How NFTs get their value

Amitabh Bachchan, Kamal Haasan, and Sunil Gavaskar have one thing in common. The three celebrities have already rolled out their own digital collectibles. The latest one to jump on the bandwagon is Yuvraj Singh, whose NFT collection will go live on December 25.

NFT is a type of crypto asset that exists on a blockchain where the collectible item is made unique by giving it a unique code. Because of the code one becomes the owner of that digital asset, as it cannot be replicated. 

NFTs have become popular because of soaring valuations they have fetched recently. If you don’t know, Beeple sold an NFT for $69 million at Christie’s. Jack Dorsey, founder of Twitter, sold his first-ever tweet for 1,630.58 Ether, which was equal to about $2.9 million at the time of sale.  Closer home, Amitabh Bachchan’s collection ‘Madhushala’, autographed posters and collectibles received bids close to $1 million at the end of auction.

These mind boggling numbers make us wonder how these NFTs are valued. Is there any rule book which is followed for NFTs valuations?

NFTs Valuation Matrix

Just like any other piece of art the NFT is valued based on the credibility of the artist in the physical world, the nature of artwork, effort put in the creation of artwork, the story behind the artwork and the social currency of the artist.

“For NFTs of artworks that also have a physical presence, they are priced anywhere between 1-10 per cent of the physical art piece. However, pricing is primarily decided by the creators of the NFT. At WazirX NFT, we have launched a new feature called ‘make an offer’ wherein a potential collector can offer a different price for a said NFT as oppose to the priced by the NFT creator,” says Vishakha Singh, VP, WazirX NFT Marketplace.

The expert says there is no rule book for the determination of the value but largely a couple of factors determine the cost of an NFT. First factor is rarity, which basically means the ‘hard-to-get’ factor of an NFT.  “Second is the utility of an NFT, which comes from its real application, in either physical or digital worlds. This characteristic of NFTs gives them immediate value, which accrues over time depending on the popularity of the underlying project. Moreover, some NFTs are tethered to real-world objects, which gives value in terms of tangibility backed by ownership immutability,” said Singh. 

Is there any regulator?

Just like cryptocurrencies, there is no regulator when it comes to NFTs. “The Blockchain and Crypto Assets Council (BACC), a part of the Internet and Mobile Association of India (IAMAI), is for now, better equipped to devise guidelines. We will leave to government bodies to propose the right body to regulate it,” said Singh. 

Can NFTs be banned in India?

The government’s draft cryptocurrency bill, which has got listed in the ongoing session of the Parliament, may ban or come up with a definition for virtual coins, determining how they will be regulated and taxed. But until any clarity comes from the government the future looks blurred, as NFTs are bought and sold through virtual tokens.

“India is racing to keep up with the international developments happening in the crypto and NFT space. We are very optimistic about how this will pan out for us as it caters to every grass-root level artist who is an asset to this country. Through awareness, hand-holding and consistency we are focused on empowering the creator community,” said Singh.

Also read: India’s growing NFT industry says cryptocurrency laws shouldn’t cripple innovation
Also read: Yuvraj Singh’s NFT Collection to go live on Dec 25