A look at NFT valuation and how Cryptopunks fit into the NFT scene
NFT’s or Non-Fungible Tokens have been surging in popularity in 2021. Much like other NFTs, CryptoPunks have also been seeing a rise in popularity and value. They make up 3 out of the top 5 most expensive NFT’s ever sold. (For more details on this, check this out here).
Given the popularity, many digital art practitioners are joining in the trend by tokenizing their art. We know “museum quality” art is expensive because of their fame of the artist and the exclusive ownership of the tangible art piece. However, you might scratch your head over the craze and the shockingly high prices for NFT art, given that you can’t touch them and there might be millions of digital copies of the artworks circulating online. Cryptopunks are one of the expensive NFTs—but what are they?
CryptoPunks are a collection of 10,000 unique collectible characters on the Ethereum Blockchain. When the punks were first released in 2017 they were free to claim, as long as you had an Ethereum wallet. All 10,000 of them were very quickly claimed and now sell for big bucks.
The platform has had US$200 million in transaction volume since it first launched in 2017. The rise in CryptoPunk’s popularity can be attributed to a surge of interest in NFTs overall. To understand why CryptoPunks are so expensive we must first try to understand what gives an NFT value in the first place.
Valuation of an NFT
An NFT’s value lies in its scarcity, which is determined by the NFT’s creator. For instance, while one creator might want to sell replicas or several slightly different versions of the same NFT, another creator may want to create a rare collectible. In either case, the authenticity of the NFT can be verified by their unique IDs and their metadata.
The rarer an item, the higher its value. As previously mentioned, no two CryptoPunks are alike, thus this scarcity leads to people paying lofty prices if they wish to own one.
The hedonic value comes into play too when valuing an NFT. This refers to how much enjoyment the consumer gets out of the product. For instance, The First Tweet from Dorsey gets its value from being the first tweet ever made, this gives it socio-cultural significance as a historical landmark.
Naturally, for those who possess CryptoPunks, they have a high hedonic value. The CEO of Figma and the former owner of CryptoPunk 7804, Dylan Field has even called his CryptoPunk “the digital Mona Lisa” which represents that he held the punk in high regard.
Age also plays an important part in the valuation of an NFT. An aged NFT is as valuable as any old famous painting. This might be why CryptoPunks, one of the oldest NFTs, top the charts in terms of their resale value. Their metadata(information like the NFT’s name, description and the creator’s address) which details their longevity on the Ethereum blockchain is what adds to their desirability.
Besides age, community and popularity also play a pivotal role in the valuation of an NFT, thus adding to the speculation and interest around it. Industry executives have pointed out that NFTs will gradually shift to cross-platform communities that facilitate their trade and merchandising. The idea here is to incorporate NFTs into various different formats and travel across various blockchain platforms. For instance, Sony incorporated NFTs into their game, The Six Dragons, which is the world’s first blockchain open-world RPG.
CryptoPunks owners have their own Discord server where they interact with each other about upcoming NFT projects that they are interested in purchasing. Their interactions and opinions of punk aesthetics also determine how much a CryptoPunk is worth. Consistent community interaction is another reason why CryptoPunks continue to garner attention.
With CryptoPunks hitting the mark of scarcity, hedonic value, age and popularity, their extravagant prices make a lot more sense. In August 2021, the financial services company Visa joined the CryptoPunk club and bought CryptoPunk #7610 for US$150,000. Visa’s crypto head, Cuy Sheffield says that their CryptoPunk is a “cultural icon for the crypto community”. But while the entry of a big-league company like Visa is a clear display of CryptoPunks’ growing relevance, one cannot know for sure whether they will continue to be as popular and pricey as they are today in the future.
Header image courtesy of LarvaLabs