Why Are NFTs Valuable?

Non-fungible tokens, better known as NFTs, have exploded in popularity in 2021. Certain NFTs sell for hundreds of thousands of dollars on a daily basis. Bored Ape Yacht Club and CryptoPunks are 2 of the largest NFT collections, and to get your hands on either of these collectibles you’ll need to shell out over 70 Ethereum –– currently, that’s almost $100,000 for a JPEG. Sure, you’re the indisputable owner of the collectible, but why are NFTs so valuable, and who’s buying these expensive tokens, anyway?

Not all NFTs accrue value in the same way. Through this article, you’ll learn why the most valuable collections cost thousands of dollars and how you can gain exposure to the fast growing NFT market.

Digital Ownership In Web 3.0

Web 3.0 is now being seen as the next iteration of the internet. Whereas Web 2.0 collects users’ data and a select few companies control the vast majority of the internet’s infrastructure, Web 3.0 seeks to distribute ownership to users in a decentralized way through blockchain technology. The metaverse and Web 3.0 go hand-in-hand, as users’ seek to truly own digital assets and control their privacy in their digital lives.

Non-fungible tokens aren’t just digital collectibles –– they will play a large role in shaping digital ownership in Web 3.0. Metaverse land, intellectual property, metaverse avatars, and even credit can be represented as NFTs. What’s more, metaverse fashion is being represented as NFTs; Nike recently acquired RTFKT, an NFT fashion brand, and Adidas has partnered with Bored Ape Yacht Club to create NFTs that give token holders access to physical Adidas clothing for free.

Understanding Non-fungible Tokens

If you’re familiar with cryptocurrencies, non-fungible tokens are extremely similar. Fungible tokens, such as Ethereum, Bitcoin and Dogecoin, all hold equal value and are indistinguishable from each other. One Ether is equal to one Ether, just like how one dollar is exactly the same as the next. Non-fungible tokens are exactly the opposite: they’re tokens that hold distinct value and each token is unique from the rest thanks to the metadata written within the token. 

Just like normal cryptocurrencies, there’s no intermediary that verifies ownership or authenticity of non-fungible tokens. Instead, the blockchain’s network verifies ownership in the exact same process as how fungible token ownership is verified on the blockchain.

How NFT Collections Accrue Value

The way that an NFT collection accrues value depends on the type of NFT in question. The most common type of NFT today are digital art collectibles. In many ways, these collections become valuable in the same way that traditional art becomes valuable: through the notoriety of the artist and the historical significance of the collection. While this is the case, many NFT collections add value in other ways that traditional art cannot do.

For one, owning a high-end NFT grants the owners exclusive access to other investment opportunities. Bored Ape Yacht Club owners have been airdropped NFTs worth 5-figures for simply owning a piece of the BAYC collection. Moreover, Adidas gave Bored Ape holders early access to its NFT collection, allowing them to profit thousands of dollars from the release on the secondary market. 

Another benefit that adds value to non-fungible tokens is social capital. Holders of high value NFTs are often seen as wealthy, crypto-savvy investors that are often early adopters. Not only this, but NFT collections can be seen as an exclusive club similar to traditional members-only clubs in the real world. The key difference here is that instead of paying an annual membership fee, you simply need to hold an NFT from the collection –– which may actually end up being profitable. Several celebrities and high networth individuals are part of The Bored Ape Yacht Club, including Mark Cuban, Shaquille O’Neal, Snoop Dogg, Justin Bieber, Madonna and Jimmy Fallon. 

To see the full list of celebrities that own BAYC NFTs, check out our celebrity ape tracking page.

NFTs In The Metaverse

Aside from digital collectibles, NFTs will play a crucial role in building out the infrastructure of the metaverse. Digital land in Decentraland and The Sandbox are sold as NFTs, and users that own land can monetize their real estate in a similar way that landlords monetize real estate in the real world.

Digital items are also represented by NFTs. This can be digital wearables, membership tokens, or in-game items for video games. Since these digital items aren’t being held on centralized servers, they’re often interoperable with a variety of applications and games. Also, owners of these assets can sell their digital items on secondary marketplaces, something rarely seen in Web 2.0 where companies control your digital assets.

How To Buy Non-Fungible Tokens

The most common way to go about purchasing NFTs is through OpenSea, a decentralized application built on Ethereum’s blockchain. Coinbase and SushiSwap are both creating NFT marketplaces, so watch out for new platforms releasing that may be better suited for beginners. 

Before using OpenSea, you’ll need a few things. First, you’ll need ETH which you can purchase on a cryptocurrency exchange like Gemini, eToro or Voyager. Once you own Ether, you’ll need to send it over to a cryptocurrency wallet connected to your laptop –– the best option for this is metamask which you can download for free on the Google Chrome store.

Once you’ve sent ETH to your Metamask wallet, simply connect your wallet to OpenSea and you can begin placing bids or purchasing NFTs. Be sure not to interact with any NFTs randomly sent to your wallet, and don’t connect your wallet to any suspicious websites. Cryptocurrency hacks are common and there’s little you can do once a hacker takes your digital assets.

The State of The NFT Market

Time for some brutal honesty. Most NFT projects won’t be worth anything years down the line. Artists who never sold art before are making millions through NFTs and are providing little value to token holders after the launch. It’s clear there’s mania in the NFT space, and the growth we saw in 2021 likely won’t continue at the same pace moving forward. 

This being said, there’s still a huge opportunity to make massive profits from NFTs. The key is to find the right projects with strong community backing. Without an active developer team and a robust community of supporters, small NFT projects will have trouble retaining their collections’ value. If you’re willing to risk larger amounts of capital in this new industry, high-end NFTs are often seen as safer investments than new projects. This is because high-end NFTs give owners exclusive access to instantly profitable ventures, and there’s already huge communities and culture built around the largest projects. 

How To Store NFTs Safely

While you have the option to store your NFTs in your Metamask wallet, this isn’t best practice. Websites can steal your digital assets if you connect your wallet to a malicious site, and software wallets like Metamask are connected to the internet, leaving them prone to security breaches. 

Hardware wallets are the safest way to store digital assets, both NFTs and normal cryptocurrencies. Hardware wallets store access to your funds on an external device which isn’t connected to the internet, keeping your investments safe from online hackers. 

Best Hardware Wallet: Ledger

Ledger is the most well-known hardware wallet brand in the industry, and the company has been selling wallets since 2014. Ledger offers 2 wallets to choose from: the Ledger Nano S and the Ledger Nano X. The Nano S is their entry model, coming in at $59. It can store most cryptocurrencies and offers the same security as the Nano X, so it’s the ideal choice for most investors. 

The Ledger Nano X is the company’s flagship product. It costs about $129, and offers a few extra benefits over the Ledger Nano S. The Nano X lets you connect to your laptop via bluetooth. Also, the wallet lets you store more cryptocurrencies than the Nano S, so if you’re investing in several different digital assets, it may be a good idea to opt for the Nano X.

Is It Too Late To Get Into NFTs?

The non-fungible token market is still in its infancy, and it’s likely that the landscape of the industry will drastically change within the next few years. While it’s not too late to get into NFTs, you can still very well lose money on NFT investments. NFTs can be incredibly risky, more so than traditional cryptocurrencies. Before investing in a non-fungible token, be sure to do your own research and only risk capital you’re willing to lose. 

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