How NFTs Create Value

    NFTs have begun to infiltrate popular culture in a variety of ways. Saturday Night Live parodied them, and high-profile celebrities like rapper Snoop Dogg and NBA great Stephen Curry endorsed them. Each week, public marketplaces like Foundation, OpenSea, and Nifty Gateway, as well as custom-built applications like NBA Top Shot and VeVe, sell hundreds of millions of dollars in NFT.

    However, many people are perplexed as to how internet tokens could be worth anything at all, especially when many of them simply indicate “ownership” of an online image or animation that you could theoretically download for free.

    NFTs as a tool for market design

    NFTs have profoundly altered the digital asset market. Previously, there was no way to distinguish between the “owner” of a digital artwork and someone who simply saved a copy on their computer. Markets cannot function without clear property rights: before someone can buy something, it must be apparent who has the right to sell it, and once someone has bought it, ownership must be transferred from the seller to the buyer. NFTs alleviate this difficulty by providing a tangible representation of ownership that both parties can agree on. They enable markets to be built around new forms of transactions, such as buying and selling things that could never be sold before, or allowing transactions to take place in more efficient and useful ways.

    Each NFT is a one-of-a-kind digital thing, as the name “non-fungible token” implies. They’re maintained on blockchains, which are public-facing digital ledgers that make it easy to prove who owns a certain NFT at any given time and trace the history of previous possession. Furthermore, it is simple to transfer NFTs from one person to another — just as a bank can move money between accounts — and counterfeiting them is difficult. We can utilise NFTs to develop markets in a variety of things because ownership is simple to certify and transfer.

    Advent of NFT ecosystems

    The digital art market, as mentioned above, and digital collectables platforms, such as Dapper Labs’ NBA Top Shot, which allows users to collect and exchange NFTs of exciting plays from basketball games — videos called “moments,” which are effectively digital trading cards — are the most well-known examples. Top Shot has been incorporating gamified challenges and other reasons to buy the cards that go beyond their collector value, even hinting that moment holders may earn real-world rewards from the NBA in the future.

    But, more recently, a model of active ecosystem-building around NFT-native qualities has emerged, leading to the creation of new organisations exclusively within the NFT sector. These goods begin with the NFT series, but they follow a roadmap that allows NFT holders to get access to a growing number of products, activities, and experiences. Initial and future NFT sales revenue is reinvested in the brand, allowing it to fund greater ambitious projects, which in turn raises the value of the NFTs itself.

    NFTs and leverage of community users

    Early adopters, like any new product, serve as product advocates and a source of early feedback. However, when it comes to NFTs, these users play an even more important role: their decision to embrace the NFTs essentially imbues them with meaning and creates their initial worth.

    NFT projects that lack a strong user base may struggle to get off the ground or may swiftly collapse when all token holders lose interest. As a result, if an NFT project’s value proposition isn’t obvious enough from the start, it may struggle to attract a large enough — or the proper — community. The lack of involvement might subsequently become a self-fulfilling prophecy, lowering the value of NFTs.

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