For anyone who has been trying to keep a pulse on the recent crypto craze, particularly with Token ATH!, the term NFT should be very common. But beyond the headlines of multi-million dollar sales and celebrity endorsements, a common misconception persists: that NFTs are simply overpriced JPEGs. This article will hopefully serve to dispel that notion. It digs deep into the technology, legal infrastructure, and use cases that really power the value of Non-Fungible Tokens.

Understanding the Value of NFT Projects

NFTs, or Non-Fungible Tokens, are unique digital assets that represent ownership over a particular item, that can be both digital and physical. Contrary to cryptocurrencies such as Bitcoin, where all coins are the same and interchangeable, NFTs are unique. This non-interchangeability is a fundamental characteristic of their value. These are registered on a blockchain, which acts as a shared and permanent ledger. This technology provides an immutable, publicly-accessible and verifiable record of ownership. This is a significant departure from simply owning a JPEG, which can be copied endlessly without any authentic record of ownership.

Rarity and Uniqueness

One of the most important factors contributing to the value of an NFT is its rarity. A limited-edition print by an accomplished artist will sell for much more than a mass-produced poster. Just like NFTs, their value comes from the scarcity that they represent. For starters, creators can cap how many NFTs are in a collection, adding an element of exclusivity that increases demand. This inherent scarcity is one of the defining characteristics of non-fungible tokens that make them different from JPEGs. An NFT unequivocally marks one authenticated original creation—the so-called genesis asset. All of them are just reproductions.

Utility and Functionality

Though it’s certainly a big factor, the utility of an NFT is one of the main factors driving its value. Utility, in the context of NFTs, is the value or use case an NFT offers to its owner. This could include access to exclusive content, membership in a community, voting rights in a decentralized autonomous organization (DAO), or even in-game assets in a blockchain-based game. The greater utility an NFT provides, the more sought after it is.

Cultural and Artistic Significance

The most obvious way the cultural and artistic significance of an NFT collection increases its value is for works that are genuinely iconic. Works developed by master artists or that reflect important cultural milestones typically sell for record figures. Perceived value is in the eye of the beholder. Yet, importantly, it is subject to the same forces that govern what makes traditional art and other collectibles valuable.

Assessing the Founding Team

The members of a project’s NFT team are often the most important aspect to look at when determining how promising an NFT project might be. Ultimately, a capable and seasoned team will be better positioned to execute upon the asset’s roadmap and cultivate a vibrant community.

Key Individuals Behind the Project

Getting to know the primary players on your project is a very important aspect to research. Who are they? What are their backgrounds and expertise? Do they have a recognized track record across industries, and specifically related to blockchain?

Proven Experience in Relevant Fields

Seek out individuals with demonstrated experience in their respective fields, whether that’s blockchain development, art, marketing, or community management. Their knowledge and experience will be invaluable to the success of the project.

Transparency: Doxxed vs. Anonymous Teams

The degree to which the team is transparent is another key factor. A “doxxed” team is one that has public, consensually-known identities for its members. This transparency usually breeds greater trust than an unseen team ever could. Anonymity is not a red flag per se, particularly in crypto. At the end of the day, it’s a question of risk versus reward that each investor must decide for themselves.

Analyzing the Community Engagement

A creative, passionate, and engaged community is essential to the long-term success of any NFT project. Having a positive, engaged community will go a long way in getting the word about your project out there, offering feedback, and growing it organically. NFTs are a unique tool to cultivate more meaningful engagement. By encouraging greater fiscal accountability and civic participation, they turn one-time donors into long-term supporters and advocates.

Community Size and Activity Levels

Gauge how deeply engaged the community is on the projects. Are folks chatting up the project on Twitter, BlueSky, Discord and other social media channels? Are the community members engaged and supportive?

Distinguishing Organic Growth from Paid Promotion

Watch out for projects that will need to invest a huge amount of their budget on paid promotion to attract people to their community. Organic growth, fueled by authentic interest and enthusiasm, is a far better barometer for a project’s long-term potential.

Clarity of Vision and Community Belief

Is the community on board with the vision for the project and do they trust that vision? Creating a vibrant, inclusive community does take work and a united vision. It’s hinged on a powerful conviction in the project’s aspirational aims. Read on to learn how NFTs have the power to create communities and amplify social good. Projects such as Treegens and Ecosapiens leverage NFTs to inspire positive social change at scale, rewarding committed community members for making a difference. As an illustrative example, Treegens intends to be the most transparent and rewarding tree planting project on Earth.

Evaluating Utility and Project Roadmap

The value of an NFT itself and the projects overall roadmap is a good place to gauge how valuable the item will be in the long term. A thoughtful, clear roadmap with tangible milestones and an irrefutable utility proposition to drive demand will lure investors.

Functional Aspects of the NFT

What does the NFT actually do? Does it give players access to special stories, reveal in-game characteristics, or offer some other real-world reward? The NFT with the most utility is probably going to be the most valuable and desirable.

Existence and Adherence to a Roadmap

Does the initiative have a detailed plan for what’s next and how it’ll get there? Is the team following the roadmap and delivering everything that they said that they would deliver on? There’s no doubt that a clear, detailed and always-updated roadmap indicates a well-managed and high potential project.

Examples of Real-World Utility

NFTs can be used in a variety of real-world applications, including:

  • Real Estate: Representing ownership of physical properties.
  • Metaverse Assets: Owning virtual land, avatars, and other digital assets in virtual worlds.
  • Community Building: Granting access to exclusive communities and events.

NFTs have the ability to make metaverse assets interoperable, enable ownership of virtual real estate, and create a new standard for cultivating community. Their possibilities go well beyond just art and collectibles.

Examining Smart Contract and Blockchain Selection

The selection of blockchain as well as security of the smart contract that underlies an NFT are key factors. Without a well-audited and secure smart contract backing an NFT, this value is at stake.

Importance of Artwork and Design

In an NFT world, let’s not forget that the artwork and design of a piece—utility and functionality aside—plays an integral role. NFTs that are visually appealing and well-designed are far more likely to catch the attention of interested collectors and lead to appreciation.

Understanding Market Trends and Timing

Like all investments, when you buy your NFTs can make a big difference to what kind of return you make. By learning about market trends and finding the most promising projects as early as possible, you can greatly increase your chances of having successful projects.

Identifying Potential Red Flags

Here are some key red flags to watch out for while researching NFT projects. These include:

  • Lack of Transparency: Anonymous teams with no track record.
  • Unrealistic Promises: Guarantees of high returns or unsustainable utility.
  • Pump and Dump Schemes: Artificial inflation of prices followed by a sudden crash.

Concluding Thoughts on NFT Investment

NFTs are more than just JPEGs. They are an entirely new digital ownership paradigm, providing exciting new possibilities for creators, collectors, and investors alike. Recognizing the technology and legal underpinnings of NFTs will help individuals fraud-proof their purchases. With this knowledge, they’re able to unlock the true digital value that these tokens provide. NFTs have the potential to unlock true digital value — not just the value of connecting to a JPEG. They provide community building, transparent philanthropy and greater accountability in impact monitoring, protection of intellectual property and gamification of positive actions toward social impact among many other compelling use cases. Dynamic NFTs These NFTs are able to evolve, improve and “level up” as a result of action taken by the community. To give an idea of what’s possible, one project is creating a dynamic semi-soulbound token (DSST). This token grows and “levels up” as community members plant trees and donate to tree planting projects. This would introduce huge creative possibilities for using NFTs not just for transparent philanthropy but for tracking impact. Potentially, NFTs can be used to track and reward positive impact efforts. Together, they usher in a new age of transparency and accountability in the philanthropy and social impact sectors. Tracking and assessing real-world impact was challenging, to say the least. Bureaucracy, inefficiencies and the lack of transparency always make things murky. Well, NFTs turn all of that upside down. Nature-based Ecosapien NFTs are each backed by 16 metric tonnes of CO2.

Token ATH! encourages every one of our readers to do your own research. So, as you consider the NFT market and opportunities within it, be careful and stay skeptical.