Various factors such as ownership, utility, rarity, and social evidence are basically the most important metrics used to find out how valuable an NFT really is.
There is no set of rules for assessing an NFT assessment. The metrics you use to value private companies or conventional investment vehicles like stocks simply don’t apply to NFTs. Usually, the last buyer’s payment gives an indication of the value. With NFTs, however, it’s hard to guess what the next buyer might pay based on your estimates.
Most buyers lack the skills to logically determine the value of NFTs and base their offers on guesswork. It’s also difficult for sellers to determine what they might end up getting for the tokens they hold. Over time, the value of NFTs is determined by the perception that buyers and sellers may not have control over them.
An example may make the point even clearer. An NFT artwork can be in high demand for a time as potential buyers assume it is rare and hopes to appreciate in value in the near future. Then they suddenly realize that the digital image is freely available on the internet and there may be no more buyers for the NFT.
READ MORE: Top NFTs to watch out for in 2022
Factors that determine the value of NFTs
NFTs of artworks by renowned artists or tokens associated with renowned tangible assets can have defined values. In most cases, however, investors and traders find it difficult to determine the value of an NFT.
Demand for an NFT is directly proportional to its perceived scarcity, but how can you tell how rare an NFT is? Exclusive artworks by renowned illustrators can be good examples of rare NFTs, as can tokens minted by high-profile celebrities. Some rare items in the game can also call successfully for this category. The rarity factor gives these NFTs a lot of intrinsic value.
Immutable proof of ownership gives the NFT holder a sense of distinction and consequently value. Beeple’s Everyday’s The First 5000 Days and Jack Dorsey’s First NFT are excellent examples of NFTs with an element of rarity.
To figure out how to evaluate NFT projects, utility turns out to be a key parameter. To carry any value, an NFT must be used in a real-world application. For example, NFTs can be used to tokenize real estate, precious metals, and even bonds; to represent virtual terrains or game assets, and in many other ways. The NFT world is still in its early stages, and new innovative use cases are sure to emerge as it matures.
Shortly after minting, an NFT gains value from its inherent properties. Value accumulates over time based on the utility and community strength of the underlying project. Decentralized and NFTs related to virtual countries in the project are excellent examples of such tokens.
See also: How to create an NFT: A guide to creating a non-fungible token
NFTs connected to real objects draw an element of tangibility. It is referred to as immutability of property in blockchains and creates immediate value in tangibility. NFTs can be used effectively to highlight ownership and eliminate instances of fraudulent activity. The practical utility of NFTs in the projects they are involved in affects their value.
NFTs with tangible value is perfect for both short- and long-term trading. Some NFTs, such as B. tickets, may have an expiry date, while others, e.g. For example, those representing real estate may appreciate in value over time.
READ MORE: How to Spend NFTs in the Metaverse
A key factor in NFT’s value proposition is interoperability, ie the ability to use the tokens in different applications. For example, if the same weapon can be used in different games, the token is more likely to increase in value. How non-fungible tokens work on different blockchains will always simplify transactions.
However, interoperability is difficult to achieve as developers need to build a vast network of applications in which tokens can be used. A number of compelling use cases contribute to NFT interoperability. Another strategy that developers can follow is to create partnerships with other projects to bring benefits to the people who own their tokens.
The social proof associated with the design behind an NFT is one of the key factors that determine the value of the NFT. Checking their profiles on social media platforms like Twitter and Instagram can help gauge their acceptance. If the numbers are low, it suggests they haven’t been able to build a solid foundation for themselves yet.
When meeting a person or project for the first time there is a natural tendency to get tips from people around the project. Social proof shows what people generally think about a project and helps in decision-making.
The identity of the issuer and previous owners of an NFT affect its value. Tokens created by reputable individuals or companies benefit from a high historical ownership value. You can enhance the NFT value proposition by working with people or companies with strong brand equity to issue NFTs.
Reselling NFTs formerly owned by influential people is another way to gain ground. Marketplaces and sellers can help buyers find information about previous owners of NFTs by providing a simple tracking interface. Highlighting the addresses of investors who took home a good amount of NFT trades will help buyers gain valuable insights.
READ MORE: Top NFT Consulting Firms In The World 
High liquidity NFTs also have a higher value. Secondary markets provide a place where ERC or BSC standard NFTs can be traded smoothly, giving buyers instant access. Traders prefer to invest their money in NFT categories with high trading volume as more liquidity helps them to earn their profits easily. A highly liquid NFT is likely to retain its value even if the associated platform is shut down.
The token economy emphasizes increasing engagement and subsequently, liquidity will drive NFT’s value proposition higher. An integrated system that devalues NFTs when they sit idle for too long and promotes competitive assets can help build a resilient market. As the NFT market grows, systems will be put in place to support asset liquidity.
There are times when speculation becomes the catalyst for price increases, for example, the price of CryptoKitty #18 fell from 9 ETH to 253 ETH in just three days in December 2017. people and cannot be eliminated in practice.
Even in the conventional financial system, instruments such as derivatives are based on speculation. With that in mind, it’s no surprise that speculation is becoming a non-trivial part of the NFT ecosystem. Price-performance charts for NFT items, changes in the assets underlying the projects, and even events beyond your direct control can fuel speculation and drive up NFT prices.
Continuous change in the NFT ecosystem
NFTs are an emerging ecosystem in constant evolution. Several factors that affect the value of NFTs are evolving rapidly, and to increase accuracy you need to consider them all. Furthermore, value is largely a subjective concept, although it could be argued that the discussion revolves around intrinsic value. In this scenario, solving how to determine the future value of NFT becomes even more difficult.
Since NFTs are an asset class with endless possibilities, we can safely assume that their versatility will continue to grow and profitable opportunities will be available in different sub-categories. The number of use cases for NFTs has increased rapidly. NFTs can now be used in applications such as ticket distribution to secure voting rights.
When exploring an NFT appraiser, you just need to be aware that not all that glitters is diamonds. So be patient and consider a whole range of factors when coming to a decision. At a time when all manner of NFT marketplaces are popping up, from all-encompassing platforms like OpenSea to niche ones like Real Nifty, it becomes especially important to do your due diligence and make an informed decision.