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We’ve all seen how NFTs or Non-Fungible Tokens gain lots of traction over the past few years.
These tokens are unique in that every single one is different from the next. They can be used to represent anything from virtual goods to real estate ownership.
And because of the uniqueness of NFTs, they come with a high price tag.
Ever wondered why so? Me too, so I took some time to research and collate information on this.
In this article, I’ve put together the reasons why NFTs are so expensive and why they hold such incredible value.
Read on more to find out:
What Is An NFT?
NFTs are known as Non-Fungible Tokens and are digital assets that are stored on a blockchain. Because they are stored on a distributed ledger, they cannot be replicated or counterfeited, which makes them unique. NFTs can represent anything from a piece of digital art to a tweet to a virtual world.
Here’s my opinion, it isn’t simply a digital object that’s just a picture online (.jpeg!)
Why Are NFTs So Expensive?
NFTs are so expensive because they hold perceived value from their holders, who believe that their value will increase over time. Many see NFTs as investments, as digital assets with utility, and as a way to gain exclusivity in social circles, and these raise their prices.
1) NFTs Have Utility
NFTs have a lot of potential utility.
For one, they can be used to represent real-world assets. This means that they can be used to trade and invest in digital art, land, and other things.
Additionally, NFTs can be used to represent other digital objects and assets, such as in-game items or digital space and collectibles. This allows for a whole new world of trading and investing in digital assets.
These draw links to other web 3.0 concepts such as the metaverse, where NFTs allow access to a community in a metaverse land, or the ability to purchase future land.
For example, Gary Vaynerchuk was the original pioneer in pushing the utility of NFTs.
By holding NFTs under his famous collection called VeeFriends, you’ll gain access to the community, receive updates and special access to digital resources, and entry to his annual VeeCon where he will show up and interact with holders.
The Bored Ape Yacht Club NFT collection is one that many will recognize because of how popular it is, even among people who may not know much about NFTs.
Holding this digital asset means more than just a particular painting, it also gains access to the otherside virtual world through Otherdeeds (a virtual land NFT for BAYC holders).
2) NFTs are Scarce
The reason that NFTs are so expensive is that they are limited in supply and there is high demand for them.
Due to their unique nature, NFTs have become popular among collectors and investors.
Some NFTs have sold for millions of dollars! For example, an NFT of a digital painting called “Everydays: The First 5000 Days” by the artist Beeple sold for $69 million at Christie’s auction house.
The price of an NFT is also dictated by how much people want it. If there’s only one person interested in buying an NFT, they’re not going to have to pay very much for it.
But if there are dozens or even hundreds of people competing for the same asset, the price is going to go up accordingly.
This follows simple economics where demand is high when supply is low. And when demand is high, the price of the NFT increases along with it.
Once a pre-sale or public mint is live and all NFTs have been snatched up, the NFTs will only be available on the secondary resale market, which will increase prices.
For example, digital land sold in popular web 3.0 metaverses such as Decentraland and Sandbox skyrocketed because many organizations saw the scarcity of land, driving up digital land (these are NFTs) prices like real land.
3) NFTs Prove Social Status
NFTs are a bit like social status symbols. They often show that the person who owns them is wealthy or exclusive in some way.
For example, celebrities often purchase NFTs to gain exclusivity. This means that only they can have access to certain things, like certain pieces of art or songs. The fact that they’re willing to pay more for these things shows that they have the means to do so.
And it also shows that they value the exclusivity that comes with owning an NFT. So in a way, NFTS can be seen as a way for people to show off their social status.
When well-known celebrities jump on the bandwagon, everyday holders will jump on too, driving the price up higher and higher.
4) NFTs are Unique and Prove Authenticity Easily
NFTs are unique, digital files that are stored on the blockchain. Blockchain is a decentralized, secure way to store data that can’t be changed or tampered with.
When you buy an NFT, you’re buying the file and the metadata associated with it that proves that it’s a genuine, one-of-a-kind piece. NFTs can be a digital painting or any kind of art like music, videos, or even tweets.
That also means that when you screenshot an NFT, it doesn’t mean you own it. An NFT is a line(s) of code on a blockchain, not a .jpeg file.
Did you know there are such things as NFT domains? These are unique and cannot be shared by two different owners. They can be used for websites, used as web 3.0 wallet addresses, and other use cases.
5) Some NFTs are Drawn By a Famous Creator
Another reason NFTs tend to be expensive is because of the famous artist behind them.
If somebody is famous or has a large following, their work is going to fetch a higher price than somebody who isn’t as well-known.
This is similar to how physical artworks by famous artists sell for millions of dollars at auction – it’s not just the piece itself that’s valuable, but also the artist’s name attached to it.
In the NFT world, it’s all about finding out which digital artist is more likely to make a famous collection – and this can drive the demand and price up for these particular NFT collections in the NFT market.
Are Buying NFTs worth it?
It is worth it to buy an NFT if it’s for investment purposes or social status. However, if you’re just buying them because they seem cool or because everyone else is doing it, then maybe hold off on investing in NFTs until you’ve understood why they’re so valuable.
For example, why is the artist behind it popular? What kind of exclusive content does this NFT give you access to? Are there any other use cases for this particular NFT that make it worth investing in?
These are all questions you should consider before buying an NFT. Ultimately, do your research and don’t buy something just because it’s popular or trendy.
By understanding why NFTs are so expensive, you’ll be able to make more informed decisions when investing in them.
Why are people buying NFT?
People are buying NFTs because they’re unique, and they can prove authenticity. They also serve as a way to show off social status, or purchase exclusive content that others may not have access to.
How are NFTs created?
Anyone can produce or market an NFT. Brands can develop NFTs that are sold by promoting them online and distributing them. Those who are making digital work are going to convert the digital work onto NFT on a blockchain.
Minting is a technique that converts all data into NFS. This process is the same as creating and distributing metal coins.
The author can use the work on his preferred NFT platform to pay the royalty to the creator.
Upon purchase of a non-fungible asset, the creator receives commissions for the sale.
NFTs are a new type of asset that has created a lot of buzz in the crypto and digital art space.
They are expensive because they are scarce, prove social status, allow people to easily prove authenticity, and if drawn by a famous creator – fetch a higher price.
If you’re looking to get into investing with NFTs, make sure you use an NFT portfolio tracker, it will make your life much easier!
If you’re looking to buy an NFT, remember that the price is also determined by how much people are willing to pay for it. So if there’s a lot of competition for the same asset, you can expect prices to be higher than normal.
All the best in your journey of entering the world of NFTs!
I’d recommend you check out an NFT course to quickly get up to speed on what they are, what they can do, and what specifics you’ll need to get started!
If you’d like to find out how some people print out their digital objects into physical art, read this article on how to display NFTs.
Thanks for reading 🙂
Justin is the founder and author of Justjooz. He is a Nanyang Technological University (NTU) alumni and a former data analyst.
Now, Justin runs the Justjooz blog full-time, hoping to share his deep knowledge of business, tech, web3, and analytics with others.
To unwind, Justin enjoys gaming and reading.