Over the past half year, the term NFT has entered the everyday terminology in a big way.
NFT stands for Non-Fungible Token, or non-fungible digital token.
“Non-fungible” means “not reproducible”: each NFT is a unique, non-interchangeable piece that cannot be replaced or replicated.
NFTs are created through the blockchain, a data structure that is based on sharing and immutability.
NFT can be any digital object: a photograph, a video, a text, a gif, an audio file.
n 2021, 0.04% of the world’s population bought an NFT: but the criteria for NFTs not to be a passing phenomenon, but a real outpost of the future, are all there.
In the year of the NFT explosion, in fact, we often heard of tokens being sold for record amounts. Why is this happening? Are these prices justified by real benefits or are they just part of a big speculation?
What determines the price of NFTs?
One of the most influential factors on the price of an NFT is definitely its history. For example, if an NFT is designed by a world famous creator, the auction base will surely be higher. Moreover, if an NFT has been owned in its history by a celebrity or an icon of the star system, the price, also in this case, will rise. In some cases celebrities may only be the testimonial of an NFT collection without having owned or created it. The higher the fame of the testimonial, the easier it will be to see sold-out NFTs from the collection, even at high prices.
Very often the NFT collections are in turn divided into various releases, even deferred in time: a technique adopted to be able to segment the offer, managing to meet the purchasing possibilities of the widest possible audience. Exactly as in other markets sensitive to the fame of the brand and to the availability of the good, the rarer an NFT will be, the more precious it will be.
Another factor characterizing the price is the liquidity and trading volume of a given collection. Liquidity is high when an asset is easily sold once it is put on the market: the higher the trading volume, the easier it will be to convert an NFT into cash or cryptocurrency to buy another asset.
he higher the purchase price of an NFT, the more difficult it will be to find a buyer willing to pay the amount spent: collectible NFTs, therefore, are subject to less liquidity.
Also the net on which the NFTs are mounted turns out a factor in a position to favor or less their liquidity. Minting is nothing but the publication of a non-fungible token on the blockchain to make it purchasable. There are many blockchains that support NFT, but for the moment the Ethereum ERC network, despite the high commissions (gas fees) to be paid for each transaction, remains the reference one. This happens precisely because of the liquidity it guarantees, being supported by the majority of wallets and NFT marketplaces of reference such as Rarible, OpenSea or Zora.
Utility: what makes an NFT most interesting outside of niches
But the element that most of all makes the purchase of an NFT virtuous is certainly its immediate utility. The utility of non-fungible tokens can be different depending on the ecosystem in which they are used. NFTs can serve to certify a digital or even physical property, can be an element of a game, represent a pass to access a good or service, or serve to guarantee the authenticity of a good, eliminating the possibility that the referenced good could be counterfeit. An NFT that has a well-defined utility, in everyday life, that is understandable even to non-experts in blockchain, becomes attractive even in the mass-market.
In the next article in this blog, we will illustrate how and why NFT can be useful and easily applicable even in industries that have existed long before their emergence, and that just by the advent of NFTs can be revolutionized.