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Why Have NFTs Taken Off?
With NFTs really taking off in early 2021, one has to wonder why it all happened. NFTs provide us with something that we’ve never seen before - true ownership of any asset. They started off with art but now they’re now moving into more complex and sophisticated assets and the benefits they bring are being realised in all kinds of industries.
Many question whether NFTs are just a technological phase and whether they will pass over. However, many of the biggest industries are introducing NFTs into their framework to streamline many key processes involved.
In my opinion, NFTs are here to stay and they’re only just getting started. Although they’re only being used in a few industries right now, we’re going to slowly start seeing them being utilised to improve various everyday processes. But why are some of them so expensive?
What Makes an NFT Valuable?
Many of us are shocked as to how a JPEG can be so expensive. How can an image drawn by somebody sit well out of our budget? It’s hard to accept at first, but once you dive deeper into how these assets are valued, there is solid reasoning as to why their price tags are so heavy.
Here are some of the key elements that make an NFT valuable amongst collectors and investors:
- Utility
- Brand
- Future Planning
- Community
- Visual Appeal
Let's talk about these elements more specifically:
Utility
This relates to what makes the NFT useful or what the perks of owning the NFT entail. A perfect example of utility would be a gaming asset. For example, if you own a gaming character as an NFT, you are granted access to play a game. Only those that own the gaming NFT from a certified collection are eligible to play the game. Owning this NFT may also give you earning rights, or exclusive access to features of the game.
Another example could be gaining exclusive access to events or experiences. These events can only be attended if you own the necessary NFT. Other forms of utility could include asset-backed utility, where there is a physical asset attached to the digital token. Utility is a broad spectrum and builders are constantly thinking of ways to benefit holders of their NFT.
Brand
One of the first things to consider when questioning the value of an NFT is to look at the brand or company behind the asset. With so many of the biggest brands in the world looking to introduce NFTs and blockchain technology into their systems, this will greatly influence the price of the token.
Like you would pay a bit more to get hold of that jacket from a premium brand, many would consider paying a fair amount of money to grab an NFT from a huge brand’s first collection. A great example of this would be Adidas partnering with Bored Ape Yacht Club to launch the brand’s first NFT collection. This NFT gives exclusive access to merchandise drops from Adidas.
Future Plan
An NFT from a project’s collection may not have much use at the present time, but there may be future plans in the roadmap of a project that will bring in use-cases and demand for the NFT - thus increasing its value over time. The roadmap or future plans of a project should always be considered when determining the value of an NFT, as well as the worthwhileness of investing in a project.
If the future plans of a project look promising and present the possibility of providing game-changing use-cases, the NFT may still be worth a lot even though it may not have any use-cases in the present.
Community
One of the less thought elements of an NFT collection’s success is the community around it. Owning an NFT from a collection creates a sense of belonging within that project. One thing that many struggle to believe is that an NFT may have the best product behind it, but it may not be worth that much purely because the community factor isn’t there.
An active, engaged community is a key driver in marketing efforts and therefore a key determinant for the exposure and demand of a collection. Holding an NFT can create a sense of belonging within a project, and many will pay a lot just for this alone.
Visual Appeal
Last but not least, is the visual appeal. This is the first impression of the NFT and it will instantly impact the potential buyer's decision. Some NFTs just stand out more than others, and this is often thanks to the artwork.
Personally, I struggle to buy an NFT that I’m not attracted to visually. However, I may still buy it if the utility behind it is worthwhile and there is a promising roadmap. It does play a role in how the token is valued, though.
How Does an NFT Gain Value?
An NFT will gain value if each of the four elements mentioned above is prioritised or implemented. Many of these elements go hand in hand and rely on each other in order to push the price of the asset. Let’s talk about how development in these key elements can result in an NFT collection gaining value.
1. Utility Implementation
The initial mint price or even the initial listing price of an NFT may seem very reasonable. The collection sale is key to a project’s growth and overall management. But after the sale, the NFT may have very limited use-cases and this may cause frustration amongst early investors and holders.
After a while of building and development thanks to the funds raised from the NFT collection, projects will begin to roll out utility and use-cases for the asset. An example would be a gaming project. Games take a long time to build and there needs to be patience amongst holders to see the real value of their NFT.
As soon as the game comes out, if it is a success, outsiders will want to own the NFT and there’ll be a considerable increase in demand. This will increase the price of the NFT considerably.
2. Branding Partnerships
With the current meta of NFTs, branding is incredibly important. It’s almost questionable in a way, as many are looking to invest in established brand’s collections rather than new and upcoming projects that provide more utility and actual use-cases. But this is something that might change in the near future.
A collection will grow in value dramatically if there’s any link to an established brand. A great example of this would be Okay Bears. They’re a 10,000 generative art collection on Solana with an immense following. One of their biggest unique selling points is that they’re partnering with Magic Eden, the biggest NFT marketplace on Solana.
This partnership helped gain trust in the project and what Okay Bears are trying to build. Shortly after their collection sold out, they accumulated the most trading volume out of any Solana NFT project. This shows you how branding can impact the price of an NFT.
3. An In-Depth, Futuristic Roadmap
One of the first things an NFT investor should look at when analysing a project is its roadmap. This outlines the future plans of the project, with attainable and measurable objectives listed on a timeline. The roadmap can help determine when certain features or utilities of the project will roll out.
If a project has a roadmap that involves exciting features being released, this will increase the value of the collection. Especially if the team behind the project is trusted, or potentially doxxed. A doxxed team is a team that has revealed their identity to the public.
The stage of a project’s roadmap will greatly influence the price of a collection. For example, if a project is one week away from releasing a massive feature, the price of the collection may spike because investors collectors are aware of this feature release.
Below is Blocksmith Labs' roadmap - a roadmap that showcases the many features their team is releasing. There's a reason this is one of the biggest projects on the Solana blockchain.
4. Community Adoption
As the community of NFT collectors and investors grows exponentially, hundreds of thousands of people are now looking for the next best project to buy into. This can be a tough decision. It’s hard to trust a collection that you’re reading about without getting any recommendations from others within the community.
That’s where a project’s community comes in. They can provide you with the verification and trustworthiness that you need before buying into a project. For this reason, most projects today are putting equal time and effort into building their community as their actual product. Without the belief and trust of a community, projects simply won’t make it.
One struggles to look past the success of the Bored Ape Yacht Club collection. Everyone wanted to be part of this community and be considered one of the original investors in the NFT era. The majority of the BAYC community remains loyal, and many refuse to sell their legendary JPEG.
5. Art Appeal & Digital Appearance
Art will always play a key role in the value of an NFT. As mentioned, it is the first impression we get of the token and it can immediately influence our demand for it. Art can play a huge role when there's impressive utility and future plans for the project. It's a great way for investors to show that they've invested in a project, while creating a sense of belonging within a project's community.
The digital appearance comes in the form of a profile picture on the likes of Twitter or Discord. Many will choose their favourite project and use the art as a profile picture. This can be seen as a way to show off, but it's also a great way to show support in a project that might be solving problems in different areas.
Personally, I'm a firm believer that art can play a huge role in the long-term value growth of an NFT, while being an effective method of showing support from a project's community - another key contributor to growing the value of a collection.
