Learn How to Evaluate and Authenticate NFTs [Guide 2023]
The market for non-fungible tokens (NFTs) is projected to attain a valuation of $231 billion by the year 2030. The space has seen a significant boom in the past few years, with the asset finding its use case and market in a lot of different arenas. Needless to say, NFTs have grown in popularity and importance in the crypto space. But how do you know if an NFT is real or fake? Is there a way to evaluate NFTs?
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In this blog, we will delve into this question and more. So, keep reading.
Why is NFT evaluation important?
While NFTs are intended to be unique, verifying their authenticity can be challenging. In simple terms, a scammer could easily digitally duplicate someone else’s work, create an NFT from it, and sell it under the false pretense of being an official release.
That’s why it’s crucial to evaluate an NFT carefully. This ensures that you’re not buying stolen work or falling for a scammer looking to profit off a creator’s efforts.
What is NFT authentication?
To validate an NFT and confirm its legitimacy, you can consider several factors, such as transaction history, validity, originality, and authenticity. Because the value of NFTs lies in their rarity, it’s crucial to determine whether the work is unique.
To verify the NFT’s authenticity, you can trace it back to the original source to ensure that the alleged creator actually produced the work. Due to their increasing popularity and value, people are validating the authenticity of an NFT to make sure that it is, in fact, worth the price.
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Factors to consider when evaluating NFTs
Some of the major factors that you can use to evaluate your NFTs and make sure they are unique include checking their rarity, scarcity, authenticity, provenance, reputation, and utility:
The uniqueness of any NFT is a core quality that helps it derive its value. Some NFTs come from renowned artists, while others tokenize real-world assets. You can verify the authenticity of any NFT, but you cannot alter it. Rare in-demand NFTs attract more buyers and sell for a greater price than others as per the law of supply and demand.
Building on from its rarity, depending on how ‘hard-to-get’ or scarce an NFT is, the higher its valuation. One-of-a-kind works or standalone pieces that are not part of any larger collection would be harder to get your hands on.
Any NFT associated with real-world objects draws from an element of tangibility. Combined with the immutability of ownership on blockchains, they create a value of immediate intangibility. This helps the NFTs to be effectively used to show ownership rights and dismiss any instances of fraudulent activities.
Before you think of buying an NFT, you should do your own research about the origins of the NFT, its creator, the NFT’s backstory, the creator’s origin, and its prominence in the market. These factors will not only help you understand the popularity of the creator but also how valuable the NFT itself would be.
The reputation of any NFT is built within its community, which in turn plays a decisive role in impacting the number of potential buyers and sellers in the marketplace. A bigger community attracts more word-of-mouth for the NFT and appeals to a larger audience.
NFTs can have multiple use cases that extend from the digital to the physical worlds. An asset class needs better translation from the real world to the digital world application. Without a use case, any digital asset would become in low demand. Therefore, any NFT that has a strong utility would incur a higher demand.
Tools for evaluating NFTs
To evaluate NFTs, you can use a variety of tools, which can be categorized into rarity tools, market analytics tools, community tools, and price estimation tools.
The rarity of any NFT within a collection is based on the overall rarity of its components or traits. There isn’t a single method for calculating NFT rarity scores, but various approaches exist, including Trait Rarity Ranking, Average Trait Rarity, Statistical Rarity, and NFT Rarity Score. Some of the major rarity tools include Rarity.tools, Rarity Sniper, MoonRank, and Icy.tools.
Market analytics tools
Analytics tools for NFTs work like an online dashboard that keeps track of all the recent blockchain transactions pertaining to NFTs. As these transactions are on-chain activities, they are public and easily trackable. They can be used by NFT investors, collectors, and traders to make better-informed decisions about what NFTs to buy. Some useful tools include Dapp Radar, NonFungible.com, NFT Scan, OpenSea, and NFTXplorer.
While evaluating any NFT, the community can play a decisive role as it impacts how many potential users and buyers are there on the open market. Any project’s community size can be easily checked on its socials. The number of unique wallets that take part in the NFT market on a daily, weekly, or monthly basis is also important in predicting the overall community size and market demand for that particular NFT.
Price estimation tools
Assessing the value of an NFT can prove to be extremely useful for you to understand its current market value. The NFT value estimator tool estimates the real value and price of NFTs using blockchain data. You can also use the tool to identify the top potential NFTs based on classic indicators that reveal investment potential in NFTs.Some helpful tools for price and value estimation are the NFT Value tool, NFT Valuation Calculator, CryptoPunks Valuation, and Deep NFT Value.
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Steps to authenticate NFTs
Once you have a better understanding of the tools and key factors that can determine the originality of an NFT, you need to consider how to authenticate your NFTs. These are the simple steps you need to follow to do so:
Understand the NFT
Diving deep into the NFT’s history, its collection, transaction history, and valuation in the market is important in order to know the work better.
Research the artist or creator
Additionally, looking up the creator, their inspiration behind creating the piece, etc., will not only help you know your NFT better but also understand its rarity and uniqueness better.
Verify the NFT on the blockchain
Double-checking the NFT on the blockchain and tracking its history back to the creator is also essential in knowing the value of the work.
Check the marketplace
Looking at the secondary marketplace and determining the number of NFTs available there can help to know its value. An abundance of NFTs with a low buyer activity can indicate lower demand.
If you are facing issues with validating the uniqueness of your NFT or its evaluation, then it is always advisable to consult with an expert in the space.
Use online tools
Lastly, there are a bunch of online tools that can be used by any user to gauge the value, authenticity, and originality of an NFT. Make sure you make the best use of these tools.
Why is the NFT so valuable?
NFTs derive their value from uniqueness and verifiable ownership on a blockchain. Unlike fungible tokens like Bitcoin, each NFT is distinct, enabling the tokenization of digital or physical assets like art, collectibles, games, or even real estate.
The blockchain ensures that the provenance and ownership of the NFT are transparent and secure, lending credibility and value. The NFT market also capitalizes on scarcity; a limited supply of a particular token can drive up demand.
Additionally, NFTs allow creators to embed royalties, ensuring ongoing revenue streams. The combination of uniqueness, ownership, provenance, and programmable features makes NFTs valuable.