The beginner’s guide to buying NFT
The year 2021 was a significant success story for NFTs, even if the crypto crash of 2022 has since hit the market hard. At its peak, celebrities were rushing to snap up NFTs for their collections. At the same time, some NFTs related to events in digital history, like the Time Berners-Lee’s source code of the internet was turned into an NFT and sold for a newsworthy multi-million dollar price.
If you have been wondering what all the hype is about, here’s the complete guide to understanding what NFTs are and how you can purchase them or even sell one of your own.
A non-fungible token is a digital asset. “Non-fungible” means that an NFT cannot be exchanged for something else of equal value. For example, a dollar bill is fungible. One dollar bill can be exchanged for any other dollar bill. An artwork, like a painting, however, is non-fungible. If you traded one artwork for another artwork, even one by the same artist, you would have completely different artwork. In the same way, each NFT is unique.
Similarly, Jack Dorsey has tweeted thousands of times while on Twitter; however, none of his other tweets can take the place of the first tweet he ever sent out on the platform.
The “token” part means that NFTs use the blockchain, where information about their ownership is recorded publicly in a public ledger and is visible to everyone. In fact, many NFTs work on the Ethereum blockchain. Other blockchains support their own version of NFTs.
Each NFT is different from the others. An NFT can be anything — an artwork such as a drawing, painting, meme, doodle, text, music, or anything else as long as it is in a digital format.
Like traditional forms of artwork, NFTs are also prized possessions for those who own them and are displayed proudly, sometimes as part of a profile pictures on the social media accounts for the world to see or on giant screens in the comfort of their homes for a more private viewing.
Of course, most NFTs can be viewed by anyone for free. Owning an NFT simply gives the buyer ownership of the work. It’s a bit like buying an original Picasso instead of a copy. Although they both look the same, the original is more valuable because it is the original. However, because NFTs are digital, the original and the copy look identical.
So, in some ways, what you buy is the right to say that you own the NFT. What you are getting is a digital certificate of the artwork, which is unique because it has been signed and verified by the creator.
As long as people continue to value NFTs, they will continue to be valuable. On top of this, they also represent a new way for many artists to monetize their work without relying on intermediaries like galleries or record labels (who take a piece of the profit). NFTs also allow artists to earn royalties whenever a work is sold to a new owner.
To get your hands on an NFT for yourself, you will need to buy it from an NFT marketplace such as Open Sea, Rarible, and Nifty Gateway, to name a few.
NFTs that are available for purchase are listed on NFT marketplaces, a more sophisticated platform than eBay, which many of us may have used at some point. Apart from the NFTs that are especially popular, these marketplaces also host new NFTs that may have been added recently or made available as part of the more extensive collection.
While most popular NFT marketplaces deal with digital pieces, there are also niche marketplaces where one can get their hands on in-game items from popular online games, digital collectible cards, and digital real estate.
A marketplace will also display the transaction history, or “provenance” for the NFT, listing the names of the previous owners of the digital piece and the prices they paid for it. An NFT owner who wants to sell can choose to either sell the NFT directly at a set price or set up a timed auction to award it to the highest bidder. There is also the option of negotiating with the NFT owner on the price you will pay for the digital piece.
To buy an NFT, you will need to open an account with an NFT marketplace. Unlike cryptocurrency, NFTs can often be bought without sharing details such as your name, address, or government-issued ID with the marketplace. Signing up for an account is usually free on these marketplaces, but to purchase or bid for an NFT, you will need to connect your crypto wallet to the marketplace. A wallet is a digital account that can be used to keep cryptocurrency and digital assets safe.
Marketplaces are not owners or custodians of NFTs but merely let you access the blockchain and see digital collectibles available that are on sale. So, when you decide to purchase or bid for one, the cryptocurrency in your wallet will be used to finance the transaction.
If you own some cryptocurrency and already have a digital wallet to store them in, you can check if the NFT marketplace works with your crypto wallet provider. If it does, connecting your wallet is straightforward. You simply need to enter your wallet address and the wallet password when prompted, after which you are done.
If the marketplace does not support your wallet provider, you will have to create a digital wallet on a compatible platform with your choice’s marketplace. Before you buy or bid for an NFT, you will need to fund your wallet. Most NFT marketplaces accept Ethereum as a mode of payment for their transactions, so you will need to get ETH from a digital currency exchange like CoinBase.
Keep in mind that, as with cryptocurrency, NFTs valuations can also be volatile, and you must exercise caution when spending on them.
Additionally, the recent craze for NFTs has also attracted many scammers to this space. Scammers have done everything from marketplace look-alikes to stolen NFTs, direct messaging scams on social media platforms, or hacking accounts. Just because an NFT seems to be growing in popularity, that may not be a compelling reason to jump to buy it. That may be a classic ‘pump and dump’ where a group of scammers artificially spike the value of NFTs only to abandon them suddenly.
Like cryptocurrency, it is always recommended to head to trusted sources to buy your NFTs too.
OpenSea is probably the most popular destination for NFTs for its simple design and the access it provides to multiple blockchains to source NFTs. The learning curve to get used to the platform is not steep at all, and you will find a wide range of NFTs ranging from memes to collectibles and virtual lands to in-game assets in addition to crypto art on this marketplace.
Other platforms that you are considered trustworthy include Rarible, Nifty Gateway, and some special NFT marketplaces from crypto exchanges such as Binance and Coinbase. Some of these platforms may not have mobile apps, while others do not have messaging features. Credit card buys are not allowed on Open Sea, even though it is possible on some other marketplaces.
All marketplaces charge a royalty fee on the NFTs you buy, which can reach up to 50 percent in some cases. In addition to that, there are also transaction fees that may be capped at 2.5 percent in most cases. However, those looking to buy NFTs may also have to pay a premium called ‘gas fees’ to confirm their transaction on the blockchain.
A transaction in the crypto world is considered complete only when its details are added to the blockchain. To do so, computational resources are put to task to solve complex mathematical problems to generate a hash that confirms a transaction. The blockchain rewards this effort by generating coins for those who generate the hash, commonly known as mining, and the people involved are called miners.
Unlike Bitcoin’s blockchain, where miners work sequentially on the transactions that need to be completed, the Ethereum blockchain allows users to pay additional fees or ‘gas’ to process a transaction quickly. Gas prices are typically smaller amounts of ETH cryptocurrency, referred to as nanoeth or gwei. Miners can set a minimum threshold for gas fees and even refuse to process a transaction on the blockchain if the gas fees do not meet this threshold.
Gas prices are also adjusted based on the demand and supply of mining resources available. During periods of frantic activity on the blockchain, these can easily surpass the value of an NFT that you might be aiming to buy.
Marketplaces also allow users to not pay any gas fees for transactions, referred to as gasless or lazy minting. This can work for NFTs that are relatively new to the market and not in high demand. However, new additions to old and popular collections are unlikely to be scored without gas fees.
If you have an idea that could make a good NFT, you don’t have to be an expert at computer programming to make it happen. Marketplaces such as OpenSea also allow users to make their own NFT at no charge.
To make your NFT, you need to visit the marketplace website and click on the ‘Create’ option. You will then be prompted to upload an image or a video or audio clip and describe it in greater detail, aiming to convey the importance of the content. Last year, the ‘disaster girl’ meme, which has been doing the rounds on the internet for over a decade, was converted into an NFT and sold for a whopping $500,000.
There are also options to customize your NFT further, such as adding text or numbers or even adding content that only can be revealed to the owner of the item. While most NFTs are created on the Ethereum blockchain, you can also choose to create one on a different blockchain, and it can still be listed on marketplaces.
When you create an NFT, it gets stored in your digital wallet. To sell the NFT on a marketplace, you need to connect this wallet to the marketplace, which could also attract a one-time fee.
Once the wallet is connected, you can list the NFTs there for sale. This is also a straightforward process where you can either select an NFT and fix a price to sell it or conduct an auction, where the NFT will be delivered to the highest bidder.
Marketplaces also have the option to add a “Creator’s fee” to an NFT when it changes hands. This is like a royalty payment that the creator can continue to receive as the price of the NFT appreciates in the market through subsequent sales. Creator’s fees are generally capped at 10 percent, so if your NFT sold at 0.2 ETH is resold at 1 ETH, you will get another 0.1 ETH when that transaction is completed.
Selling your NFT will usually require more than just listing it. You will need to market your NFT or make one that stands out. Do remember you are competing with thousands of Bored Apes out there.
However, if you are keen to buy one, just hop on to one of the marketplaces to begin your NFT collection.
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