If you’re wondering how NFTs (essentially tokenized JPEGs) have sold for millions over the past few years, here’s the short answer most people will give you: it’s because they’re art, and Art is intrinsically valuable. real. Many people think it’s that simple. However, we’ve also seen eye-popping prices on the open market for projects like NBA Top Shot and PFP NFTs like CryptoPunks and Bored Ape Yacht Club. None of the above can be accurately described as art and art alone. So the question remains: what exactly makes NFTs valuable?
scarcity equation
Whether it’s art or digital collectibles, one thing is sure to drive up the price of NFTs. What does NFT scarcity have to do with monkey JPEGs? To answer this question, let’s do a quick round of Economics 101. Follow me – we’ll keep it simple. One of the central questions that the field of economics hopes to solve and understand is how to effectively deal with the almost unlimited human desires and desires in a world of limited resources. Simply put – the power to balance supply and demand. In general—emphasis added—the way these forces interact affects one metric that consumers ultimately perceive: price. If a market has high demand for a particular commodity that is in sufficient supply, that will result in a relatively low price for that commodity in that particular market. However, the opposite also holds true. When demand for a particular commodity far exceeds its supply, it becomes a scarce commodity – which tends to command a higher price in its respective market. For a real illustration of the concept, let’s see why fruit is widely considered a luxury item in Japan. The island nation’s mountainous terrain leaves little room for large-scale farming operations. So, as Paku mentioned in the Wa-Shoku report, most fruit farms there are either “family-run or run by small businesses.” However, what the Japanese fruit industry may lack in scale, it makes up for in quality. Often, you’ll see perfect strawberries, grapes and watermelons in the typical Japanese supermarket aisle as gifts “to give to relatives, business associates and clients to thank those who take care of you,” Paku says. OK So, what makes NFTs so valuable?
NFTs and scarcity
NFTs can be very expensive (or valuable, depending on who you ask) because they somehow manage to do the impossible: introduce scarcity into a global digital marketplace. NFTs aren’t just an overly expensive way to buy an image – it’s a way to own it. When you buy an NFT, you’re not just buying the image itself. What you are buying is a permanent token etched on the blockchain that points to that specific image or digital asset. Anything, really. In addition to art, music, in-game assets, virtual land, and various other digital goods, they are often bought and sold on NFT marketplaces. So how does turning something into an NFT affect its price? Whenever you mint a digital good as an NFT, it can effectively limit its supply, thereby “driving up” its price. While this may sound like an easy way to artificially inflate the price of digital goods, that’s not what NFTs are all about. So, what other aspects about NFTs make them valuable?
Notes on Art
First, there is art. In the fine art world, works by master artists have sold for millions of dollars on the open market. The sheer value of fine art is equally incomprehensible to the average Joe or Jane. Take Mark Rothko’s numerous works that have sold in the art market for tens of millions of dollars. On the surface, it may be a little hard to understand why a canvas of orange, red and yellow is worth nearly $87 million. Simply put, the price is high because it is the only painting of its kind in existence, and because it was created by one of the most prominent artists of the 20th century. That’s why most of the most expensive NFT sales we’ve seen so far are one-to-one pieces. Like Rothko’s orange, red, and yellow, these special NFTs are unique of their kind. Take Beeple’s Everydays — which sold for nearly $70 million in 2021 — and these pieces are truly unique. Everydays features 5,000 unique pieces created by Beeple over 14 years, with the digital artist working hard to create a new piece every day.
then utility
Occasionally, NFTs command high prices because they are much larger in scope than works of art or belong to collectibles. NFTs are also widely used as a means of raising capital, thanks to the built-in security in blockchain-based transactions. This can be observed in one of the most expensive NFT sales we have seen to date. In early 2022, AssangeDAO successfully arranged the multi-million dollar acquisition of Pak’s Clock NFT, which is (at press time) the second most expensive NFT sale ever sold. To be precise, the NFT was sold for 16,953 ETH, which was worth around $52.7 million at the time. Proceeds from the sale are hoped to fund the legal defense of WikiLeaks founder Julian Assange.
NFT Solutions
Ultimately, NFTs may also provide non-monetary value to internet users around the world. While restricting the supply of digital goods helps NFT artists and project leaders inject scarcity into their virtual goods, blockchain may also play a role in ensuring that these goods are available indefinitely. Traditionally, the supply of digital goods has been virtually limitless. A theoretically unlimited number of digital copies of games, books, music and movies can be purchased. You’ll never see digital items running out of stock – but they will stop selling at some point. When digital markets are closed, it is impossible to obtain certain digital-only goods. As an example, let’s look at Nintendo. The company is known to have a negative stance on piracy and emulation, and its goal is to wipe down every website that hosts games that the Japanese gaming giant no longer sells. Unfortunately, this makes it extremely difficult to save the company’s countless games and prevent them from being lost in time. For NFTs, as long as the blockchain exists, all assets stored on it will also exist. As blockchain technology continues to evolve and evolve, so will the types of NFTs we will see moving forward. Maybe one day you’ll be able to have a digital master of your favorite movie — not cheap, of course.
