How to value a NFT?

Intrinsic value is a measure of what an asset is worth. It is an abstract thing. Why are diamonds more valuable than rocks? Why do luxury bags cost people a ton of money? There is more than one factor that can constitute the value of an item, whether it is the physical item, spiritual item, digital item, or even NFT. After some time deep-dive research, we summarize into three main factors, which are: Functional value, scarcity, and emotional value.

Functional value

The usefulness or functionality of an item which may fulfill a specific need or provide a practical benefit and satisfy the consumers’ needs. For example, a bike is a mode of transportation and thus it has functional value which is to transport a rider from one place to another. In terms of NFT, it can be used to ensure the membership, the decentralized governance (DAO) and recording utility because of its “non-fungible”, transparency and automatic factor.

Scarcity

When something is scarce or limited in quantity, it often increases in value. This concept is rooted in supply and demand dynamics. If the supply is low or the item is difficult to obtain, it can create a sense of exclusivity and increase its desirability, thereby driving up its value. This is also the way NFTs built its market at the beginning phase, when some of the famous PFP (profile-picture) NFT collections presented with a limited number and a collectible game theory. Thus, the financial benefit was built up from this, creating some “fomo” (fear of missing out) among those early holders. People made money from speculative investments in the NFT resale market when there is a demand in the market for a specific digital asset.

Emotional value

Considering a bike. Sometimes, a bike is valuable because it is a gift from his belonging to him on a special day. Sometimes, a bike can be a useful method for him to transport while remaining less negatively impacted on the environment. This is concrete evidence that emotional attachment to an item can increase its perceived value.

Sometimes pleasure can be referred to as joyfulness and happiness when using a specific item, like a comedy book makes you laugh and brings up a relaxing time. Sometimes pleasure can come from the experience of holding intrinsic beauty and aesthetic value, which is the value that art is often associated with. This is the value that Bored Ape Yacht Club brought to the table, when the team focus on the group of those whales holders or influencers to present their personal tastes or their social status among others.

Associating emotional response with value

For instance, imagine a player in a video game bestows upon another player a unique pet as a gesture of friendship. This particular pet holds no intrinsic value, as it can be obtained by anyone from the in-game store for a nominal price. According to the laws of supply and demand, this pet should hold little monetary worth. However, the recipient of the pet treasures it deeply, not because it is rare or expensive, but because it signifies a heartfelt gift from a friend. Acquiring the same pet from the in-game store would not elicit the same sentimental and emotional value as the one received as a gift.