An NFT is basically a JPEG that has been tokenized. Yet some NFTs are collecting amazing prices from collectors eager to own the original. Some people call NFTs art, while others would argue vehemently that these tokens have nothing in common with art.
You can judge this for yourself by going through this list of the top twenty NFTs in terms of prices. Were they worth it? We take a closer look at the reasons people have for investing millions in NFTs.
Scarcity
NFTs are scarce. Only one person at a time can be the owner of each NFT. When the NFT is up for sale, if only one person wants it, the supply and demand are equal. However, when more potential buyers show an interest in owning a particular NFT, demand outweighs supply, and consequently, the price increases. You can see this at work during auction events. The price will keep on rising until there is only one person who will pay the amount they have bid. As long as no one outbids them, the situation reverts to one seller and one buyer, or one product and the price.
Of course, if supply is lower than demand, such as when an NFT has been entered into the NFT marketplace to be sold, and nobody bids or buys, the demand is zero while the supply is one. This will cause the price of the NFT to decrease to where it is low enough for prospective buyers to show an interest. If there is only one potential buyer, that person may make a lower offer than advertised. Until the seller has decreased the price to what a buyer is willing to pay, no sale will be forthcoming.
Minting an NFT will ensure the scarcity of that item.
NFTs as Art
Even in the physical world, many people find the prices paid for a work of art ridiculous. One painting that sold for $86.9m consisted of three colors and contained no objects or scenery. To an outsider, nothing prevents the painting from being reproduced multiple times, even by children. Yet, art experts stated that this particular work was created by a top artist and is the only one of its kind, and therefore the price was justifiable.
The same reasoning has been carried over to NFTs. Again, many people cannot grasp why ‘Everydays: The First 5000 Days’ fetched $69.9 million. Perhaps you have to be an art collector to understand the value of the work. Or maybe the buyer is astute and only bought the item to resell it for a profit.
Here are some NFTs available for sale from okx.com. What would you pay for one of these digital items?
A Utility Function
Aside from collectors’ reasons for buying NFTs, they can serve another purpose. An NFT can be used to raise funds. This can be done by selling NFTs in exchange for access to the fundraising event. In these cases, donors make their contributions in cryptocurrency. This strategy can also be used by bands by assigning privileges to NFT holders.
Buying NFTs will probably remain the domain of those who accept the given reasons for their value.