What’s With NFTs And Having Value?
Welcome to the latest issue of CapitalRollup Digest! Today’s digest is for May 18th, so it should take you about 5:00 minutes. We’ll get right to it.
- What does the Market Look like today? (Top 5/10 popular Indexes)
What’s With NFTs And Having Value?
The value of non-fungible tokens lies in the fact that they verify the authenticity of non-fungible assets. This distinguishes these assets from others. For example, Picasso’s paintings are not fungible. Although anyone can make copies of his paintings, the original painting remains irreplaceable and unique. NFTs make digital content irreplaceable, therefore valuable.
To understand the value of NFTs more fully, one must understand the concept of fungibility.
The term fungible refers to the ability to exchange one asset for another of equal value. For example, a currency is a fungible asset, such that if you have $20 you can exchange it for two $10 bills. It is still the same value but you have exchanged your asset for a new one.
Another example of a fungible asset is money. If Person A lends Person B a $50 bill, it doesn’t matter if he’s repaid with a different $50 bill, since they’re both equal. Likewise, Person A can be paid back with two $20 bills and one $10 bill and still be happy since the total is $50.
Ok, let’s go back to the example of the artwork by Picasso. Since Picassos’s artwork is unique and irreplaceable its value depends on multiple factors. Usually, the value for non-fungible assets will depend on the utility, ownership history, future value, and liquidity premium.
A painting or artwork is in fact, just the arrangement of colors in a specific manner. But the feelings it evokes and the impact it creates are central to the valuation of that piece of art. Recently a digital-only artwork by Beeple was sold for $69 million. What does the buyer get? Nothing tangible — only a virtual picture. But there was a value to these pixels as much as $69 million.
What makes NFT art valuable?
There are a few different key aspects when it comes to determining what makes an NFT valuable. So, how do you know if a non-fungible token holds value?
Here are some factors to consider when determining the value of a non-fungible token (NFT):
- Underlying value (the value behind the creator.)
- Potential value (future value, up and coming artists and creators, celebrities.)
- Perception of the buyer (what is the NFT worth to you?)
- Similar market value (what are other pieces from the same creator selling for?)
So continuing with the contrast with cryptocurrencies which are fungible — Fungible tokens are divisible into smaller units. Some examples are Bitcoin and Ethereum. For example, you can split up Bitcoins into Satoshis and Ethereum can be broken down into base units known as Wei.
NFTs cannot be broken down like Bitcoins into smaller units. There is a unique piece of data that is usually rare and limited in number. Couldn’t any artwork be copied and shared endlessly? Of course, it can be, but the aspect of NFT is that it can be made into a token which means that it has a digital certificate of ownership that can be bought and sold along with the artwork.
What this does is create the authenticity and credibility of the source of that work or the type of NFT that you are buying. The authentic Picasso will be valuable even if multiple fake copies of it are made and sold and hung in houses or offices. The original will still have value if its authenticity can be proven.
Which of the following is not a form that NFTs can take?
Find the answer in the next issue of CapitalRollup Digest 😉
Answer to yesterday’s trivia was D.) Phishing
Crypto Word Of the Day!
Means: New NFTs or cryptocurrencies that are automatically sent to your wallet for free. This is a common practice in the crypto space to attract and reward early project adopters.ly.
The term used in a sentence:
— The coins are automatically distributed to accounts participating in the airdrop after the user is registered.
•Community Update 📢
We will be organizing a Twitter Space session soon with 5 industry leaders where we will discuss the crypto markets and everything on web3. You can look forward to it😎
•What We Are Reading Today 📰
Elon Musk Twitter profile change briefly sends tokens of the Bored Ape NFT project soaring. Read more
How Gen Z is hooked on cryptocurrency and NFTs. Read more
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