What Is The Value Of An NFT
Is value in the eyes of the beholder?
One of the most common feedback I get when introducing someone to NFT is:
"I don't understand why people are paying so much for a digital file."
Following that, they'll most likely express their disagreement at the way NFT collectors spend their money/crypto and dismiss it as either a speculative gamble, or a silly act by someone who doesn't know how valuable money is. Their scepticism and doubts are valid, accurate in fact, and if you agree with that statement, let's start by breaking it down into its parts:
I don't understand – Indicates a sense of confusion, and often a disagreement with the subject at hand
Paying so much – The subject is overpriced and overvalued
Paying so much – The amount is not something they are comfortable or willing to fork out for various reasons
A digital file – Just like a photo, a song, a file on the Internet
Interestingly, when you dive deeper into the individual components, you'll also find out what "value" means to that person. While there's no right or wrong way to value things, the value of NFTs will change if you look at it through a different lens.
Value Of An Object Relative To Its Function
One way to price an object is based on the purpose it serves.
For example, a mobile phone is meant to connect, to entertain, to inform. Based on this functions, and also the rough benchmark of mobile phone prices, you might be comfortable paying a certain price for it. If you use the phone primarily for calls, you might deem the rest of the functions as unnecessary. Thereafter, you'll look at phones that serve just that function, and compare other traits like the weight, the battery life, the performance etc.
In fact, that's the most common way we value things in life. We eat everyday, so how do we value a casual meal? Yet, we might want to indulge a little for celebrations and anniversaries, so we might value a special setting and finer quality food differently. One might value a car based on the alternatives of taking public transport, or value a house based on the potential rental he has to pay, alongside other considerations.
Yet, the same object object when viewed through a different perspective can be priced differently.
For example, if the mobile phone was essential for you to work, which gets you an income, would you value it more than just a tool for making phone calls? Or if the car saves you time on your commute, and you can spend that extra time with your family, or catching an hour of sleep that is critical for you to function, how would you value the car differently?
Value Of An Object Relative To An Individual's Needs
Thus, value is often subjective and varies for different individuals. It depends on our respective needs.
The same bottle of water costs $0.50 at a supermarket but how much would a trekker up the mountains or in the desert value that bottle of water? This is why high end hotels and restaurants can charge their can of coke or a cup of water at a premium because when you are confined to their setting, your lack of options would force you to price that beverage differently.
When it comes to NFTs, most people don't actually need NFTs. It might come across as a game to a non-gamer, or a beautiful PFP (profile picture) for someone who don't care about his social media presence. In that sense, NFTs have no value to them and any price they have to pay for it will be expensive.
It then brings the question, is it possible that most people don't realise they need NFTs? After all, there was a moment in time when people on horses scoffed at those who drove a car, when the boomers scorned the younger generation for being obsessed with the Internet but are now the main bulk of users on Facebook.
Value Of An NFT – Are They Just Digital Files?
if NFTs are just digital files, most of us would not pay for them. They are prove of ownership and provenance, and that is really what we are paying for. But it brings the question – do we really need to prove that we own something?
Most people will feel like they don't need to prove that they own something. Further, they might feel like they can just right-click-save the digital file, which I've addressed in a separate article. They can't be more wrong.
Think about why you value an authentic designer and branded good over a non-branded one. Yes, that Gucci or Dior, or that Off Whites or Air Jordans. Why would you want the real deal over a replica? Yes, replicas are often of a poorer quality, but assuming that they are identical except for the branding, would you pick the legit branded one, or the unbranded good?
Just like the branded apparels, NFTs afford you a certain social status. And the reason why ownership and provenance matters is because the legitimacy of NFTs cannot be forged. That is to say, if you have to own a Punks or a BAYC to get into the club, there is no way around it other than to buy the actual NFT. In that sense, NFTs can function like a membership club.
Ok, you might not need a membership club, but what about your social connections? Take a look at your Facebook profile – why do you display your Favourite Bands or Communities you belong to. How about your LinkedIn – where you display your schools, your former workplaces, and your affiliated memberships. Social badges are more prevalent in our lives than you might expect.
While it is possible for you to "forge" or display a badge that you might not actually have now, NFTs make it absolutely verifiable and legitimate. With Twitter adding Bitcoin-tipping and NFT-authentication functions soon, and Facebook ready to step into the Metaverse alongside enabling NFT for their Novi crypto wallet, NFTs on social media might be a closer reality than you think.
TL;DR, NFTs aren't just digital files.
They are proof of ownership and provenance.
With that function, NFTs can provide membership access and verification.
They can also be an incredible social flex,
Which will only be more prevalent when social media integrates NFTs
Plus, they will play an important part in the Metaverse should you choose to participate in it
Having said that, there is a lot of nonsensical NFTs in the market. Many of which that looks beautiful might end up being thrash, and oddly, some plain looking ones might end up being treasures. NFT is like fine art, whose beauty lie in the eyes of the beholder.
Just like fine art, pricing and valuing NFTs can be a nightmare. But do not dismiss it as just digital art, you might need it sooner than you expect.