NFT Rarity and How to Figure Out a Rating

Non-fungible tokens (NFTs) are digital assets that cannot be copied or replaced. These tokens rely on the same cryptographic and distributed ledger technology as cryptocurrencies, but each is unique. Put simply, a cryptocurrency token is like a dollar bill, whereas an NFT is like a painting. One dollar bill has the same value as the next. It is fungible, meaning it's replaceable by another identical item.

On the other hand, each NFT has its own value. And rarity is part of the value of an NFT. Most NFTs are released in large sets or collections, with each unique token having an assigned rarity score. This article will discuss NFT rarity and how to calculate it, the factors that contribute to rarity, and how to identify rare NFTs.

What is NFT rarity?

NFT rarity indicates how unique an NFT is, particularly in relation to other NFTs in its collection. Some NFTs, such as the Bored Ape Yacht Club tokens, are released in large sets, while others, such as “Everydays: The First 5,000 Days” by Beeple, are released on their own. Those not belonging to a set are inherently rare since no others are like them. NFT collections generally use a trait system to indicate rarity.

In an NFT collection with similar artwork, traits are the elements that may be found in each NFT. For example, each Bored Ape features an ape with seven traits that contribute to its design: earrings, background, fur, eyes, mouth, hat, and clothes. Sometimes, the number of traits an NFT possesses acts as an additional trait. Some NFTs may have four unique traits, while others have seven.

A token's overall rarity score is determined by its number of traits and how rare each trait is. NFTs with rare traits are generally more valuable than those with common traits. Rarity scores can be calculated manually or with the help of a rarity tool.

Factors that affect NFT rarity and value

Traits are an essential indication of an NFT's rarity, but other factors influence value too. Other important factors include the creator, historical significance, and overall demand for a specific NFT.

Scarcity of the item

NFTs can be sold on the secondary market. Scarcity refers to how many NFTs from a collection are available across all NFT marketplaces. If a popular NFT collection contains 1,000 NFTs, and no more than 50 are available, the demand is likely greater than the supply. However, if 500 NFTs from this same collection were available at any given time, it would suggest that the supply outweighs the demand.

Historical significance

When NFTs entered the mainstream, many well-known media and entertainment entities raced to cash in on the craze. For example, on May 17, 2021, Time minted the first issue of Time Magazine as an NFT. This NFT went on to sell for 123.6 ETH, worth $305,435 at the time of sale.

NFTs with historical significance are inherently rare, and many collectors are willing to pay large sums to obtain them.

Popularity of the creator

The creator's popularity plays a massive role in an NFT collection's value. Often, popular creators don't have to spend time and effort marketing their creations. People know who they are, so there is an immediate demand for their tokens.

Methods for calculating rarity

With rarity being so important, four different models have been developed to determine the rarity of an NFT in a collection. Let’s have a look at each of the models and discuss its pros and cons.

Rarity Score Model

This is the most commonly used method and was developed by the founder of rarity.tools. The model calculates the frequencies of each trait, which means figuring out how common or rare each trait is across the entire collection. For example, we might count the number of items that are blue compared to the number that are red, giving us a sense of which colors are more or less common.

Once we have the trait frequencies, we can score the rarity of each trait. Rare traits, those that appear less frequently, will get higher scores. This is because the less common an attribute is, the more unique and valuable it tends to be.

Finally, we aggregate these scores to determine the total rarity score for each NFT. By combining the scores of all the traits an NFT possesses, we get a comprehensive rarity score that reflects its overall uniqueness in the collection.

Example
In this example, we have six NFTs with two traits each. 

First, let’s look at the frequencies for the color and shape traits:

Next, let’s calculate the rarity score for each trait by dividing the total number of NFTs by the occurrence of the specific trait. We’ll get the following results:

As you can see, for the colors, red is rare and has the highest trait rarity score for the color trait. For the shapes, the frequencies are the same, and so are the shape rarity scores.

As a final step, we need to aggregate the individual trait rarity scores to get an overall rarity score for each NFT. Here are the results for our demo example with six NFTs:

When we rank the different NFTs based on total rarity score, NFT 3 clearly wins because it has the rare color trait “red”.

In summary, the rarity score model is a simple and reliable method for calculating the rarity of NFTs. It’s a popular model that considers each attribute in its calculation.

Trait Rarity Model

NFTs can have many traits, with each NFT possessing different variations of a trait or not possessing the trait at all. The trait rarity model gives the highest score to the NFT with the rarest trait. For example, let's say a collection of 500 NFTs features unicorns, and the horn is one of 10 possible traits. If only one NFT has a golden horn, and no other NFT is the sole possessor of any other trait, this NFT would be the rarest.

Example
Let’s use our previous example with shapes and color traits to visualize the trait rarity model. This model usually uses percentages instead of scores. Let’s reuse our trait frequencies calculation but turn them into percentages.

To identify the rarest trait for each NFT, we need to choose the trait with the lowest rarity percentage. A lower rarity percentage indicates the trait is less common, making it the rarest. Here’s the overview of our six NFTs.

Let’s organize our NFTs. Notice how this impacts the rarity order for NFTs 4, 5, and 6 and NFTs 1 and 2. They have swapped places. The main limitation of this model is that it d

Average Trait Rarity Model

This metric averages the rarity scores of all of an NFT's traits. The rarity score of each trait is expressed as a percentage. (For example, 12% of the unicorns have red sunglasses, 20% have blue tails, etc.) Then, you add those percentages and divide by the number of traits the NFT possesses.

Example
We can reuse the trait rarity percentages we’ve calculated using the trait rarity model and take the averages of all trait percentages.

When we rank our NFTs, they have the same ranking as the Trait Rarity Model.

While this model is easy to understand and considers all traits of an NFT, it doesn’t correctly value rare traits. If an NFT has a very rare trait but also contains many common traits, it will receive an average rarity score. In contrast, the rarity score model would assign it a higher score due to the rare trait. As a result, the average trait rarity model is not a reliable predictor of true rarity.

Statistical Rarity Model

This metric is calculated by multiplying all of an NFT's trait percentages. NFTs with lower scores would be considered rarer than those with high scores.

Example
Now, let’s calculate the statistical rarity by multiplying the trait rarity percentages.

When we look at the rarity distribution, you’ll notice that the Statistical Rarity Model gives the same outcome as the Trait Rarity and Average Trait Rarity Models.

Again, this is a simple model that considers an NFT's overall rarity, but it doesn’t properly value rare traits.

Summary: Which NFT Rarity Calculation Model is Best?

Different communities and platforms use varying methods to calculate NFT rarity, each emphasizing different aspects. Some prefer a basic calculation that's easily understood and replicated, while others, like the trait rarity model, focus on the significance of individual traits.

There are also models that prioritize an NFT's overall rarity score. However, certain approaches may fail to properly account for the impact of specific rare traits when determining an NFT's overall rarity. To address this, normalization techniques can be applied to balance the calculations, though this adds complexity to the process. To learn more about calculating rarity for your own NFT collection, check out the Hedera NFT Studio, where you’ll find all the tools you need to create, manage, and analyze your collection effectively.

While an NFT rarity score can make it easier to find valuable NFTs, it's more like a compass than a map. An NFT from a newly-minted collection with a rarity score of 5,000 could still be worth less than a CryptoPunk with a score of 1. The collection's popularity can tell you more about an NFT's value than NFT rarity rankings. However, it's essential to research the project and determine whether the creative team is trustworthy. Many NFT rug pulls begin with malicious groups using social media and influencers to generate hype before ultimately stealing money from their investors.

Hedera is building a robust NFT community with easy-to-use marketplaces and tools. Hedera's low fees and high throughput make it easier and cheaper to buy and sell tokens. Over 600,000 NFTs have been minted on the Hedera network, and over 1 million NFTs have been transferred. Hedera is one of the only distributed ledgers offering carbon-negative NFTs, and its immutable royalty configurations help creators benefit from secondary sales.