A Beginner’s Guide to Evaluating NFT Projects

Blockchain, Digital Finance, NFTs, NFTs 101

Digital art and collectibles have become the latest craze in the aftermath of trendy meme coins, like DOGE. Unlike cryptocurrencies that may have people reaching for the moon, digital artwork offers more tangible assets for investors and artists alike. From one-of-a-kind artwork to uniquely designed shoes to tickets to cool and unusual events, people are buying non-fungible tokens (NFTs) for millions of dollars. 

A fungible asset is any property with units you can readily interchange for like assets, such as stocks and the dollar bill. Bitcoin and similar digital currencies are fungible tokens because you can easily exchange them, and no additional value is associated with them.  

In contrast, you can’t exchange NFTs (non-fungible tokens) because they’re unique and can’t be replaced. They have no units, which makes them indivisible. Lastly, you can have your ownership verified and authenticated because NFTs ownership is tracked on the blockchain. When you purchase an NFT, you’re essentially taking ownership of a piece of code that can manifest itself as images. 

New NFT projects continue to pop up all the time. It’s pretty clear why NFT art is becoming so popular with all the buzz, status, and fun it offers. The question remains why are many NFTs valued so highly when you can’t finance the payment for one? 

Scarcity plays a role in NFT valuation in addition to many other factors, including utility, reputation, and liquidity. Understanding NFT projects and doing due diligence before buying may seem daunting, but don’t worry — here are some NFT valuation tips and tools to help you analyze each project. 

What Type of NFT Investor Are You? 

There are several hundred types of NFTs under which a project might fall. The NFT comprises metadata (description, ownership data, etc.) tied to its characteristics and value. As part of the valuation process, you should determine the metadata for each NFT you’re interested in collecting. The metadata serves as a certificate of authenticity that shows ownership, and nobody can alter it on the blockchain. 

You’ll find that metadata code can be represented either “on-chain” or “off-chain.” On-chain means that the metadata is linked to a smart contract hosted on a blockchain, whereas off-chain means the metadata is hosted separately (i.e., the value is taken outside of the blockchain). On-chain NFTs are more valuable because the metadata is a part of the token and must meet specific blockchain standards. On-chain NFTs will last as long as the blockchain lasts. As a result, the underlying blockchain can add value to an NFT.  

For example, an NFT hosted on the BSV blockchain benefit from its low costs and unlimited scalability. This enables all types of NFT content to be stored directly on-chain, making the NFT itself harder to copy, and so more secure.   

Join NFT-Focused Social Media Channels 

Enough can’t be said about the advantage of being connected through various social media channels.  

You can get updates on popular platforms to stay informed about upcoming NFT drops (an NFT drop is defined as the release of a non-fungible token project.) When an NFT drops, it’s often a limited offer so you can only buy a certain amount. Purchasing NFTs at the time they drop allows you to buy them at mint prices, which are sometimes lower than what the NFTs could be sold for in the future. There are quite a few places for you to mingle with other NFT enthusiasts and get immediate alerts when a new NFT drops. 

  • Social Media: Twitter, Discord, Clubhouse, YouTube, TikTok, Instagram 
  • Metaverses: Decentraland 
  • Marketplaces: OpenSea, Rarible, NBA TopShot, SuperRare, FabriikX (coming soon) 
  • Podcasts: The Gary Vee Audio Experience, Modern Finance

When you join social media channels, you’ll find that brands drop NFTs quite frequently. It’s tempting to buy each one you see, but they may not fit your interests or your budget, goals, etc. Try to collect NFTs based on the following criteria: 

  • Will you enjoy collecting it? 
  • Do you support the brand? 
  • Is the NFT affordable? 
  • Does it matter if you make money? 
  • Is there an additional utility to the NFT beyond being a collectible (like does it offer exclusive perks or experiences)?

Be sure to do your research in advance. Along with assessing an NFT’s value, these questions will help you decide on the types of NFTs you should focus on.  

Read NFT Project Outlines and Whitepapers 

When you see an NFT you’re interested in buying, take time to seek out as much information as you can about the project. Where available, read the project outline and whitepaper to understand the specifics of the NFT project. 

A whitepaper is a document written to provide customers with detailed information about a project. In this case, an NFT whitepaper may include the following: 

  • A summary outlining the problem the project addresses 
  • A description of the mission, products, solutions, and benefits (including future utility of the NFTs) 
  • An overview of the technology used for the NFT 
  • Additional information about the project’s team, advisors, networks, etc.

If a whitepaper isn’t available, assess any other information available. The NFT website may have other documentation, social media sites, and a community where you gain better insight into the potential value of what they have to offer. 

Understand the Current and Future Utility of the NFT 

Currently, the NFT space is in hype mode. Most NFT projects cater to a niche audience and are driven by speculation. As a token holder, you may wonder what benefits you can expect from collecting NFTs. One prime example is the future utility NFTs hold for the gaming market. 

NFTs for gaming offer hundreds of potential use cases. Players can import digital assets (e.g., swords for fighting, wearables for avatars, household decorations), creating value for the NFT. You get the benefit of being able to buy and sell NFTs to other players. Many gaming platforms already exist in which everything you buy are NFTs. Whether you buy a piece of land or artwork, it’s all owned by you, and nothing can be replicated. This whole concept of a world entirely owned by its users is what’s known as the metaverse. 

Evaluate Community Size and Engagement 

It’s also important to evaluate an NFT community’s size and engagement to see if there is genuine interest from other collectors. An NFT’s value can be based on either objective criterion, the interest of the community, or both. The community, in particular, can create demand for an NFT and increase its value. You wouldn’t want to purchase digital art from someone who has no following. Neither does anyone else. Research NFT creators and observe their community size, along with how they engage or interact with their community on social channels such as Discord and Twitter. Community size and level of engagement can be indicators of how popular an NFT drop is going to be. 

Certain NFTs will be much more attractive to buyers when they’re unique from anything physical that they can buy. For example, one-of-a-kind Major League Baseball player trading cards could be created and digitized as NFTs. NFTs involving famous people, artists, and celebrities can tremendously drive up the value of these types of digital assets. 

Use Resources to See How Past Projects Performed 

Try your best to base your NFT valuation process on data-backed analysis, informed by previous sales and comparable drops, not current offerings. Rather than looking at the current value of an NFT project, you want to assess the performance of any past projects that have been sold. Examine NFT sales starting from the latest to the oldest sales date. Sometimes, non-standard sales of NFTs can be heavily weighted because the market is so small. In addition, when certain “market makers” buy NFTs, they may either stir up a new trend or end up grossly overpaying. Think Elon Musk’s prior influence on the Dogecoin trend and what could happen if he paid big money for an NFT. In that case, his reputation would play a huge role in its valuation. 

You can use several available resources to understand how past projects have performed and what factors made them successful. Nonfungible.com and similar tools provide data such as top sales, project rankings, asset price evolution, and overall market analysis. Keep in mind that NFT valuation can change as markets evolve. Criteria used months ago may no longer be relevant. Also, NFTs that fall outside of the norm can impact asset evaluations. 

Final Thoughts 

We’re living in a digital era, so it shouldn’t be surprising to see more digital assets on the rise. From music and books to memes and photography, many people are flocking to buy, sell and trade digital art in the form of NFTs. Before you jump on the bandwagon, it makes sense to understand how to evaluate NFT projects. Making assessments from multiple angles helps you make an informed decision and one most suited to your needs. 

FabriikX is one of the first NFT marketplaces of its kind. Built on the power of the BSV blockchain, FabriikX offers expertly curated exclusive content from top creators within arts, sports, and music, as well as NFTs from the best creative minds in our community. To us, NFTs are much more than just digital collectibles – they are experiences that connect collectors with the creators and communities they care about most.

Sign up now to be among the first to hear about this exciting launch.

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