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Why Are NFTs Valuable, and What Makes Some Cost So Much?

Really. Many people think it’s as simple as that.

Whether it’s art or a digital collectible, one thing will definitely drive up the price of an NFT: Scarcity. What does NFT scarcity have to do with monkey JPEGs?

To answer this question, let’s do a quick round of Economics 101. Stay with me — we’ll keep it simple.

One of the core problems the field of economics hopes to break down and understand is how to efficiently deal with the virtually unlimited wants and desires of humans in a world with finite resources. In simple terms, balancing the forces of supply and demand.

Generally speaking — heavy emphasis on “generally” — the way these forces interact influences a metric that’s ultimately felt by the consumer: price. If the demand is high in a certain market for a specific good in abundant supply, that will result in that good bearing a relatively low price in that particular market.

However, the opposite also holds true. When demand for a specific good far outweighs its supply, it becomes a scarce good, which tends to fetch far higher prices in its respective market.

Okay. So, what makes NFTs so valuable?

NFTs can be very expensive (or valuable, depending on who you ask) because they somehow managed to do the impossible: introduce scarcity into the global digital market. An NFT isn’t just an overly-expensive way to buy an image — it’s a way to own it.

So, what other things about NFTs make them valuable?

In simple terms, the price is high because it’s the only painting of its kind in existence, and because one of the 20th century’s most brilliant artists created it.

The NFT sold for 16,953 ETH to be exact, which at the time was valued at roughly $52.7 million. Proceeds from the sale hoped to go towards funding WikiLeaks founder Julian Assange’s legal defense. In this particular case, the utility of the NFT — what is was being used for — is what made is so valuable and expensive.

Eventually, NFTs may also provide non-monetary value to internet users worldwide. While limiting the supply of digital goods has helped NFT artists and project leads imbue their virtual wares with scarcity, the blockchain may also play a role in ensuring these items remain available indefinitely.

Traditionally, digital goods were virtually unlimited in supply. Digital copies of games, books, music, and movies can theoretically be purchased an infinite number of times. You’ll never see digital goods go out of stock — but they will, at one point, cease to be sold. When digital marketplaces get shut down, it becomes impossible to acquire certain digital-only items.

Case in point, let’s look at Nintendo.

The post Why Are NFTs Valuable, and What Makes Some Cost So Much? appeared first on nft now.


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