NFTs (non-fungible tokens) have exploded in popularity in recent years. An NFT is a digital asset that represents ownership of a unique item, such as a piece of art, music, video, or even a tweet. NFTs are revolutionizing digital ownership and the art world. But not all NFTs are created equal. So what separates the good NFTs from the bad ones? There are several key factors that contribute to a quality NFT.
Scarcity
One of the most important factors is scarcity. NFTs gain value from their scarcity and uniqueness. While anyone can view or download a digital artwork, only the holder of the NFT is the official owner. The more limited the supply, the more desirable an NFT becomes. Top NFT projects carefully control the number of NFTs minted to maintain scarcity. Bored Ape Yacht Club, for example, has a fixed supply of 10,000 apes. Controlling supply allows the value of existing NFTs to remain high. Mass produced NFTs with no limit inevitably decline in value.
Utility
Utility refers to additional benefits provided to NFT holders beyond just owning the underlying artwork. The best NFTs grant membership, privileges, or rewards. Bored Ape holders become members of the Bored Ape Yacht Club, granting access to member benefits. Other NFTs offer rewards like free cryptocurrency, merchandise, event tickets, or voting rights. The more utility attached to an NFT, the more valuable holding the NFT becomes. Utility transforms mere digital art ownership into something much more meaningful.
Interoperability
Interoperability refers to the ability of an NFT to be used across multiple platforms and applications. The most flexible NFTs utilize open standards like ERC-721 and ERC-1155 to become cross-chain and cross-platform compatible. This expands the possibilities of how and where the NFT can be used. An interoperable NFT purchased on Ethereum could still be used on Solana or other blockchains. Interoperability future-proofs an NFT and makes it more extensible. Closed, platform-specific NFTs lose flexibility over time.
Reputation
The reputation and prominence of the creator substantially impacts NFT desirability and valuation. NFTs tied to celebrities, famous artists, and trending brands tend to attract the highest prices. For example, NFTs by Beeple and Pak sold for tens of millions of dollars each largely thanks to the artists’ popularity. Even though anyone can mint NFTs, established players with marketing resources have an advantage in the space. The best NFT creators have an innate talent for generating hype and social buzz.
Community
A strong community enhances NFT stickiness and enjoyment. Discord channels, social media groups, and in-person events create a culture around an NFT project. Community gives holders a space to interact, collaborate, and form bonds around their NFTs. Top projects nurture community growth through active discussions, exclusive rewards, and member governance. A thriving community also promotes network effects where new holders are drawn in by the culture. Community activity signals faith in the future of the project.
Roadmap
The most promising NFT projects map out a future roadmap for features and utility. A roadmap might outline upcoming collaborative partnerships, events, merchandise, metaverse plans, and other benefits for holders. This shows the creators are planning for the long-term and continuing to add value. It gives holders confidence that the team behind the project is invested in its ongoing success. A roadmap also prevents an NFT from becoming stale once minting concludes. The initial reveal is just the beginning for projects with a robust roadmap.
Metadata
Metadata refers to the additional data encoded within the smart contract of an NFT. This includes information like the NFT’s name, description, image, and attributes. Extensive, detailed metadata expands the narrative behind the NFT. Adding compelling metadata makes each NFT unique even if they have similar appearances. For generative collections like CryptoPunks, the metadata permutations enable programmatic generation of millions of differentiated NFTs. Metadata also aids discoverability by search engines and external applications.
Standards
Compliance with technical NFT standards ensures an NFT functions reliably across applications. ERC-721 governs core non-fungible token functionality while ERC-1155 supports semi-fungible tokens. Following standardized conventions improves interoperability and reduces technical issues. Deviating from standards creates friction and prevents some applications from recognizing the tokens. Adopting standards also enables exchanges and wallets to list the NFT with minimal custom integration. Standardized NFTs tap into open ecosystems rather than closed, proprietary platforms.
Liquidity
Liquidity refers to the ability to readily buy and sell an NFT in a secondary marketplace. Higher liquidity and trading volume increase the chances of securing fair market value. Illiquid NFTs from obscure projects often fail to attract active buyers. This creates volatility and downward price pressure. Ensuring availability on popular NFT marketplaces like OpenSea improves discoverability by collectors. Decentralized exchanges also facilitate peer-to-peer trades without platform risk. Ongoing liquidity and demand signal a healthy market for an NFT collection.
Chain of Custody
The chain of custody tracks an NFT’s movement across accounts and platforms. Provenance refers specifically to the origin story and minting of the NFT. A clear chain confirms the current holder legitimately owns the NFT through verified transactions. Well-documented custody adds credibility compared to NFTs with broken or fuzzy histories. Projects that meticulously log metadata, ownership transfers, and timestamps offer quality assurance. Alternatively, obscured or falsified histories introduce doubt about authenticity and dilute trust.
Longevity
Longevity considers an NFT’s staying power and relevance over months or years, not just days. Trend-based projects flare up quickly and fade just as fast once popularity wanes. In contrast, NFTs with deeper artistic merit or cultural significance tend to endure. Release timing and hype cycles also affect longevity. NFTs released during bull markets often spike and crash. Steady growth over a prolonged period offers more stability. Long-term potential matters more than short-term hype when evaluating NFTs.
Legal Compliance
Like any asset, NFTs have legal regulations surrounding intellectual property, copyrights, and licensing. Responsible NFT projects comply with laws and obtain necessary permissions. Minting NFTs using unauthorized content, price manipulation, and other shady tactics introduce legal jeopardy. Lawsuits and government intervention threaten the viability of non-compliant projects and assets. Due diligence on the part of creators protects collectors by ensuring above-board practices. Legal accountability fosters an ethical, sustainable marketplace.
Security
Robust security safeguards NFT assets and infrastructure against risks like hacking, scams, and fraud. Code audits ensure no vulnerabilities in the NFT’s smart contract which could enable theft later. Projects should segment access controls so that centralized authorities cannot abuse capabilities. NFTs stored on decentralized wallets are inherently more secure than leaving them on an exchange. Ongoing monitoring for emerging threats also provides defense-in-depth. Security protects the monetary value as well as the integrity of NFT ownership records.
Storage
NFTs point to an address location containing the associated media file rather than storing the content directly on-chain. This content lives on Web2 or Web3 storage platforms. Centralized servers have risks like link rot, censorship, and instability. Decentralized storage networks offer more robust alternatives. The most resilient NFT projects adopt distributed storage through IPFS, Arweave, or other decentralized networks. This not only protects against data loss but also optimizes load times and reduces gas fees for minting. Reliable asset storage ensures permanent access even if original hosts disappear.
Minting
The minting process for generating an NFT provides the on-chain record of its creation. Randomized minting introduces more fairness by assigning rarity attributes at the moment of release. This prevents the creators from handpicking winners. Allowlisting minting for early supporters helps decentralize supply from the start. Capped minting limits total supply to maintain scarcity. Dynamic minting adjusts to evolving demand and price data. The best minting frameworks incorporate randomized, decentralized elements rather than just first-come-first-served sales.
Traits
Traits refer to the randomized characteristics that make each NFT within a collection unique. Generative algorithms produce varied combinations of attributes. Traits like faces, hats, clothing, expressions, and poses create diverse avatars. Certain trait types become prestigious and desirable based on tiered rarity. The distribution of traits directly impacts the resulting downstream market and valuation. Balancing common, rare, and ultra-rare traits through smart rarity tiering optimizes the supply composition. This generates more demand for high-end NFTs.
Royalties
NFT creators earn royalties based on secondary sales through integrated smart contracts. Royalties incentivize creators to provide ongoing value to the community. Industry averages range from 5-10% for royalties, but any amount can be configured. Resale royalties connect creators with collectors in a symbiotic, mutually beneficial way. Allowing collectors to earn royalties for their own sales also stimulates the NFT ecosystem. Dynamic royalties can increase based on factors like rising valuations. Fair royalties help compensate artists for their labor and vision.
Differentiation
A novel concept or artistic style breeds differentiation in a crowded NFT market. Bland NFTs get lost amidst the competition. Imaginative NFTs incorporate creative elements like algorithms, 3D modeling, animation, interactive media, and futuristic technologies. Building layers of gamification, storytelling, and community engagement makes projects stand out. Communities rally around roadmaps that push conceptual boundaries. Pioneering projects inspire future derivations, allowing bold ideas to proliferate. Distinct, avant-garde NFTs capture user mindshare.
Authenticity
Authenticity establishes the credibility and pedigree of an NFT collection. Verifiable creator identities build trust. Clear branding lends consistency to an NFT project across channels. Details like official websites, social media accounts, and company registrations separate serious projects from short-lived scams. Promotional partnerships, sponsorships, and media coverage offer third-party validation and expose NFTs to new audiences. Even small signals like verified Discord servers demonstrate community care. Overt authenticity boosts collector confidence.
Influencers
Influential promoters provide rocket fuel for NFT projects through connections and clout. Top collectors or creators endorsing an NFT collection heightens its visibility. Acclaimed artists contributing work adds prestige. Support from celebrities like Snoop Dogg gives NFTs mainstream accessibility. The more respected figures involved with an NFT, the faster hype spreads. Influencers ultimately bolster external perceptions of quality and status. Their coveted seal of approval offers a competitive edge.
Historical Significance
Certain NFTs accrue value from their historical significance and legacy. These include artifacts like the first proof of an original concept, prototypes preceding mass adoption, and milestones reflecting major cultural touchpoints. As the spatial web evolves, these pioneering NFTs increase in importance as records of genesis ideas and events. They reflect seminal moments across eras. Possessing these pieces secures status as an early adopter and supporter. Scarcity of historical significance cements these NFTs as one-of-a-kind treasures.
Interactivity
Interactivity empowers owners to engage with NFT assets beyond just static media files. Interactive NFTs contain built-in features like mini-games, 3D environments, virtual worlds, and playable content. This leverages NFT technology for more than just collectibles through digital experiences. Interactivity turns passive NFTs into active utilities. Some interactives have mutable state where choices alter the outcome. Enabling direct manipulation makes NFT ownership more tangible and fun. Interactivity will become table stakes as the space matures.
Token Standards
NFT standards dictate compatibility with applications and marketplaces. ERC-721 tokens follow the original NFT specification for collectibles. ERC-1155 supports semi-fungible and multi-token contracts. Following widely adopted standards improves exchangeability and composability. Deviating from norms creates walled gardens. Supporting multiple standards like ERC-721 and ERC-1155 maximizes interoperability. Familiarity also speeds up listing on common markets and wallets which integrate those standard APIs. Forward-thinking projects incorporate existing standards rather than rolling proprietary implementations.
Sustainability
Environmental sustainability through efficient blockchain usage benefits creators and collectors alike. Methods like batch minting conserve gas and avoid wasted energy. Carbon offsetting neutralizes the footprint from activity. Some NFT projects transition fully to proof-of-stake chains like Tezos which reduce energy consumption by over 99%. Renewable energy sources like solar and wind lower emissions. Sustainability protects the planet while upholding ethics. It also cuts costs compared to inefficient architectures and dirty energy. Sustainable NFTs have much lower marginal impact.
Extensibility
Extensibility refers to capacities that expand post-minting functionality in an NFT. This includes plugin architectures, SDKs, remixability, and other composable primitives. Extensible NFTs support generative remixing and algorithmic content production. With extensibility, each NFT can almost become a platform unto itself. External developers can build on and integrate open NFTs. Allowing extended creativity and customization increases utility. Extensible designs seed collaborative synergy.
Multi-Chain
Deploying smart contracts across multiple chains expands decentralization and availability of an NFT project. This mitigates risk of network congestion or outages and provides geography-specific alternatives. Offering choice reduces fees and improves speed. Cross-chain interoperability also enables frictionless transfer of NFTs across chains. Rather than locking users into a single chain, multi-chain unlocks flexibility. This future-proofs NFTs as new blockchains arise. The most resilient NFT infrastructure spans numerous interoperable networks.
Fractional Ownership
Fractional ownership allows dividing NFTs into tradeable shares or tokens. This lowers the barrier by distributing ownership across a wider group. Community-owned NFTs align incentives and increase engagement. Broader investment access points draw in smaller buyers. Splitting flagship NFTs also generates derivative assets. Fragmenting singular NFTs stretches usage and unlocks latent value. Fractional ownership democratizes participation. Sharing divisible NFTs creates new markets and financial tools.
Composability
Composability integrates NFTs with other cryptocurrency systems like decentralized finance. Some NFTs offer governance votes over DeFi protocols. Other composable NFTs contain fractionalized liquidity pool tokens. Intermixing NFTs and DeFi magnifies utility. Composable NFTs also plug into layer-2 networks, sidechains, and exit to fiat. This composability with external dApps fosters open synergies. Linkages between NFTs and other crypto networks multiply benefits on both sides. Modularity wins over silos.
Conclusion
Great NFTs exhibit compelling traits across multiple dimensions including attributes, community, utility, security, sustainability, composability, extensibility, and interactivity. A combination of technical excellence, artistic originality, ethical practices, and clever design separates the most promising projects. However, identifying winning NFTs depends on assessing many nuanced factors in tandem. Rarity alone does not guarantee value. Community strength and longevity matter just as much. Likewise, a novel concept needs proper execution and promotion to thrive. Evaluating NFTs holistically and avoiding narrow checklists yields the best insights. Focusing too much on any single attribute distorts the bigger picture. Nevertheless, certain qualities clearly distinguish game-changing NFTs as standards evolve.