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, 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. The creator, historical significance, and overall demand for a specific NFT are other important factors.
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.
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.
Trait rarity rating. 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, that NFT would have the trait rarity rating.
Average trait rarity. 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 up those percentages and divide by the number of traits the NFT possesses.
Statistical rarity. 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. (We should note, however, that different communities favor different methods for calculating rarity.)
Rarity score. This is the most commonly used method and was developed by the founder of rarity.tools. First, you develop a rarity score for each trait, which is 1 divided by the trait rarity of that trait. To get the rarity score for the NFT, you add up the score for each of its traits.
Without rarity tools, you may have to calculate an NFT's rarity manually. Even if an NFT marketplace or tool doesn't provide a rarity ranking or score, it should display a percentage for each trait, representing its frequency. That information will allow you to determine its rarity through one of the above methods.
Rarity Sniper is one of the most popular tools for researching NFT rarity. This tool breaks collections down, giving each NFT a score and rarity rank. You can sort top NFT collections by rarity to understand which tokens are the most valuable or search for a specific NFT by its ID. Other popular options include Rarity Sniffer and Icy.tools. Often, these tools have a robust Discord channel and offer analysis on newly-minted NFT collections in their Discord before publishing data on their sites.
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.