Anybody who’s ever watched “Antiques Roadshow” knows the value of provenance in adding value to a collectible.
If you can demonstrate provenance—or the chain of ownership—of a collectible, say, a bat that Babe Ruth gave to your great-grandfather when he was a kid, its value increases dramatically among collectors.
A new study from the University of Iowa’s Tippie College of Business shows that same principle works in a virtual economy with digital-only assets, as proving the provenance of a nonfungible token (NFT) can increase its value.
Soogand Alavi, assistant professor of marketing, studied the trading transactions of NFT gaming cards used in a blockchain based game called Gods Unchained. As NFTs, the cards do not have a physical form, but are only a digital form that is used to play the game or collect via digital wallets.
But even as digital-only assets, she said provenance plays a major role in their resale value, as gaming cards once owned by prominent and well-known game players are being resold to other players with higher premiums.
Alavi studies NFTs in many markets, from gaming to art, investigating what prompts people to buy and collect them. She studied Gods Unchained as part of her research because it’s one of the most popular blockchain games with hundreds of thousands of players making game card transactions. The cards represent different gods, creatures, spells, artifacts, and other elements of the game that players can buy and sell amongst themselves paying with Ethereum cryptocurrency.
These increased sales can also benefit NFT marketplaces, such as Opensea, where they take a percentage of the transaction fee. In some cases, the NFT creator also gets a percentage of any future resales, although that wasn’t the case with Gods Unchained during the study period.
Why would game players value an NFT more if it was once owned by a prominent player, especially since it’s nothing more than a digital image that adds no value to its gaming performance? Alavi thinks it’s likely for similar reasons why someone would be willing to pay top dollar for Babe Ruth’s bat or any other collectible in the real world—because the prestige of the former owner will reflect a little bit on them.
Alavi’s , “On the Role of Provenance in NFT Trades,” is published in the International Journal of Research in Marketing.
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