¿Why are some NFTs so expensive?  

Most are worth nothing, but some make millions. What determines the price of an NFT? Researchers have identified three factors and warned of possible solutions.

   Non-fungible tokens, NFTs for short, are selling pretty well right now. A somewhat strange and controversial digital asset is on the rise. In early 2021, some NFT auctions reached millions of dollars. This makes the question even more pressing: what determines the success of NFT?

  ¿In the name of art?

Let's take a step back: NFTs can be used to prove ownership of digital files. These can be works of art, video game accessories, or even virtual real estate. The fact that the corresponding files are genuine is built into the blockchain. Therefore, NFTs are mainly traded with cryptocurrencies and therefore NFTs also consume a lot of electricity.

   Investment bank JPMorgan Chase estimates the value of the global NFT market at €6.3 billion. The Economist's NFT experiment raised $420,000 for the paper in October. The Economist has auctioned off the cover of its cryptocurrency publication. It has a drawing from the children's book Alice in Wonderland titled Down the rabbit hole. The buyer told The Economist that the stock made him buy it.

   Taste, arrangement or handling?

But the reasons why people pay large sums for the rights to a digital file are varied. Crypto entrepreneur Vignesh Sundaresan spent $69 million on artist Beeple's NFT project in early 2021. This is the largest amount ever paid for an NFT-stamped digital artwork. NFT fan Sundaresan, who also invested in the technology, was then suspected of inflating prices with the purchase. He denied it, he used to support the artist and show the technique.

  For other buyers, scarcity is a key argument. "The buyer knows copies of the bonds will be made and has proof of ownership of the blockchain," US-based NFT collector Marcos Cubano told Business Insider.

   What the data says

  Researchers at the Alan Turing National Institute (ATI) in England wanted to know what the data had to say about this phenomenon. “We found that the success of NFTs is very mixed,” Andrea Baronchelli, an associate professor of mathematics at the University of London and a blockchain researcher at the Alan Turing Institute, told DW. "Some, very few, are very successful, some sell well, and most are worthless."

 

  In a study, a team of ATI experts demonstrated the role of three factors in NFT pricing: NFT visual features, previous and related NFT sales, and the social network of buyers and sellers.

   Using a machine learning model, the researchers examined a dataset of 4.7 million NFTs from more than 500,000 buyers and sellers. The result? Past NFT sales were the most important of the three factors, accounting for more than 50 percent of the price differences. For example, the previous NFT sale of the so-called "Cryptopunks" collection bodes well for future NFT sales of the same collection.

   Visual features were the second most important consideration, accounting for 20 percent of the price. The popularity of bootleggers on social media was ten percent.

  Future plans include exploring other factors, including the NFT's sales platform and the artist's social media activity.

  A touch of the classical art market.

  Scarcity, social media, and often the content of the work also determine the value of the object in the traditional art market. But NFTs have certain characteristics that set them apart from their real-world counterparts, says Mauro Martino, director of IBM's Visual Artificial Intelligence Laboratory and co-author of the ATI study.

  "The big difference between the art market and the NFT is that artists got 10 to 20 percent of secondary sales," he tells DW. "Every time the work is resold, part of the profit goes back to the artist. It's really a first in the art world and could be a great opportunity for artists."

 

  This is possible because all future NFT sales are recorded on the blockchain, allowing artists to receive their share automatically.

  stone jpeg

  Anyone who has already made a lot of money with NFTs will benefit from these factors. But what about the many works that do almost nothing?

  "Every day 10,000 new parts come out," says Martino. “No son 10,000