Assessing Digital Art: A Comprehensive Guide - (Pt. 1)

Since the emergence of NFTs on the Ethereum blockchain in 2017 (though some may argue that NFTs date back even earlier with CounterParty), numerous challenges have arisen around this new asset class. One of the most persistent issues, especially for collectors, revolves around the valuation of NFTs.

A common mistake would be to assume that a digital artwork minted on a blockchain can be evaluated like any other piece of art. However, this perspective inherently overlooks everything that defines the uniqueness, distinctiveness, and, to some extent, the value of such digital artwork.

In this article, we will explore the fundamental elements that should be considered (or disregarded) in order to determine the value of your digital creations.

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Elements to Consider:

  1. Methodological Approach: The most reliable way to estimate the value of a work of art is undoubtedly to base it on the artist’s previous sales. The more comparable, recent, and credible reference points can be found, the more accurate the estimate will be. Behind this methodological approach lies a wide variety of concepts and risks to avoid, which we will detail later.
  2. The Floor Price: The “floor price” corresponds to the minimum price at which the current owners of a collection would agree to sell their assets. In practice, it indicates the perceived value of the artwork by its current owners but in no way reflects the price that potential buyers would be willing to pay to acquire said artworks. Relying on a collection’s Floor Price is, in fact, one of the most common mistakes when evaluating a piece of art and can lead to significant over- or under-valuations depending on the circumstances.

Example Scenarios:

  • Example 1: In the case of a highly illiquid collection that has experienced heavy speculation since its inception, once the speculation dies down, current owners will typically list their assets at prices higher than what collectors would be willing to pay, in order to minimize potential losses during resale. In this case, an evaluation based on the floor price would overestimate the value of the artworks.
  • Example 2: In the case of a collection where the individual pieces display notable differences (attributes, serial numbers, rarity within the collection), the floor price would be an extremely poor indicator, failing to account for the uniqueness of each piece. If we assume that the artwork representing the floor price is piece #9/10 in the collection, it is highly likely that the owner of artwork #1 holds an asset with a value far above the floor price.

Takeaway: Do not rely solely on the Floor Price when assessing digital art.

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