The Non-Fungible Token or NFT market is expected to reach a valuation of $231 billion by 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. Digital art and collectibles are one of the most popular forms of NFTs, as their intangible nature lends them a distinct value.
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Why is NFT evaluation important?
Although NFTs are supposed to be unique, their authenticity can pose to be a problem. Simply put, any scammer can digitally copy someone else’s work, mint it as an NFT and sell it with a false claim of an official release. This is why evaluation of an NFT is crucial, to make sure that the work you buy is not stolen or minted by a scammer trying to profit from a creator’s work.
What is NFT authentication?
NFT authentication – Image via Unsplash
In order to validate an NFT and verify its legitimacy, there are a few factors that can be considered, which include its transaction history, validity, originality, and authenticity. As NFTs are valued for their rarity, checking whether the work is unique in itself or not is very important.
The authenticity of the NFT is checked to ensure that it came from the person who is said to be the creator of the work. This is done by tracking it back to the original source.
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.
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:
Rarity
The uniqueness of any NFT is a core quality that helps it derive its value. While some of the NFTs are created by renowned artists, others represent tokenized, real-world assets. Although the authenticity of any NFT can be verified, it cannot be altered. Rare in-demand NFTs attract more buyers and sell for a greater price than others as per the law of supply and demand.
Scarcity
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.
Authenticity
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.
NFT evaluation – Image via Unsplash
Provenance
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.
Reputation
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.
Utility
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
In order to evaluate NFTs, various tools can be used. These can be further segregated into rarity tools, market analytics tools, community tools, and price estimation tools:
NFT tools for evaluation – Image via Unsplash
Rarity tools
The rarity of any NFT within a collection is based on the overall rarity of its components or traits. While there is no single NFT rarity score calculation method, there are several rarity calculation approaches that are used, such as the 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.
Community tools
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 is a tool that is designed to estimate the real value and price of NFTs based on blockchain data. The tool can also be used to estimate the top potential NFTs with regard to classic indicators that reveal the potential of investment in NFTs through these tools. Some helpful tools for price and value estimation are the NFT Value tool, NFT Valuation Calculator, CryptoPunks Valuation, and Deep NFT Value.
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:
NFT authentication – Image via Unsplash
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.
Consult experts
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.
