Non-fungible tokens, or NFTs, seem to be all the rage in the tech world today. You can read about celebrities dropping millions of dollars on seemingly mundane digital works all over the news. Jack Dorsey, founder and CEO of Twitter, sold an NFT of his first tweet last October 2021 for a staggering $2.9 million. Celebrities like Paris Hilton, Snoop Dogg, Grimes, and Shawn Mendes have also gotten in on the NFT action, launching their own NFT collectibles.
Your Ultimate Guide to Buying NFTs:
What Are NFTs?
Simply speaking, NFTs are digital assets that are sold and purchased online. They are commonly traded using cryptocurrency, mostly Ethereum. If you’re familiar with blockchain technology, NFTs are part of the overall structure of blockchain. However, unlike cryptocurrencies, NFTs are “non-fungible” tokens; they are not interchangeable.
To explain further, fungible assets like money and cryptocurrency can be traded unit for unit. A dollar is equal to another dollar and can be traded as such. Similarly, one bitcoin can be traded for another bitcoin because they have the same value. NFTs have a different structure; no two are equal in value, even if they’re essentially similar items. You cannot exchange one NFT for another one. Each NFT has a unique digital signature that makes it impossible to be exchanged.
NFTs are most commonly digital artwork, but they can theoretically be anything in the real world. As the earlier example of Jack Dorsey shows, you can even tokenize tweets, provided you’re famous enough like Dorsey. Practically any asset in the real world can be an NFT.
NFTs vs Cryptocurrency vs Blockchain
Amateur traders may be familiar with these terms but not too well-versed in the nuances of NFTs, cryptocurrencies, and blockchain.
Blockchain technology is the foundation that makes both cryptocurrencies and NFTs possible. In layman’s terms, a blockchain is a kind of public ledger where each transaction is recorded. If you buy one Bitcoin or Ethereum, that transaction is recorded in the blockchain via encryption. It’s what makes cryptocurrency more secure than fiat currency.
Both NFTs and cryptocurrency are based on this blockchain technology. The main difference between the two is what we stated earlier: NFTs are non-exchangeable, while cryptocurrency works more similarly to legal tender and can be exchanged. NFTs are also attached to a digital asset, while cryptocurrency is not.
History of NFTs
NFTs first appeared in 2014. Its original intent was to protect artists and their work and provide them with options to safeguard their creations against online piracy, while earning from their work.
Technology has made it easy to steal digital artwork and assets. Artists were helpless against people who appropriate their work for unauthorized use. In an article by Glitch CEO and NFT co-inventor Anil Dash, he emphasized this original intent of ensuring that artists have control over their work and are paid fairly for it.
Blockchain tech was still fairly new at that time. Dash and artist Kevin McCoy spent an entire night prototyping a blockchain-based platform that could offer artists control and ownership of their original creations. One of the main selling points of NFTs is that they have built-in “smart contracts,” which contain the identifying information of the token and can even generate commissions for the original creator each time the NFT is bought and resold.
Why Buy NFTs?
The main idea behind NFTs is that buying one gives you complete ownership over that token—be it an image, a video clip, music, even game items. You get the digital signature of your NFT, and the blockchain tech records each movement of your token, whether they are posted somewhere or forwarded or used in any other way.
Buying an NFT means you gain ownership over an original digital artwork, in a similar way as owning an original Leonardo da Vinci painting with a certificate of authenticity. The smart contracts built in each NFT make it easy to verify the authenticity of your digital item.
How to Buy NFTs
Today, there are numerous online marketplaces dedicated to selling and buying NFTs. Most of them operate within the Ethereum blockchain using its native cryptocurrency ether (ETH) to trade NFTs.
If you’re interested in NFTs and want to start your own NFT collection, here’s a complete guide to buying your first NFTs.
1. Set Up An Ethereum-Compatible Crypto Wallet
Because most NFTs are sold and bought using cryptocurrency, you’ll need some crypto tokens. You’ll need a crypto wallet to store your tokens if you do not already have one. Ethereum is the token of choice for these marketplaces, so it’s best to have ETH in your wallet to buy your NFTs.
Some platforms, like Binance, allow you to top up your wallet with either Binance Coin (BNC), Binance USD (BUSD), or ETH.
2. Register to an NFT Marketplace
Next, you’ll need to choose a marketplace from which to buy NFTs. Some of the most popular ones include:
Considered the largest peer-to-peer marketplace, OpenSea operates on Ethereum and hosts different NFTs and collections.
Similar to OpenSea, Rarible hosts different pieces straight from the artists themselves so they can sell their original work directly.
Axie Infinity is a blockchain-based game where users breed digital pets. You can buy these pets, called “Axie,” on the Axie Marketplace. In addition, you can also buy and sell other game items.
SuperRare specializes in digital art. It is also similar to OpenSea and Rarible, in that it is a peer-to-peer network that functions on the Ethereum blockchain.
Binance is one of the largest cryptocurrency exchanges today. But aside from that, they also have their own NFT marketplace featuring art, game items, and more.
NBA Top Shot sells NFTs related to your favorite basketball teams in the NBA. These collectibles are licensed, official digital merchandise from the NBA franchise. Think of them as the new, high-tech trading cards that are more interactive than your plain old physical cards.
To start buying NFTs, you will have to register an account with your chosen marketplace. You can start by browsing their websites to get a feel of how they work and what tokens are available for sale.
3. Connect Your Wallet to the Marketplace
After choosing and registering an account in a marketplace, the next step is connecting your digital wallet to your account. You need this to conduct transactions on the NFT marketplace.
4. Do Some Window Shopping
Now it’s time to get busy and browse through the marketplace website to find and bid on an NFT that you like. Many places do auctions to see NFTs, much like real-world auctions that sell one-of-a-kind art.
In finding an NFT to invest in, you need to consider popularity and rarity if you want to attract higher prices in the future. One tip is to look for pieces that are going viral and early collections from artists.
5. Place a Bid
If you see a piece that you like, you can bid on it. Most of the time, the sellers provide important information about the NFT and the logistics of the auction to potential buyers.
At the end of the auction time, if your bid is the highest, the marketplace will then complete the buying process. The amount you bid will be debited from your wallet, as well as any fees charged by the marketplace.
6. Congratulations! You’re Now the Proud Owner of an NFT
There you have it! Once the transaction is completed, you now own your first NFT. This means you have exclusive ownership over the digital asset you have purchased. Even if copies of it exist online, only yours is the genuine version, and its blockchain feature ensures that anyone can verify easily that the NFT is indeed yours.
Some people buy NFTs as an investment and keep their assets until the value of that NFT increases, and they can resell it to someone else for a profit. Others prefer to collect NFTs as a source of pride and pleasure, not unlike people fond of collecting art for art’s sake.
Factors to Consider When Buying an NFT
Firstly, NFT marketplaces vary in their fees and commissions. It’s important to look around before settling on the first marketplace you stumble upon. Make sure that their fees are reasonable and at par with the services they offer and with other sites.
Secondly, marketplaces also have different rules and procedures in buying NFTs. If you are a first-time buyer, you may find it difficult to navigate the auctions at first. But a good marketplace will have an easy-to-use interface with simple processes.
Thirdly, look into the security of the marketplace you choose. We live in a world where scammers abound, and as the popularity of NFTs increases, so will scamming and phishing schemes. Ensure that your selected marketplace has measures against scams, but continue to remain vigilant and keep a close eye out for suspicious activities and tokens.
Finally, determine your purpose for buying NFTs. If you’re one of those looking for an investment, then it’s best to seek NFTs that are considered either rare, popular, or both. If you just want to add to your personal collection, then the only factor that might matter is your interest in a piece.
Popular NFT Collections
One of the highest-selling NFT artworks was digital artist Beeple’s “EVERYDAYS: The First 5000 Days.” It sold at Christie’s for a whopping $69.3 million. The piece is a collage of 5000 individual digital drawings by Beeple (Mike Winkelmann in real life).
Other popular collections in the marketplaces today include:
From the same guys who brought you CryptoKitties in 2017, Doodles is a collection from three artists who call themselves Tulip, Burnt Toast, and Poopie.
- Invisible Friends
Invisible Friends is a collection of animated drawings of invisible people created by Swedish artist Markus Magnusson.
- Bored Ape Yacht Club
Featuring—what else?—bored apes, the Bored Ape Yacht Club NFTs is also a membership card you can use for members-exclusive events and perks.
The Cryptopunks collection features drawings of characters inspired by punk. Each of the 10,000 drawings is unique and computer-generated.
- The Doggies
Snoop Dogg’s own NFT collection, the Doggies, is a set of 10,000 playable avatars. You can use your Doggy as your avatar in The Sandbox, a blockchain-based 3D open-world game.
The Future of NFTs
With a speculative market such as NFTs, it is not easy to theorize the most probable future of NFTs. What is popular today may not be popular tomorrow, and what abounds today may be rare tomorrow. It is a market driven by scarcity, and with many artists, buyers, and sellers each day, the data is still very volatile.
Since the NFT boom has only begun, it may take a while for the market to stabilize enough for more accurate predictions about its future. As it is, NFTs are great if you want to support an artist. That was, after all, their original purpose.
But the idea of NFTs can still be expanded beyond art collection and trading cards. Because of the “non-fungibility” of NFTs, one way we could use them would be for real estate deeds and business ownership. The security brought by the blockchain’s encryption is beneficial for real-world assets. For sure, this will take more research, but we’ve already come a long way since cryptocurrency began. We’re very excited to see where NFTs can take us in both the digital and the real world in the future.