Tied with the topic of NFT often comes the question, “Why are NFT so expensive?” The real reason why NFTs are worth millions is because it is decided by the buyer who is willing to pay the highest amount to own the digital item. Since they are tokenised and managed on the Ethereum blockchain, they are unique and cannot be duplicated, thus making each NFT unique. The one thing, however, that we must understand is that not all NFTs are worth millions of dollars.
Wait a second, what?
Think of NFTs as entries in an attendance register of a teacher. Each entry is unique because each name is unique and each student is unique. Think of the attendance register (database) as the blockchain (Ethereum blockchain, to be specific) on which each name (NFT) is stored. Now, let’s say that that register is available online on the school’s website. Thus, everyone can see the entry, and perhaps even take a screenshot of it and share it on social media, but the original entry will always remain in that original attendance register.
This is exactly what the non-fungibility of the NFTs is. They are non-fungible because each NFT is unique and thus cannot be duplicated. It is that uniqueness of each NFT that makes some of them worth so much.
Who decides the value of an NFT?
The value can be decided by the seller wanting to sell it at a fixed price, or the buyer willing to buy it through an auction on a marketplace. The value of an NFT is never constant, it might vary according to the person who wants to buy it. Matt Stephenson, a researcher at Columbia University studies about non-fungible tokens and talks about the value deriving from the emotional connection a person has with a certain type of art. Other than that, Hugo Chang, on Medium, explains that the value of an NFT is decided by four crucial factors: it’s utility, ownership history, it’s predicted value in the future and the liquidity premium. This is a good way for an investor to decide what the value of the NFT they want to buy should be.
NFTs are usually sold on NFT marketplaces (like OpenSea) where some of them are put up on auction and are sold to the highest bidder. Some are sold for a fixed price. Some marketplaces like Rarible will allow you to either add in a fixed price for your NFT, or simply put it up on sale.
The reason why all the hype was created around NFTs selling for millions of dollars was because of one person – Mike Winkelmann, or Beeple, whose project “Everydays” was bought by a Singapore-based entrepreneur for roughly $69 million. You may read more about that story, which has been covered by Sean, here.
Can I sell an NFT for millions of dollars?
Theoretically, yes. The process itself of creating and selling NFTs is not too complicated. However, it differs from one NFT marketplace to another. But, the functional value of digital collectibles is something that has always been debated. Regardless of whether your NFT sells for a million dollars or not, you must remember that what you sell as an NFT is nothing but a collection of metadata defining what you own.
We will soon publish a detailed how-to guide that goes into detail about creating and selling your own NFTs.
Will NFTs get cheaper in the future?
That entirely depends on whether we think that NFTs are a phase or whether they are here to stay. Matt Stephenson (the NFT researcher at Columbia University) thinks that NFTs are just a bubble and might disappear soon, while also mentioning how artists’ way of selling their work is changing.
While some say that the NFT bubble is just, as mentioned, a bubble, and the market is going to crash (if it hasn’t already crashed) soon. However, the people running the show at NonFungible.com vehemently disagree. Moreover, they are proud to share that the average price of NFT peaked at $4,000 in February, and has been at a healthy $1,500 ever since.
While it is hard to predict whether the price will go down, the data on NonFungible.com reveals that a market crash is a far cry.
Conclusion
When it comes to digital collectibles, we tend to rely more on their emotional value than a functional one. While there are different perspectives to this, some people are even questioning if the driver of the NFT craze is huge industrialists or wealthy millennials who are obsessed with anything digital. There are also questions about the heavy carbon footprint of Ethereum and the overall environmental impact. Some artists have found the whole idea quite fascinating but don’t necessarily see themselves making a fortune off of it because of the complexity of the system.
As an artist, however, I do believe that this is a great opportunity for us to showcase our work and earn a deserving amount for it. Regardless of their current or future market value, they are here to stay, and some of us are indeed going to make millions off of it.
