Education
April 8, 2022

Read this before investing in NFTs

Selling a tweet, a pixelated image, or an NBA top shot may seem such a bizarre concept for newcomers in NFT.

Selling a tweet, a pixelated image, or an NBA top shot may seem such a bizarre concept for newcomers in NFT. Knowing, however, that people already made millions from these digital items as non-fungible tokens might lure you into considering this as one of your income streams.

DappRadar reported $25 billion in NFT sales in 2021.

From selling Mini Bottles Evolution Set for $29.95 and German Trink Plastic Coolers fro $550 on their website, Coca-cola now sells collectibles as NFTs. A loot box containing a Friendship Boc, Coca-cola Bubble Jacket, Sound Visualizer, and Friendship Card, was auctioned for $575,883.61 in the OpenSea marketplace.

Read on to find out how these items are given hefty price tags.

How do you derive the value of an asset?

Unlike a meal served in a restaurant where prices are determined by material costs, labor costs, and markup percentage, the value of an NFT cannot be determined by a sure-fire formula.

You will have to consider these factors to assess if an NFT is worth its price.

Rarity

In the case of NFTs, it’s hard to spot which of the collection is rare by just looking at them. In Bored Ape Yacht Club’s NFT collection, for example, it’s hard to tell why one ape costs more than others.

If you look closely into its properties, you’ll know that some are rare. Less than 1% of Bored Ape NFTs have solid gold fur, bored unshaved mouth, and a blue bandana. So, if you find such rare qualities in an ape, you’ll know that NFT is worth your bid.

Utility

While some NFTs are merely collectibles, more practical crypto users put more premium on an NFTs utility. Users invested in play-to-earn games are more interested in a character that would give them a great advantage in the virtual land. Thus, increasing the chance to earn more from the games. 

Tangibility

Musicians, both mainstream and independent, already saw the advantages of tokenizing their craft. Not considering other factors such as rarity, an NFT that gives a user access to an artist’s meet-and-greet event is more valuable than an NFT linked to album artwork.

Ownership history

Clicking on the item's details in the marketplace reveals vital information, including its transaction history. You'll know who got their hands on a collectible, a trading card, domain name, and all other items listed on the site. 

Naturally, users will go after NFTs created by artists who are projected to be more popular in the future. If these NFTs were bought by celebrities, their values are sure to increase. Who wouldn't want to bid on a Bored Ape owned by Eminem or Snoop Dogg?

Why invest in NFTs

Security

Because NFTs are operating on a blockchain, a public ledger preserves its authenticity by recording all transactions in a public ledger.

Transactions are conducted through smart contracts, which makes them automated and unbreakable. 

Liquidity

If you're looking for an investment that could be easily converted into cash, you will have to do your research to find the right NFT for you. 

Other NFTs such as virtual lands also allow you to still own the asset but have it rented out by other users. The fee goes into your wallet 

Potential for growth

NFTs are relatively new compared to other traditional forms of investment. Large companies, celebrities, artists are still exploring the possibilities they can bank on. 

Real estate tokenized as NFTs is an idea viable for some. If you are one of the early ones in the playing field, you're sure to get the most from the crop. 

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