While the phenomenon of NFTs really only started to take hold in 2020, the concept has actually been around for longer than you may think. The history dates back to 2014 when the first ever NFT, a video clip known as Quantum, was released.
Mainstream artists, most notably the rock group Kings of Leon, have brought things into the wider public consciousness and developments have built exponentially since that point.
What is an NFT?
Don’t be afraid of asking the question: It’s a new concept and not everyone has a grasp of NFTs and what they truly mean. The initials stand for Non-Fungible Token. When something is non-fungible, it cannot be replaced and is, therefore, unique.
In creative terms, this could be a one-off piece of art or a vinyl record that is exclusive to one lucky purchaser. The world of sport has also embraced the movement with match worn equipment and other unique packages being offered for sale.
Across a range of digital industries, many outlets now have and NFT marketplace which brings us on to the next question. With some tokens changing hands for eye-watering sums of money, just how can the value of an NFT be ascertained?
The name behind the NFT
Some tokens can sell for millions of dollars but the average price of an NFT stands at just $120 USD. There are, clearly, some wild fluctuations in pricing and a number of factors which will determine the final price.
One of those factors relates to the name of the supplier. It’s natural that a big name such as the Kings of Leon would command a higher price for an NFT than an unknown artist selling digital prints in their living room.
But these criteria don’t just apply to painters and musicians: In 2021, Sir Tim Berners-Lee sold the original source code for the World Wide Web at a cool $5.4 million.
For those who already have a name in their individual fields, the scope is limitless. It’s said that the mysterious street artist Bansky is ready to get involved and that will have another significant effect on the value of NFTs in the near future.
A true one-off?
When is unique really unique? The dictionary definition is quite clear but some producers are not quite getting into the true spirit of NFTs. Those Bansky releases could appear as 1000 different tokens which is stretching things somewhat.
In the music field, artists have issued more than one ‘exclusive’ gig package to fans. While the boundaries may be there to be broken, an NFT will clearly be more valuable if it is a true one-off.
NFTs as an investment
It’s a new and potentially volatile area but some producers are basing NFT values on the potential for future investment. It’s a tricky area to quantify but, once again, having a big name behind the token could see the value rise in the future.
Other investors look at NFTs and assess the potential for their yields. If a token can bring income while it’s held by the individual, then it’s clearly going to be more valuable. An example of this involves mobile games where words or characters can make a positive contribution to the title in question.
When a player claims that word or character, the holder may be paid a fee. Over time, those fees could even cover the original cost of the NFT itself.
This is an aspect that will resonate with experienced financial traders. An NFT which can be traded easily in secondary markets will tend to have a lower value. Therefore, if there is a thought of selling on in the future, it pays to look for a release that has a higher liquidity.
Ultimately, it can all be down to desirability and a demand for the product. That’s the same with any item with a financial value and, in that respect, NFTs are no exception to the general rule.
In the future, we could well see a whole new breed of artists and personalities develop thanks to the introduction of NFTs. In the same way that YouTubers and those who harness the power of other social media platforms have succeeded, this offers a perfect starting point.
The Metaverse will also play a part as a home for these artists to develop. In time, it would be no surprise to see NFT producers develop into celebrities in their own right.
This could have the biggest impact on the value of NFTs in the months and years ahead. Existing big names will also be thrown into the spotlight and prices may well increase in the short term.
Moving forward, the marketplace may well settle down but an initial boom looks set to be sustained for the near future at least.