shatner and Logan Paul (we can also see celebrity and notoriety at play here).
Even the NBA have gotten involved. Other forms of NFTs, such as CryptoKitties and CryptoPunks, work similarly. Each one is unique, and they can be traded to form a collection. So, if you want an NFT with value, look for those that are part of a collection and can be traded.
Next, consider the uniqueness of the asset. This perhaps deserved a mention earlier, because the unique nature of an NFT is what makes it an NFT, but it’s a harder to perceive quality than some others. Unique items have a greater value than a common item, but that doesn’t mean a unique item automatically has worth.
With these aspects, to really determine value you’d need to keep an eye on trends. The pieces selling in general tend to be inextricably linked to the internet, don’t take themselves too seriously, and appear to be collectible.
An NFT with value will likely encompass these general trends. All while remaining rare and unique. However, that doesn’t mean any NFT with these qualities is worth anything.
Uniqueness as a concept of value should be considered in relation to other features of the NFT. An NFT created by an established artist will have more value the more unique it is. A particularly rare NFT in a popular collection will be worth more than one with common traits.
With any investment you want to know what you’re buying doesn’t just have value now, but will continue to gain value. To know if an NFT is valuable the question is more accurately will it have value in the future. This is tricky, because not even the savviest economic forecaster can see what’s coming for sure.
Which means the best way to know if an NFT has value is to simply wait it out. The NFT market is at a boom stage. Prices are exploding, and people are undoubtedly getting caught up in the rush. This probably won’t have long term sustainability. This isn’t to say the NFT market will crash, but instead it will likely even out.
Of course, it would be wrong to discuss the value of NFTs without considering the non-monetary value an item may have. The single best reason to purchase an NFT is out of genuine enthusiasm.
Many NFTs show skill, are created with care, and pertain to certain interests. Most of these will never reach the dizzying heights of a Beeple sale, but they will gain value as an asset that is appreciated and enjoyed. Importantly, they’ll also maintain the inherent value of an asset enjoyed by the owner.
To understand if an NFT is valuable the primary indicators are: it’s been created by an artist with an eager audience, has a proven history of sales, and appeals to the target demographic. A valuable NFT will likely form part of a collection, and will probably feature many uniquely online aspects.
However, all NFTs are subject to the whims of a marketplace. What makes an NFT valuable today may mean little tomorrow. If you’re looking to invest in NFTs, try finding an established creator whose work you enjoy, and who has proven sales.