In recent years, the world of technology and investments has come to merge through the development of FinTech. With this evolution, investors are given more options to manage and expand their wealth, making it easier and more convenient to complete transactions anywhere in the world using advanced technology. Moreover, technological advancements provide enhanced ways to protect assets from counterfeiting and theft. As a result, virtual transactions have become quicker, safer, and more efficient than ever, giving the financial industry a significant boost.
One of the most recent FinTech developments is the non-fungible token, or NFT. NFTs can take many forms such as photography, music, artwork, or video content. These digitally-encrypted assets are non-fungible in that they’re authentic, exclusive, and made to be uniquely identifiable because of the tokens or cryptographic certificates assigned to them. For instance, a painting offered on a digital platform where people can sell or buy NFT can’t be interchanged with another with a similar design nor can it be reproduced or replicated while having the same value.
NFT has become the hottest trend in the investment world because of its growth potential. Many believe this market will reach unknown heights in the coming years because of the growing preference for digital assets and virtual transactions. Moreover, NFT’s connection with the crypto market also makes it more coveted because of how the digital currency performed over the years. Finally, NFTs are now widely accessible worldwide, making it easier and more convenient for interested buyers to explore this market.
If you’re thinking of buying NFT for the first time, here’s a complete guide of what you need to know and prepare:
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1. Do Your Research
Investing in quality NFTs requires a significant amount of initial capital as these digital commodities have great potential to appreciate over the years. Moreover, the market interest in high-value NFTs has seen steady growth, especially as the public has become increasingly aware of this investment type. Additionally, NFT continues to gain popularity as new trading platforms are launched. As with any other type of investment, you’ll have to do your research and know more about NFT before using your resources.
However, many NFT newbie investors become concerned that there’s much to learn about investing in this kind of asset. With this in mind, being unfamiliar with NFT shouldn’t stop you from taking advantage of a promising investment opportunity that can exponentially increase your earnings in the years to come.
To start your NFT investment journey, you’ll need to learn the essentials of trading cryptographic assets by doing the following:
- Familiarize Yourself With The NFT Market
The first step towards making your first NFT investment is becoming familiar with and more confident with your NFT knowledge. Since it’s a relatively new market, you may come across unfamiliar terms, concepts, brands, and names. The buying and selling process may also be something you need to study before making your first purchase. However, it’s something that many interested investors can learn on their own or with guidance from others. Hence, if you’re worried that it might be too complex a process for you, you can consider the plethora of resources available online for free as your tools for better understanding the world of NFT.
One of the things you need to learn is how NFTs are valued and sold. You can find various offerings on digital platforms where sellers and buyers can earn a profit by trading NFT. The process is slightly different from trading other products since you’ll need to use cryptocurrency such as Ethereum to make a purchase. Also, NFT sellers can set a fixed price or hold auctions to offer their commodities to the highest bidders. Selling an item at a set price is straightforward while auctions can be unlimited or timed.
In auctions, the pricing is primarily dictated by the law of supply and demand. For instance, a prized artwork produced by a talented and influential creator will attract buyer interest more quickly. For this reason, the seller can take advantage of the opportunity and set a high starting bid. In this scenario, you’ll have to outbid other investors to get token ownership.
NFTs are viewed as lucrative investments that savvy investors must take advantage of to get ahead of the market, and this is why you’ll need to be competitive as a buyer to make the most of your capital.
- Stay Updated On The Latest NFT Offerings
NFTs are produced by artists, writers, filmmakers, and other creators across the globe and are usually sold in clusters or collections. Because there’s no determined pattern by which new NFT projects are created and released, it may be challenging to find the latest and the best offers. However, there are some ways through which you’ll be able to get the latest NFT news and see interesting new pieces that may be a wise investment piece for you.
For instance, you can follow experts and influencers with established credibility, which makes them trusted in the community. You can also listen to podcasts or subscribe to newsletters from credible sources to get updates that may be useful for your NFT investment portfolio.
Apart from these factors, you can also find out more about copyright laws that cover NFTs. Doing so will help you better understand the market before investing.
2. Buy Cryptocurrency
The next step in making your first NFT purchase is to create an account on a cryptocurrency exchange platform such as Binance and fund your account with Ethereum or alternatives. You can purchase, store, and transfer crypto funds for your NFT transactions using your account.
To do so, you need to prepare a starting amount to meet the marketplace’s requirements and relevant documents. You may also need a payment source to buy cryptocurrency. The most commonly used cryptocurrency for NFT buying and selling is Ethereum, and you may need to align your resources to have sufficient crypto funds for your investment.
3. Get A Cryptocurrency Wallet
After purchasing your cryptocurrency, you need to set up a digital wallet to be able to transact with NFT marketplaces. It’s an essential step in purchasing NFTs, and you need to choose the crypto wallet you’ll use to pay for purchases and store your assets.
Some of the most common crypto wallet types include:
- Hosted Wallets
Popular cryptocurrency marketplaces such as Coinbase also act as hosted wallets. You can keep your crypto funds safe and protected on these platforms, though some may have limitations when using the currency for purchasing NFT.
- Non-Custodial Wallets
Also called a self-custody wallet, non-custodial wallets allow you to be in complete control of the cryptocurrency you purchased. Because of this feature, you can freely transact on NFT marketplaces using this digital wallet by transferring your crypto to this account. To use it for NFT investments, you can sync your non-custodial wallet to your account in the marketplace for quick and hassle-free purchases.
However, since you’ll be the sole manager of this wallet, you need to secure your 12-word private key or password so you can continue to access your crypto funds. Otherwise, it may be nearly impossible for you to regain access to your wallet. At the same time, your funds may be compromised if someone gains access to your private key, which is why keeping it safe and secure is essential.
- Hardware Wallets
Unlike the first two examples, hardware wallets allow users to control a physical storage device to gain access and transact with their cryptocurrency. The hardware wallet comes at a portable size, much like a small flash drive, and functions as offline storage of your private keys. Many people who invest in crypto and NFT don’t commonly use these devices as they come at a substantial cost. However, they may also be helpful since hardware wallets can protect your private keys if your mobile devices or computers get hacked or stolen.
To determine the type of wallet that’d best suit your needs and preferences, consider the primary function that it’d perform. For example, you can have both hosted and non-custodial wallets to easily purchase cryptocurrency and transfer funds at will for NFT purchases. Both types can be set up for free, which is why many consider it practical to use them together.
4. Select An NFT To Purchase
Savvy NFT investors are looking for the most exciting designs or creations with promising growth potential. Others also consider rare pieces that may appreciate over time. With a vast array of options, it’s vital for you to carefully select an item that’ll be worthy of your first investment in this type of market.
Furthermore, many NFTs are now sold at premium prices, making them valuable items that are highly sought-after. Each artwork or content can be sold for millions of dollars. Because of this, there’s a tremendous threat coming from counterfeiters and scammers. Also, many of them are looking to take advantage of those who are new to the market.
To avoid sketchy deals and dubious transactions, you need to be more vigilant as a buyer and know what to look for before buying an NFT. Here are some examples:
- The Rarity Of The NFT
As the law of supply and demand applies to pricing NFTs, unique or exclusive releases are usually more expensive. The rarity of an item makes it more valuable than other offerings, and many investors will be interested in having one in their collection. With this in mind, you need to consider the commonness of an item before investing. For instance, a design or content that’s too common may be more affordable or popular at its peak but may eventually lose value since many others like it in the market.
- The Size Of The Collection
NFTs are usually sold in batches or collections, some with more content than others. While the number of items per collection may influence its value, it’s not always the case for each. At times, one cluster may have fewer pieces but is sold at a greater price because of its quality of popularity. Also, you must carefully consider the items included in a collection before buying one and see if everything is quality and has growth potential.
- Seller Verification
Similar to virtual shops, you can encounter numerous seller accounts in an NFT marketplace. It can be tricky for newbies to pick one with quality offerings and guaranteed credibility. Moreover, it’s also possible to encounter suspicious accounts, so you need to consider a seller’s verification status when looking for your first NFT investment.
Popular digital platforms such as OpenSea provide verified sellers with a blue checkmark, as is similarly used in popular social media platforms Instagram or TikTok. The verified badge appears beside the seller’s account name as proof of their legitimacy and credibility. This tick mark is beneficial if you’re looking to buy from a popular seller as you’ll easily avoid fake accounts.
However, this verification marking system may have a downside because not all legitimate sellers have their badges. This scenario happens for several reasons, and it can be a hindrance for those who want more options when buying NFTs. To avoid limiting your search and purchases to only sellers with a verification badge, you need to consider other accounts without it while being careful and vigilant to counterfeiting or scams.
One way to do so is by looking at the social media presence of the seller. Consider the number of followers they have and the details provided on their page. Also, you can look at their sales records in the past and see how many clients they had.
- Transaction Fees
You’re often charged a transaction fee when you exchange crypto, buy an NFT, or perform a similar function on a market platform. These fees vary depending on the forum. Some venues may charge the seller for every transaction while others charge buyers and sellers with prices commonly at 2.5% of the item price.
- Market Volume
The NFT market is relatively young compared to its traditional investment counterparts. It gained success at a rapid pace, making early investors earn much from taking the risk. However, some financial experts advise investors to take precautions and invest wisely.
NFTs only gained massive popularity very recently, and some investment experts are looking at the possibility that the growth may not indicate how the market will perform in the future. However, there’s a certain level of risk involved in all other types of investment, and some believe that it’s the same with NFTs. So, before making your first purchase, it’s essential to consider these factors and determine your goals for your NFT investment.
- NFT Liquidity
Liquidating NFTs may be a more complex process than cryptocurrencies and other fungible assets. It may take some time to resell an item, break down its value, and use it to purchase other things, so you must only use funds that you’re ready to set aside and grow in the NFT marketplace for a set period.
- Price Trends
Knowing the price trends of a seller’s collection can help you determine whether an NFT is a good investment. To predict whether your target NFT will appreciate after a certain period, you can compare the previous sales of the seller and check the prices they were sold at. Then, compare the prices of other similar NFTs sold prior. If the prices move favorably, it’s a good indicator that the seller offers quality items that’d be lucrative investments to make.
5. Additional Considerations
Apart from the market value of an NFT and other aspects previously discussed, there are other considerations you need to take into account before moving ahead with your purchase. For instance, you can optimize your investment by selecting an item with investors’ utility. Investors’ utility can take various forms such as discounts, freebies, early or exclusive access to new offerings, and other privileges. You can save money and access unique products or services when you select items with investors’ utility, which is why they’re worth considering before you invest in an asset.
You can also compare NFTs based on gas fees or transaction fees. Since most NFTs accept cryptocurrencies as payment, you may need to pay extra per purchase depending on the type of crypto required. Some may charge higher gas fees than others, so you need to compare NFTs and see which ones can be bought using cryptocurrency with more affordable gas fees.
Conclusion
Investing in NFTs may seem challenging, especially since it’s a relatively new market with much to be explored and discovered. Moreover, it’s a multi-step process for many newbies. From purchasing cryptocurrency, opening a digital wallet to secure your funds and assets, moving currency, to selecting the best NFT to invest in, it may take several transactions before you become more familiar and confident in this trade.
However, it’s not impossible to learn the NFT essentials, make wise investments, and grow your money as a newbie in the market. As long as you can get the correct information and dedicate the time, effort, and resources needed, you can take advantage of what the world of NFT can offer.
