NonFungible Tokens (NFTs) made quite a buzz in the crypto space in 2021. What attracted a lot of interest was the sale of high-value pieces for significant sums of money in cryptocurrency. And a good example of such high-profile sales was Beeple’s “Everydays the first 5000 days” on Opensea.
I wouldn’t go further to talk about the market growth and all that, because they are outside the scope of this article. But since NFTs became a thing, there have been a lot of projects some good and others just plain rug pulls and the market has grown tremendously. Now in this article, I will walk you through the steps toward investing in NFTs, where you can purchase and trade NFTs. I will also drop some things you need to have at the back of your mind while making the foray into the NFT space. For a newbie, this article serves as a beginners guide to investing in NFTs.
What are NFTs and how do they work?
You may have come across a JPEG or GIF or meme that you like and wanted to share with your friends. now the question is- when you shared that JPEG or GIF or meme or even video with your friends did you lose the copy of it you had before sharing it? the obvious answer is no. And even when you consider it, the copy of the digital material you have is not the original. Because it is most likely that it has been shared a good number of times before it got to you.
Now, this is what NFTs do. With NFTs, these digital materials that can easily be transferred from one person to another are tokenized. When you tokenize them the original becomes unique that there cannot be two of that same digital material. Furthermore, with blockchain technology, the digital material is recorded in a decentralized ledger such that when it is shared there is a digital record.
For example, If you transfer a unit of Bitcoin to someone the person receives a unit of Bitcoin which is not the one you sent. From this explanation, Bitcoin and other cryptocurrencies are fungible tokens, because they are readily exchanged for another of the same value.
On the other hand, NFTs are non-fungible such that you cannot readily exchange one NFT for another no matter how similar they may be.
By definition, NFTs are tokenized digital assets that represent anything on the internet. Anything on the internet ranging from GIFs, Videos, memes, and videos. NFTs can also represent, real-world assets. In the real sense of it, we can also consider an NFT as a tokenized certificate of an asset recorded on a decentralised network. So when we transfer an NFT, what we exchange is a certificate of ownership.
Why is this so? For example, anyone can download a digital art on the internet with just Ctrl-C, but the digital certificate still belongs to the owner even if it is duplicated. So, there is still a record of the owner, unlike a non-tokenized digital image that after it has been shared over time is difficult to trace back to the owner.
Furthermore, NFTs have also found use cases in the coming virtual world known as the metaverse. NFTs serves as ownership deed for virtual real estate in various metaverse platforms such as the Otherdeed of Yuga Labs’ Otherside metaverse.
Another place where NFTs have found massive adoption is in NFT gaming. Gamers now own game items that once belonged only in the games and can exchange them for cryptocurrency. So with NFTs gamers now make money from gaming and selling their game items either in the game’s ecosystem or in the secondary marketplace
Advantages of NFTs
NFTs have several advantages that I have casually mentioned before but I will be elaborating on them.
The non-fungibility of NFTs means that an NFT cannot be replicated. As a result, every NFT is unique and authentic. The application of blockchain technology adds an extra layer to NFT’s uniqueness because it keeps a record on the digital ledger and makes it difficult to copy them.
First off there are no concerns about counterfeiting with NFTs. And in the case of transactions and trading, both parties are assured of the genuineness of what they are trading. Also with NFTs content creators own their content and the middlemen are eliminated. For example, if a digital artist mints his work as an NFT and places it in an NFT marketplace like Opensea, the buyers will deal directly with him and he gets paid what he dictates. This effectively places power in the hands of the creator.
Ease of transfer of ownership
Furthermore, with blockchain technology, it is easy to transfer ownership of NFTs. Specifically, the smart contract executes such transactions unaided and with speed.
Why Invest in NFTs?
Why invest in NFTs? Are they a good investment in the long run? why should I consider investing in the NFT space? you may ask. But as I said earlier, the main point of NFTs is about ownership. And when investing in NFTs the basic thing is that you are investing in the ownership of the object or digital material. For example, when you buy an NFT for a physical object, say a work of art or a sneaker, you are paying for ownership and not the sneaker or work of art. If it is a digital material such as a documentary or a sports highlight, buying the NFT means paying for ownership rights to the material. So that you get compensated whenever it is used for commercial purposes.
Before you invest in an NFT
Now as a newbie or even an experienced person in the NFT space, you need to understand that there are a lot of projects in the space. And among them, we have genuine projects and shady projects that are there to scam investors. As a result, you should be very careful before investing and do proper research to invest in the best NFT projects out there.
Speaking of research, the first thing you need to know is that the odds are already against you in the market. First off, your knowledge of the tech is limited, and you do not have insider info on what you are investing in. But by doing a background check and asking questions you will filter out the good investments from the bad ones.
Quick tips for safe NFT investing
Let me drop some quick tips that will help you to make the right choice in the vast NFT space.
One of the most important things to look out for in a project is transparency. The project must be open and must have social media accounts attached to them where you can communicate with the creators. Discord servers have served as good community platforms for NFT projects, others include Instagram and Twitter. Without a social media account then it is difficult to get your complaints addressed if any arise and it is very easy for the team close shop and run away with investor funds.
Be wary of projects with unknown faces behind them. This doesn’t mean that projects with known creators do not turn out to be rug pulls, it is safer when the identity of the team is known. Now with the identity of the team known, you have to search for the creator’s history to know if he has been involved in any project in the past. If he has been part of any project in the past how did they end? this will help you decide if it is worth investing in.
Most people make the mistake of investing in a project because of the Fear Of Missing Out (FOMO). In fact, this is actually what influencers and those who hype projects work to create. But for your best interest do not succumb to FOMO, take your time and make a good investment decision.
Don’t be afraid to sell your NFTs if you feel that it is not working for you. Also knowing that investing in NFTs is a long-term investment and not a get-rich-quick. So, it might not make you much money overnight and if you believe in the project then you should hold your NFT as long as possible.
Finally, invest only what you can afford to lose. This is one of the best pieces of advice you can get before investing in a project. because, due to the volatility of the DeFi market, you stand the chance of losing your investments that is why it is important to invest only what you can afford to lose.
Where can you buy NFTs?
There are a lot of places where you can buy NFTs, this includes the native NFT marketplaces for some gaming platforms where users trade the game assets and tokens. Your choice of NFT platform depends on the decentralised network on which it was minted. The Ethereum blockchain is the major NFT launchpad. And although it is fraught with the challenge of high gas fees, it supports a lot of NFT projects including the best NFTs and most platforms are compatible with the ethereum blockchain.
One of the top marketplaces is Opensea. It is considered top because it supports a large number of blockchains such as Ethereum, Solana, Polygon, etc.
There is also the Magic Eden, which is the top marketplace for NFTs built on the Solana blockchain.
Exchanges like Binance have an NFT marketplace that is compatible with NFTs on the BNB chain and some other blockchain networks. Others like crypto.com and coinbase have their NFT platforms that support various other chains.
Requirements for NFT investing
The first thing you need to invest in NFTs is to get a good crypto wallet. Now, this wallet is determined by the blockchain where the NFT was minted. If the NFT is compatible with ethereum then the best options are MetaMask wallet or Trust wallet. Since a lot of platforms are compatible with the Metamask wallet I advise you to go for that.
After setting up your wallet, then you have to buy some Ethereum, BNB for projects on the BNB chain, or Sol for Solana-based projects as the case may be.
After funding your wallet head to your preferred platform to purchase your NFT. The platform will require you to connect your wallet before you can purchase NFTs. And when you have bought the NFT, it will be sent to your wallet.
Investing in nonfungible tokens is a great one, but due to the risk involved you need to be guided in the process, to avoid losing everything. I believe this article and the quick steps shared in it will help you make the right choices. catch you in the next article.