As we have discussed in our earlier blogs, we know that NFTs are digital assets with easily provable ownership that just about anyone can create. But if that is the case, why would people buy them at all? Do any of them have anything special?

The key value proposition that NFTs often claim is scarcity. NFTs, as their name suggests, are each inherently unique on the blockchain, i.e. they can be attributed to a specific ‘hash’ or ID. But scarcity alone doesn’t drive value – it has to be a ‘scarcity’ that people want. 

Collectibles

One of the first types of scarcity that people want is exclusivity. Exclusivity in this context means something that is very rare and has attributes of originality. Long before NFTs existed, collectibles took center stage in this arena. For example, trading cards, comic books, and antique toys were very valuable due to their scarcity and history associated with them. For example, the Captain America Comics No. 1, from 1941 sold for over $3 million! The NFT equivalent of this would be Jack Dorsey’s first tweet, which went for $2.9 million. Jack’s tweet illustrates the quintessential NFT qualities; distinct historical moment, a special creator, and only one of them. 

Collectible NFTs come in many forms (in image, audio, or video formats), but the primary category is art (e.g. the Beeple NFT), followed by music, and sports moments (e.g. NBA top shot). Subsequently, given the depth of the cultural penetration of the content involved, collectibles are the most popular reason for investing in NFTs. According to Crypto.com’s NFT survey of ~30,000 polled users, 47% of those who own NFTs bought them for collectible value. Their primary motive – to be able to ‘flip’ (sell) at a higher price.

Access to a Network

More recently however, is the emergence of NFT collections that empower communities. These collections give holders access to special privileges, primarily access to special cryptocurrency related services and benefits (e.g. higher investment rates). For example, The famous Bored Ape Yacht club holders get to attend special events, E.g. in October 2021, members celebrated annual Ape Fest in New York City, Bright Moments Gallery.

Assets in virtual worlds and gaming

If you haven’t heard of them already, Virtual digital worlds are computer-simulated environments in which users roam around using their personal avatars. So NFTs neatly solve the problem of immutable land ownership. And depending on the demand, access and foot-traffic to certain places in these simulated world prices for virtual lands have skyrocketed. For example, even the cheapest land in decentraland exceeds $10,000. In a very similar way, web 3.0 games are expanding the use case by digitizing in-game assets so that they can be physically owned by players on the blockchain. In-game assets can include characters, cards, skins, etc. a list of which you can find here.

Real world utility? 

We are still very early in the NFT space, which is currently dominated by retail investors (i.e. you and me), kind of similar to bitcoin back in 2018 – corporates and the smart money is yet to move in. But many argue that when they do, it will be for tangible use cases, i.e. NFTs that back real world value. Although still under the radar, there are several innovative examples, for instance, Moss Earth’s Amazon Green Wall club NFTs where the sales proceeds are used to fund the protection, maintenance and monitoring of actual land in the Amazon rainforest! This is an example of real world value. Another consumer related example is the Kings of Leon Lifetime fan NFTs that give holders lifetime access to front row seats (and even a chance to meet them backstage). These NFTs still only make up a small fraction of the market ( ~12% for events ticketing and ID related as reported by Crypto.com survey), but will be ripe for innovation as the market matures.

So to cut to the point, there are plenty of reasons that people still want to get hold of an NFT, whether it’s because of investment value like collectible, bragging rights, or even genuine utility. All you have to do is to keep watching this space!

References:

[1] Kendrick Lau, “Non-Fungible Token Survey,” The Next Trend in Cryptocurrencies?, November 2020.