Why are some NFTs worth millions?

NFT stands for a non-fungible token. Whereas a fungible commodity is replaceable by another identical item (mutually interchangeable goods), non-fungible items are unique and have no identical substitutes. Therefore, NFTs represent digital art or physical objects rather than money.

Photos, GIFs, videos, audio files, memes, tweets, game characters, vehicles, buildings and spaces, ammunition, and any other piece of virtual gaming reality can also become an NFT and be publicly traded.

Read more: McDonald’s McRib is now an NFT

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  • NFTs provide a means to own the artwork and profit from future transactions, a brand new way to sell and buy art digitally.
  • NFTs cannot be exchanged into anything else nor can they be broken down into smaller pieces.
  • Each NFT is unique within the blockchain technology, providing digital proof of ownership publicly.
  • Though the Ethereum blockchain is most frequently used for selling and buying NFTs, other blockchains have started adopting NFTs as well.

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Read more: How to purchase Ethereum?

So what does the value depend on?

The value of an NFT depends on how rare the digital asset is. If the asset is a limited edition piece or something geographically important, it will most likely increase the price of the piece. Traditional works of art, such as paintings or sculptures, are valuable because they are unique and one of a kind. We can take The Mona Lisa as an example: any person can take a photo of the Mona Lisa or buy a hard copy poster, but there will always be only one single origin of this work in the world. Also one of the appeals of NFTs is the ability to trace the history of the NFT at any given time and moment. NFTs are secure and cannot be broken thanks to blockchain technology and online ledger directories. The scarce nature of NFTs and the high demand for them from gamers, collectors, and investors have created a lot of hype around tokens.

NFTs’ value is largely set by the market and by demand. Although the original owner sets an initial price, an exciting bidding process may bring unexpected results.  Demand is closely tied to the rarity of an item. Mostly, however, rare items become appreciated over time. Thus, many NFTs have gone on to trade upward in value in secondary sales.

Demand for NFTs is often correlated with the popularity of the author. Most of the top-selling NFTs (and thus, their creators) have hundreds of thousands of followers.

Read more: World’s Top 10 Most Expensive NFT items

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