How to Invest in NFTs: Beginner's Guide
How to Invest in NFTs: Beginner's Guide
Non-fungible tokens, or NFTs, are one of the hottest topics in the cryptocurrency space at the moment. Even before the Covid-19 pandemic, NFTs were popular amongst artists and musicians as the technology gave them a way to not only sell their pieces of art on the blockchain but also protect the ownership of the pieces too. NFTs then went on to play a central role in the metaverse as the Covid-19 pandemic struck. This saw the value of the NFT market skyrocket, as more people rushed to get NFTs in the metaverse as well as in the art and music industry. So what is an NFT? Also, how can a person buy and sell an NFT? In this article, we will answer these two questions as we discuss everything that you need to know on how to invest in NFTs and become a part of the booming NFT industry.
What Is an NFT?
Non-fungible tokens are typically Ethereum blockchain-based tokens and are used to authenticate ownership of the asset that is digitally represented by the NFT. Ethereum’s blockchain can be thought of as a distributed database and virtual machine. Also, a blockchain token is a uniquely identifiable piece of data that is stored on the blockchain permanently. Lastly, users on the blockchain can be uniquely identified by their wallet addresses.
As mentioned in the introduction of this article, non-fungible tokens have made it possible for artists and musicians to release their work digitally without the risk of their work being counterfeited. Of course, anyone can take a photo of the work of art, or replicate it. However, by using the blockchain network, anyone can now verify the authenticity of an NFT to identify whether or not the NFT is a counterfeit of the original.
NFTs can also be used to give special access to events. People who hold these types of NFTs can gain access to exclusive events. These events can be both in the real world and in the metaverse. One example of NFTs being used for access in the real world is Bored Ape Yacht Club, which throws private concerts for token holders. Bored Ape Yacht Club NFT holders also have exclusive access to an open bar.
As prices for NFTs increase, the clubs that issue them become more and more exclusive. As such, celebrities have jumped on the NFT bandwagon to become part of these exclusive clubs. Some notable NFT holders include Stephen Curry, Lil Baby, Jimmy Fallon, Post Malone, The Chainsmokers, and many other celebrities.
The price of non-fungible tokens reflects the demand for what the token represents, similar to a cryptocurrency. An NFT can be thought of as an authentication and ownership verification method for digital media. What separates NFTs from cryptocurrencies is that each NFT has a distinct value, hence why it is referred to as non-fungible. Meaning, an NFT does not hold the same value as any other similar NFT, as is the case for ETH and BTC for example.
Even though NFTs are fairly expensive at the moment, a person who purchases an NFT is purchasing more than just a JPEG file. The NFT grants the holder ownership rights to the piece that they receive, and the person is able to sell the NFT on decentralized marketplaces such as OpenSea and Nifty Gateway. Similar to traditional artworks, the value of NFTs comes from the ownership of the original.
Top NFTs And Collectibles
There are several types of NFTs, but the most popular categories are art, music, and collectibles. Some of the biggest names in the music industry who have created NFTs include Grimes, Kings of Leon, Steve Aoki, and 2 Chainz.
A lot of artists who use digital media as the medium for their art have been drawn to NFTs, such as Jon Noorlander, Mike Greg, and Beeple. Even the public company Score Media and Gaming Inc. (SCR) has started covering NFTs in its weekly show Mint Condition.
One of the first big NFTs was a cryptocurrency collectible called CryptoKitties. These digital cats were released back in 2017 and are collectible in a way similar to Beanie Babies. Other unique collectibles that have entered the market include NBA Top Shots, Cryptopunks, and in-game assets for video games and the metaverse.
Pros And Cons of NFTs
NFTs clearly benefit artists who produce digital media. Prior to the invention of NFTs, it was extremely difficult to verify the authenticity of digital media, since anyone would be able to copy and paste the file. However, not all NFTs are valuable. Let’s take a look at some of the pros and cons of NFTs.
- Non-fungible tokens have simplified the buying and selling process of online digital media.
- By utilizing blockchain technology, anyone can easily verify the authenticity and ownership of digital media.
- NFTs make collectibles like trading cards more interactive and engaging.
- The NFT craze has made prices for some collectibles extremely expensive, with some costing more than they are worth.
- A person’s NFTs are at risk of being stolen in a hack if they are not stored securely.
How To Invest in NFTs: Step-by-Step
The first thing that you will need to do before you can start purchasing NFTs is to purchase some cryptocurrency. This cryptocurrency will then be used to purchase NFTs on the decentralized NFT marketplaces. Since most NFTs are on the Ethereum blockchain, they can only be purchased with ETH - the native token to the Ethereum blockchain. If you don’t already have Ethereum, you can purchase some on an exchange platform. Some of the most popular exchange platforms in the market are Binance, KuCoin, and Coinbase. Once you have your ETH, you can proceed to send the ETH to your decentralized wallet. More details will be included in the next step.
Send ETH To Your Wallet
Once you have gotten your hands on some ETH, you will need to send it to your decentralized wallet. The most popular decentralized wallet is MetaMask. MetaMask is a browser-based wallet that supports all internet browsers. If you don’t have it downloaded already, you can head over to MetaMask’s official site and download the wallet. The setup process is relatively straightforward. Once downloaded and set up, you can retrieve your MetaMask wallet address and send your ETH to it. Make sure that your MetaMask wallet is connected to the Ethereum Mainnet before copying your address.
A decentralized wallet acts as a digital fingerprint or a set of login credentials for decentralized applications to identify you. Your MetaMask wallet will be where all of your NFTs and cryptocurrencies are stored by default when transacting on NFT marketplaces unless you send them to another address. Once your MetaMask wallet is all set up, you can proceed to the next step.
Navigate To An NFT Marketplace
The next step is to navigate to an NFT marketplace. Once there, you will need to click “connect wallet” to connect your MetaMask wallet, and then follow through with signing the connection request in your MetaMask wallet.
There are a number of NFT marketplaces that you can choose from. These options include SuperRare, Nifty Gateway, and the most popular: OpenSea.
Purchase The NFT
The last step is the step that you have been waiting for, and that is to purchase the NFT. After getting hold of some ETH, setting up your MetaMask wallet, and sending the ETH to your MetaMask wallet, purchasing the NFT from the marketplace is the easy part. Most of the NFT marketplaces in the market only allow people to bid for the NFT and do not allow people to purchase the NFT at a flat price. Some marketplaces also work similar to exchange and list the highest bid and lowest ask for NFTs that have several prints.
One of the main benefits of purchasing an NFT from the primary marketplace is the potential resale value directly after the product goes on sale. Some NFTs that are in high demand will sell for 5 to 10 times their initial price right after the release. The downside to buying NFTs on the primary marketplace is it’s hard to estimate the demand for the art. On the secondary marketplace, you can compare your purchase to previous sales.
How to Invest in NFTs: Conclusion
Non-fungible tokens, or NFTs, are blockchain-based digital representations of real-world and virtual world items and objects. These tokens are similar to cryptocurrencies except for the major fact that NFTs are non-fungible. These NFTs can be purchased on one of several available decentralized NFT marketplaces, the most popular being OpenSea. To get started purchasing NFTs on a marketplace, you will first need to get your hands on some ETH. Then you’ll need to set up a cryptocurrency wallet, such as MetaMask, and send some ETH to it. Once you have done this, you can navigate to the NFT marketplace and finally purchase your NFT. Depending on the NFT marketplace that you use, you may be presented with a few options for purchasing the NFT. Some platforms will allow you to purchase the NFT at a fixed price while others will require you to bid for the NFT.
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