NFTs – Non-fungible tokens – are digital assets that serve as secure documentation of ownership of virtual artwork and are particularly popular with collectors. Examples of NFTs include digital art, historic Tweets, and various character portraits that exist in video games or the digital world more broadly.
For instance, in 2021, Christie’s auction house sold the first-ever piece of NFT artwork for an incredible $69.3 million when a buyer purchased Beeple’s Everydays: The First 5000 Days. The artwork is a digital collage, and the buyer didn’t receive anything tangible in exchange for their $70 million.
Soon after Beeple’s ground-breaking NFT sale, Twitter founder Jack Dorsey sold his first ever Tweet for $3 million as an NFT, which piqued the interest of many within the mainstream about this unique type of investing. How is there a market for this type of asset? And how do you invest in a digital asset?
Well, the tokens that you purchase are built on blockchain, which makes them similar to the technology that powers cryptocurrencies. The majority of NFTs are based on the Ethereum network, but they’re also available on Polkadot and Solana.
Purchasing NFTs has made it possible for individuals to transform digital artwork and online collectibles into unique, one-of-a-kind collectibles that can then be sold for vast sums of currency. And while it might be a difficult concept to grasp from the outset, the reality is that influencers and artists are already making huge sums from the sale of NFTs.
What Are NFTs?
Non-fungible tokens (NFTs) are any type of digital content that is linked to the blockchain. The key determinant of an NFT is that it is not fungible – not interchangeable – meaning that no two NFTs are the same. This is how they differ from cryptocurrencies, which are fungible and can be replaced or exchanged by another note or token that carries the same value.
Some people compare NFTs to rare collectibles like watches, Pokémon cards, or a first-edition Harry Potter Book – they are noteworthy among otherwise infinitely available assets. Jack Dorsey’s first Tweet is a great example of this. While you would be crazy to spend $3 million on a run-of-the-mill Tweet from an unfollowed Twitter user, it’s something else to buy – and claim exclusive ownership over – the first-ever Tweet published on the platform by its founder.
While there’s not a restrictive definition about what is and what isn’t an NFT yet in the digital space, things like digital artwork, memorable GIFs, Tweets, virtual trading cards, images & videos, video game skins, and virtual real estate are all examples of NFTs that have been bought and sold for huge sums in recent times.
How Do You Invest in NFTs?
Okay, so this is where things get interesting. Absolutely anyone can buy an NFT; you just need to know where to look and how to go about it. We’ve put together the following guide to explain – in the simplest possible terms – how to invest in NFTs. Let’s begin with finding an NFT marketplace.
Step One: Scour the NFT Marketplace
When you’ve decided that you’re interested in buying an NFT, you need to begin by looking in the right places. As you might imagine, there are multiple marketplaces that you can buy NFTs from, and some of the most prominent include:
Your first job is to discover the current NFT marketplace and to look for NFTs that take your fancy. Some marketplaces sell specific types of collectibles and are a good place to look if you already know what type of NFT you want to buy.
For instance, if you’re in the market for a memorable Tweet, you can visit Valuable by Cent, the platform on which Jack Dorsey sold his first Tweet on the platform.
When you’ve found a platform that you like the look and feel of, set up an account by following the steps listed on the site. Each platform operates differently, so you need to make sure you familiarize yourself with the process of each before jumping in.
Step Two: Convert Your Dollars into Crypto
The vast majority of NFTs use the Ethereum network to facilitate their transactions, while some use other cryptocurrencies. Therefore, the next step is to find out which cryptocurrency you need to buy in order to complete your NFT purchase and buy the required currency if you don’t already have it.
And if you’ve never purchased crypto before, you will need to first go to a cryptocurrency exchange site like WazirX or Binance in order to buy your tokens. When you visit the platforms, you will see graphs that indicate the current market value of the various cryptocurrencies that are available for purchase.
The crypto market is incredibly volatile and fluctuates a lot more than the regular stock market. Many investors like the idea of buying and holding crypto for this exact reason, which can be done via a crypto wallet, as we explain below.
Step Three: Open a Crypto Wallet
Opening a crypto wallet is relatively straightforward – you just need to make sure that the platform that you choose is compatible with the currency required to invest in NFTs. Some of the most popular Ethereum crypto wallets include:
A crypto wallet serves as the holding account for your cryptocurrency and enables you to make purchases on the relevant NFT platform. Helpfully, most sites enable you to connect your chosen crypto wallet with the click of a button, and there’s nothing more to it than that.
You can add the crypto that you purchased to your wallet, and then you’re all set and ready to look for your NFT.
Step Four: Consider the NFTs available for auction
Now that the practicalities are out of the way, it’s time to get involved in some NFT auctions. But given that the world of NFTs is relatively new, there’s not a great deal of history that can be called upon to consider which NFTs represent a good investment. When you’re new to NFT investing, consider the following parameters to guide your initial research:
Trading Volume
When you log onto a platform like OpenSea, you can search for NFTs by trading volume. This gives you an idea of the NFTs that are currently popular with investors and will help you find similar projects to bid on.
Team & Artist Reputation
While there’s nothing necessarily wrong with buying an NFT from an anonymous source, begin your search with those that have a good reputation within the Ehtereum community. Before bidding for an NFT, you can link out to the developer or artist’s website to check them out, which is an important piece of due diligence.
Originality
The whole point of buying an NFT is that it is a valuable collector’s item. The last thing you want to be stuck with is a copy that has successfully emulated an original. Always seek out projects that are popular and have a story and uniqueness behind them. These are the most likely to hold or increase in value.
Aesthetics
Would you hang a piece of artwork on your bedroom wall that you don’t like, just because it’s valuable? Some people might. But the general rule when buying NFTs is that you should first and foremost buy something that you’re interested in and that takes your fancy.
So, while there’s no hard and fast rule for buying NFTs, common sense should prevail. It’s a good idea to spend a bit of time scanning various NFT platforms before committing to an investment, so you can understand what it is you’re getting yourself into.
Step Five: Invest in an NFT
Each platform is different, but most marketplaces operate NFT auctions. As such, you will need to track the NFTs that you’re interested in and make a bid that you think will be successful.
If your bid is successful, the transaction is completed similarly to any other online transaction, and the required amount will be debited from your crypto wallet. At this stage, you will also have to pay a fee to the marketplace, which varies from site to site.
These fees are referred to as gas fees and are charged by the platform for facilitating your purchase of an NFT. When trading in Ethereum, gas prices are denoted by a unit of Gwei, and the total price is determined by the current traffic on the network. Ultimately, this means that the gas fee varies from investment to investment.
The best way to understand gas fees is to consider them as credit card transaction fees but without the standard rate.
Investing in NFTs – FAQs
What is the average cost of an NFT?
According to Yahoo Finance, the average cost of NFTs depends on the marketplace upon which the asset is sold. The average sale price of NFTs on OpenSea is $500, while it’s as little as $150 on Valuable.
What is NFT minting?
The process of converting a digital art piece or collectible into an NFT is known as minting. For the digital asset to be truly unique, it has to go through the minting process, which essentially ensures it bears a blockchain element. Most items are encrypted and provided with a unique code that then enables an individual to be the sole owner of the digital asset. This code is presented on the authentication certificate once the sale is agreed upon.
What makes an NFT valuable?
This is a difficult question to answer, but the value of an NFT is typically driven by what or who the digital asset represents. As many high-profile NFT sales have shown, buyers are willing to pay big bucks for digital assets that have been put together by well-known individuals, which is in keeping with the way collectibles work in the real world.
Are NFTs cryptocurrencies?
No – NFTs aren’t cryptocurrencies. That being said, they’re built with similar technology and exist on the blockchain. They are also traded using cryptocurrencies, with the majority of NFTs held on the Ethereum blockchain.
Are NFTs a good investment?
NFTs have only been around since 2014, so there’s a lot we don’t know about their potential as an investment. One thing that is for sure is that they’re highly volatile – much like cryptocurrencies – and might not necessarily be the best investment if you’re looking to tuck some money away for retirement. We would advise you to familiarize yourself with the NFT market before diving into high-value NFT investments.
How do you sell an NFT that you own?
Once you have purchased an NFT, you can sell it whenever you like. You will need to list it on a marketplace that supports the blockchain on which your NFT was originally built. After selling the NFT at auction, you will be required to pay fees as a seller, and you will then receive the crypto in your wallet from the buyer. Simple!
Final Thoughts on NFTs
NFTs present a new and exciting way of investing in digital assets. But because it’s a relatively new method of investing, the market is particularly volatile, and there’s a lot that isn’t yet known about the suitability of NFTs as a long-term investment.
That being said, we hope you have found this guide insightful and use it as you begin your research into your first NFT investment this year.