How to Invest in Non-Fungible Tokens (NFTs)
NFTs have shot to prominence, constantly making headlines and attracting more people to invest in them. Amongst all the noise that NFTs have been making in the digital space, we cannot quite wrap our heads around the most expensive NFT that has been sold recently.
Reportedly, this pixelated, white-haired CryptoPunk, precisely Punk 9998, has been sold for a staggering $532M. Hard to comprehend, right? Well, a little bit of digging revealed that things may not be what they seem like. The money ended up on the same address on the Ethereum blockchain from where it started which shows that the person who initially sold this NFT bought it back for $532M to boost its price. In the digital world, this fairly illegal move is called the ‘wash trade’.
The NFT world is moving fast and people have begun to play such tactics to be on the top of the game. After getting a clear picture of what NFTs are and where to buy and sell them, you must have made up your mind about jumping on the bandwagon by now. If so, the next concern would be how to buy, sell, and create NFTs, and if NFTs are a worthwhile investment. Let’s find out! – (beware of these NFT pranks though!)
How to Buy NFTS
NFTs are bought and sold on an online marketplace specifically built for buying and selling digital assets, just like eBay or Amazon for physical goods. These marketplaces either let you shop an NFT of your interest at a fixed rate or let you bid on an NFT in a virtual auction. The value of the NFTs on sale via auction keeps fluctuating and is driven by their demand.
Once an NFT catches your eye and you decide to bid on it, you need to have a crypto wallet for that. A crypto wallet is like a digital wallet that contains the cryptocurrency required to purchase the NFTs. The crypto wallet has to be topped up with the cryptocurrency required specifically to buy that NFT. For instance, you might need Ether tokens to purchase an NFT built on the Ethereum blockchain.
As the hype of NFTs continues to escalate, a variety of NFT marketplaces are emerging rapidly that support NFT purchases. Top NFT marketplaces like OpenSea, SuperRare, and Rarible are popular among people for buying and selling NFTs. Some marketplaces deal with NFTs of a specific art form or niche, for example, Valuables that only deals in selling Tweets as NFTs, or Nifter that deals in the music NFTs.
Here’s a quick glance at how to buy NFTs:
- Create an account on an NFT marketplace: Anyone can browse through the NFT marketplaces without signing up but in order to buy or sell an NFT, one must create an account with a username, bio, and an email address on the NFT marketplace.
- Create a digital wallet: Once you have created an account on the NFT marketplace, you must have a crypto wallet (a digital wallet) to buy these digital assets.
You can choose between a hot wallet and a cold wallet. A hot wallet is connected to the internet, hence faster and lets you trade or spend crypto conveniently, but your funds can be stolen easily from a hot wallet as it is prone to online attacks. On the other hand, a cold wallet is typically not connected to the internet, hence less convenient but safe to use.
- Purchase Ethereum: Most marketplaces accept only Ether as most NFTs are Ethereum-based tokens. If you do not have an account on any cryptocurrency exchange platform, Coinbase or eToro are good options for beginners to purchase Ethereum.
- Bid on or buy an NFT that you want to invest in: There are two ways to buy NFTs; you can either pay the fixed price of the digital asset and become the owner, or you can bid on the token that you want to purchase. In the latter case, the NFT is yours if either you are the only one to bid on it or you submit the highest bid.
How to Sell NFTs
Once you have bought the NFT, it is totally up to you if you want to keep it in a collection, display it for the people to see, or utilize it in some other way (e.g. in a digital project). If you do not plan to keep it in your collection or utilize it in some digital project you can also choose to sell your NFT.
Before listing your NFT for sale, know that the marketplaces charge a fee for NFT sales. To process and validate the transactions on the Ethereum Blockchain, the users have to make a payment as compensation for the computing energy. This payment is called ‘gas fees’.
You need to upload the digital asset you own to a marketplace of your choice in order to sell it. Make sure that the blockchain your NFT was built on is supported by the NFT marketplace you opt for. Once uploaded on the NFT marketplace, you can now choose between the two ways of selling an NFT. You can either go for the auction-style sale and let the buyers place their bids, or you can list it for sale at a fixed price.
Once the NFT is sold, the marketplace will take care of the transferring of the NFT from the seller to the buyer while the crypto funds will be added to your crypto wallet after a few deductions (including listing fee and other computing expenses).
How to Mint/Create NFTs
The process of converting a digital file into a crypto collectible on the blockchain is known as ‘minting’. Everyone wants to cash in on the NFT trend and the potential of making big money is driving a huge chunk of digital creators to mint NFTs out of their artwork. You must have heard that someone has paid a jaw-dropping $69M for Beeple’s digital painting. If so, you must have given it a thought to mint your own NFT too, right?
Anyone can create or mint NFTs out of any digital file. You might not be as lucky as Beeple in your first go – but you never know! Every marketplace has a slightly different way of minting NFTs. Let’s take a look at the basic minting process.
- Select your digital file: The first step is to pick the digital asset that you want to sell on an NFT marketplace. It could be anything from a music file to a meme, digital art, a video clip, and so forth.
- Choose the blockchain: Once you have selected the digital file, you can create NFT out of it on any blockchain. But let’s take the example of Ethereum which is the most popular one, supported by major NFT marketplaces. Minting NFTs could cost money. Therefore, you need to have a crypto wallet (e.g MetaMask – one of the most recommended crypto wallets) with some tokens in it. If you choose to mint an NFT on Opensea, it would not cost you money to do so. But you have to connect a crypto wallet regardless (to create an account).
- Choose an NFT marketplace: Now that you have chosen your digital file, the blockchain, and have a crypto wallet too, select a marketplace where you want to mint your NFT. You can choose the marketplace based on the niche of your digital asset. For instance, if you are an ASMR creator, choose Xtingles. You can also choose from some of the top NFT marketplaces like OpenSea and Rarible. OpenSea is a more feasible option if you are a beginner as it is one of the most popular NFT marketplaces and allows you to mint your NFT for free.
- Upload your digital file and create the NFT: You are all set to create your NFT now. If you are going to mint your NFT on OpenSea and have your crypto wallet connected to it, you can click on create in the top menu to create a collection. Now click on ‘New Item’, upload your file, and fill in all the information required. Click ‘create’ and Voila! You have successfully minted an NFT.
Are NFTs a Profitable Investment?
NFTs have taken the internet by storm and we get to hear about people making a big fortune through NFTs. But one must not blindly dive into it without some research. The creators must be intrigued by the expensive artwork purchases. But they must keep in mind that their NFT may or may not be sold. In the latter case, they would be paying listing fees involved in minting NFTs without even making any money from it. You can avoid a loss by minting and selling NFTs that are deemed valuable by people and setting a minimum price.
When it comes to buyers/ investors, NFTs are speculative investments. People buy NFTs for their value as collectibles. But this value is uncertain as these collectibles might be a part of a passing trend which people would no longer be interested in after a while. For instance, TikTok NFTs have been trending in the past but it seems like the gaming NFTs are going to be the most popular NFTs in the future.
There is also a bright side to it where you can make megabucks out of your digital assets. There is no set rule to figure out which collectible would go up in demand and which one would lose its value. We would suggest you weigh the risks and do your research before investing in NFTs!