NFTs are, for sure, one of the markets of the moment. Many people are opening their eyes to new tendencies and learning to invest in them. But a question that always appears when you start to study them is: Why are NFTs so expensive? Even though this is an interesting question, it is more complicated to answer, and, to do so, we will need to look at several factors related to NFTs.
Before we explain the reasons behind NFTs prices, we need you to understand exactly what an NFT is. So, before we start, let’s talk about the Non-Fungible Tokens themselves.
What is an NFT
NFTs can be literally anything; when we say anything, we mean it, so you can be very imaginative. They are all kinds of digital assets and digital objects, such as digital art, digital space or digital land, videos, tweets, simple images, collections, and other digital objects.
It’s not the digital asset alone that determines if it’s an NFT or not, but a fundamental characteristic: the item, no matter what it is, MUST BE unique. And that’s the thing! The digital art, digital space, and other digital objects you buy are unique, no matter how similar they are to any other non-fungible asset you may see. In other words, only one person will have it.
So, as the term non-fungible already suggests, an NFT is something that can’t be replaced or exchanged for something of equal value. Therefore, it cannot be replaced. A one-pound coin, for instance, is something fungible. You can exchange it for another coin in both the physical world and virtual universe, and have the same value, no matter if the coins are different.
How Do I Prove the Digital Art or Digital Space Is Mine?
Since you already know what an NFT is, you may ask how to prove you are the owner of digital assets. After all, think about a digital painting sold to you by a famous artist. Anyone could get there, take a print of this picture online, and have the exact painting to use the way they want.
The same can happen with several other digital assets, not just with a particular painting. The first-ever tweet was transformed into an NFT and sold for nearly $3 million. Essentially, it is just a tweet, so everyone could print it.
Well, this would configure a fake digital asset, as the ownership of digital objects depends on the blockchain. This is how you prove that any digital collectibles are yours, and everybody will know you are the only owner. This new technology holds the ownership history in a giant database.
Think about Mona Lisa. It has been printed millions of times, but only the original has true value. NFTs work with a similar approach. The blockchain will ensure your safety on that matter.
What is Blockchain?
Blockchain technology is a system of information recording created in a way that is practically impossible to change or hack. This giant database maintained by a great number of people on their computers is what makes the official register of all your NFTs. This digital ledger of transactions is distributed through all the computers that compound the network. It is strong and extremely safe.
Why Are NFTs so Expensive? Main Reasons
Now that we have established what non-fungible tokens are, we can finally talk about the reasons for some of them getting to an astronomical price.
No Value At All in Most Cases
The first thing to say about that is not all NFTs are expensive. In fact, most NFTs don’t get practically any value at all, even though all of them are one of a kind and cannot be replaced. So, why do people invest so much money in it? Well, we only hear of the non-fungible tokens worth a lot.
In other words, it is always a famous collection of important digital assets related to the virtual world. It’s like physical art and other physical things. We don’t hear about all the paintings sold for normal prices; we only hear about the high values.
That’s What People Want to Pay
Many people, mainly before the NFT market explosion, bought NFTs because they were really interested in having them. When something is new, original, and innovative, it’s normal that people may want it and decide to pay a higher price.
It’s extremely hard to determine value over a digital object such as a digital painting, especially where nothing has identical value, even more considering this is new technology. It is normal to see that, for any reason, a non-fungible token becomes important to someone.
The Bubble Effect
Another important factor that makes NFTs expensive is the bubble effect. These bubbles grow when a market gains evidence because of artists or because one digital object becomes a record sale.
Therefore, many people start investing in the market without knowing it, expecting to resell the digital land or whatever they bought. One example of NFT that experienced both aspects of the bubble effect is the famous collection called Bored Ape Yacht Club.
Celebrities like the star Justin Bieber and the football player Neymar are two examples of famous people who got their Bored Ape Yacht Club digital art. Another example is the digital land sold in the Otherside Virtual World. Those who wanted a small part of virtual land had to pay more than $6,000 for each piece.
Some NFTs get extremely valuable because they offer advantages in real life, inside an online game, or virtual world. Once again, the Otherside Metaverse is an example. Virtual goods related to it are expensive because people know how big the metaverse tendency may become, and they want to be a part of it.
It is a new technology with great potential, so people want to take advantage of it. The expectation is that people will pay tens of millions for it quickly. Otherside, for instance, is also created by the same company that created the Bored Ape Yacht Club, so you can imagine why these NFTs are valuable and are sold for a higher price than most. Some people even dream about the monkeys appearing as unique avatars.
A Metaverse is like a game or virtual world where people have unique avatar versions of themselves. It’s like a new digital life in a whole new world of unlimited possibilities. Even though we have no idea how far it may go, many people have already paid thousands to ensure their space.
Real World Benefits
Besides the rising dream of digital life, many NFTs may provide their owners with specific advantages in real life. And, for such advantages, people may want to pay a lot of money. One example is the music album When You See Yourself by the band Kings of Leon, which had more than $ 2milion in sales. Besides the complete track of songs, the album’s acquiescence ensured the owner the possibility of watching the next shows of the group in special places without paying more for it.
NFTs: The Risk Behind the NFT World
A lot of people are getting delusional about NFT, but we recommend you be extremely careful. Of course, NFTs are awesome and new, as they have unexplored potential. But their values are extremely hard to estimate, and the markets tend to be volatile. Besides, it’s reasonable to say that 95% of all NFTs are faded to fail and disappear, which will make a lot of people lose money.
Study and Connsicience are the Keys
As mentioned before, NFTs are extremely volatile and hard to predict, but, as in any kind of market, some patterns and situations will interfere and can make NFTs valorize. In the same way, other factors can cause the values to go down. It is not like a physical house or investment in big companies that tend to valorize with time. Things can go crazy very fast.
Examples of factors that can interfere may be celebrities buying NFTs, countries’ economic situations, and government measures, like new taxes. Therefore, we recommend you only buy NFTs with money you are not afraid of losing.
Look for the Right Type of NFT
Of course, you will find some NFTs that seem a little foolish but became famous pieces of well-known collections. The thing is that they are one in millions. More and more, the NFTs that became successful are the ones that are a part of consistent projects or offer real benefits for people, companies, or the world itself.
That way, we recommend you look for creative ideas or projects that you believe could work. This is what makes metaverse-related NFTs so interesting, for instance. Nowadays, Metaverse isn’t completely established, which everybody knows and still participates in. But everybody understands the potential and the possible return it has, so everybody wants to buy NFTs.
NFTs of rising companies related to the digital world or from big and established organizations are two good calls. Besides that, NFT games, Metaverse, or NFTs related to environmental projects can also be a great start.
From the bubble effect to Metaverse possibilities, you already know the main factors responsible for the explosion in the prices of NFTs. Besides that, you already know other factors that surely impact the development of this complicated yet very rewarding market.
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