Why do NFTs have value?

Introduction

Michael Jordan
4 min readJan 23, 2022

NFT stands for Non Fungible Token.

  • Gold is a fungible item in the sense that we only care about the amount. It is interchangeable. Bitcoin is a Fungible Token.
  • Diamonds are non-fungible items in the sense that multiple parameters are needed to determine its value, the cut, carot, clarity, colour. They are not interchangeable. SuperRare Art tokens are Non-Fungible Tokens.

Theories on why NFTs are valuable

Some people believe that NFTs have no inherent value and that this entire industry is caused by mass hysteria and people being silly with their money. This belief claims that it is a huge bubble waiting to burst and tends to come from people who are intelligent in other areas of life who are bitter that they didn’t get in earlier. It is a classic case of Aesop’s sour grapes: (The fox that couldn’t reach the delicious grapes went and told everyone else that they were actually sour in order to protect his reputation)

The more likely reason why NFTs have boomed and are fetching such high prices is because they actually are valuable. Yes some prices are volatile and exceed their true value for a period of time but there is still actual value beneath it all and not just mass hysteria. This is because NFTs have opened the door to a neglected part of the economy. They are releasing value that already existed. NFTs aren’t creating value out of thin air, they are unlocking it. NFTs are beneficial to both creators and buyers.

The NFT Economics

Our traditional economic infrastructure focused on things we needed to survive. Production, Service, Utility, Commodities, Energy, etc. The traditional economy is very rational and very mathematical where efficiency is rewarded.

The NFT economy is focused on things we need to thrive. Community, Creativity, Sentimentality, Self-Actualisation, Identity, etc. The NFT economy is very social and very emotional where creativity and connection is rewarded.

Why Buy an NFT?

  1. Prestige: Wearing a Rolex gets you instant attention at a cocktail party. A CryptoPunk gets your instant attention online. Cocktail parties happen maybe once a month whereas your CryptoPunk on Twitter is on display 24/7. Having the right NFT can get you the attention you desire at Hackathons and other online interactions. What better way to show startups that you are a serious investor with cash then by having an NFT that costs an absolute fortune as your Profile Picture.
  2. Ownership: Humans like to collect things. We tend to get a psychological benefit from ownership. NFTs can act like title deeds and allow us to “own” a variety of things from gaming assets to art. NFTs can be memorabilia of celebrities, events, movies, etc. NFTs can be souvenirs of places, experiences, moments, etc. We also don’t have to worry about these things getting lost, stolen or broken.
  3. Expression: In the physical world, we use our clothes to silently communicate whether we are sophisticated, playful, open-minded, etc. In the virtual world, we can use NFTs to build an online identity and communicate parts of our personality. What better way to show that you are into a specific type of art, then by having a collection of that art as NFTs for everyone online to see.
  4. Community: People love joining clubs. The chess club, the wine club, the book club. All of these help with personal development, give us a chance to socialise and can lead to business opportunities. Because of Covid, many of these clubs had to go on hold and people went online. NFTs can give exclusive access to various Discord channels and tend to be focused on a common interest. NFTs can help us connect with others in a more meaningful way. In the future, your certification could be an NFT and give you access to channels where you know everyone else has that same certification and is not a troll pretending to be something they aren’t.

Get Started today

NFTs are going to become more prominent in the future and so it is worth learning more about them. See this article on the practical steps on how to get started. In the article we look at how to prepare Chrome for the Web3, how to connect to the Polygon Blockchain and how to create and buy your first NFT.

If you know the basics already and want to either purchase your first NFT or want to learn a bit on how to promote your NFTs, check out the MJ Airdrop Club. For buyers it gives you the opportunity to receive a stream of free NFTs from upcoming projects. For creators it has a list of addresses of people who have purchased an NFT and are thus great to promote to.

Also feel free to subscribe and follow me on Medium as I’ll be posting a lot more article on NFTs, Polygon, Blockchain, Metaverses, etc. I’m also active on Twitter, LinkedIn, YouTube and have some courses on Udemy.

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Michael Jordan
Michael Jordan

Written by Michael Jordan

Fellow of the Actuarial Society of South Africa. Specialised in Finance and Risk Management. Interested in Tech and Education.