Valuation of NFT’s

As we taste, in the crypto world there are two types of tokens: fungible and non-fungible. Fungibles are those that function as money, a peso is always a peso invariably from the conditions of the coin.

A peso coin can be replaced by any other peso coin. On the other hand, non-fungible tokens are unique and cannot be replaced by any other token.

NFT’s can be used to represent unique digital assets, and are interesting because their uniqueness and ownership can be verified, they can be used in different applications, and they can also be easily exchanged in various markets.

Depending on the asset the NFT represents, its value comprises four different components: utility, ownership history, future value, and liquidity. These components can be used by investors to assess whether the NFT is worth investing in, and by creators of NFTs to attract users and investors.

The key is that NFTs create many new ways for value creation for creators and asset owners.

Below, we break down the four components and discuss what gives value to each:

• UTILITY: Utility value depends on how the NFT can be used. Two major categories that have high utility value are gaming assets and tickets. For example, a rare and valuable Crypto Space Commander warship sold for $45,250 in 2019, and the value of an NFT ticket is the price of that same ticket. Another dimension of this same utility is being able to use this NFT in an application other than the one in which it was purchased. If you could use that same warship in another game, the value would go up exponentially.

• OWNERSHIP HISTORY: The value, in this case, depends on the identity of the seller and the previous owners of the NFT. NFT’S with the highest ownership history value is usually created by famous artists or companies with a large presence. Based on this, we can realize that there are two ways to give more value to our NFT: the first is to cooperate with influential companies or individuals to promote these tokens, and the second is to sell NFT’S that have been previously owned by equally influential people.

• FUTURE VALUE: The future value of an NFT is derived from speculative valuation changes and future cash flow. Valuation is driven by speculation and can often be the key to high value. One could argue that speculation is bad for NFT’S, but it is human nature and a fundamental part of the current financial system.

• LIQUIDITY: Higher liquidity means higher NFT value. Liquidity is the main reason why tokens created on-chain have a higher value than those not.