What It’s Worth: How to Value an NFT in the Real World
Non-fungible tokens (NFTs) might feel like a digital mystery, but their value is rooted in surprisingly familiar principles. According to valuation expert Bharat Kanodia, understanding how to value an NFT means looking beyond the hype and examining the same factors we use to assess art, property, and intellectual assets.
What Exactly Is an NFT? An NFT is a unique digital asset recorded on a blockchain—most often Ethereum—much like how real estate deeds are recorded at a county office. These assets can be JPEGs, GIFs, audio files, videos, or any form of digital creation. The appeal? Each one is unique and traceable, making it secure and tradeable.
What Makes an NFT Valuable? Kanodia identifies five main factors that determine an NFT’s worth:
- Age: Like classic artwork or vintage collectibles, older NFTs often command more value simply due to their historical relevance.
- Creator: NFTs from well-known artists or celebrities, such as Beyoncé or Beeple, carry a premium.
- Scarcity: Limited-edition NFTs or one-off creations are more valuable, much like how rare cars or luxury watches outperform mass-market alternatives.
- Release Pace: Artists who create fewer NFTs annually generally see higher valuations, as scarcity and exclusivity go hand-in-hand.
- Richness: The more immersive or feature-rich the NFT—think integrated music, motion, or interactive components—the more value it tends to hold.
How Do You Actually Value an NFT? There are two main approaches:
- Income-Based Valuation: If the NFT generates revenue (like royalty payments), estimate its lifetime cash flow. Multiply that figure by a factor (usually 0.1 to 0.15) to get a rough valuation range.
- Sales Comparison: Look at recent sales of similar NFTs to establish a market-based value—just like real estate appraisers use comps.
Are NFTs Like Domain Names or Tangible Assets? Yes—in many ways. Domain names were once a digital novelty but have grown into serious assets. Similarly, NFTs have the potential to become standard electronic property. Unlike physical assets, NFTs require no physical storage or maintenance. The only real cost? Blockchain transaction fees, known as “gas fees,” which are akin to property taxes.
Why Do NFTs Matter? Kanodia points out that NFTs are still early in their lifecycle, much like PDFs or emails once were. As digital ownership becomes more important, NFTs will likely be integrated into everything from art sales to concert tickets and intellectual property rights.
The Bottom Line NFTs may be digital, but valuing them is anything but vague. Understand the creator, rarity, depth, and utility of the asset—and you’ll start to see that an NFT’s worth isn’t just in the file, but in the function it serves in a rapidly evolving economy.
