After seeing NFT mentioned in every headline, usually beside a famous person or eye-popping dollar figure, you finally want to join the action? Buying your first NFT can look daunting but don’t worry we’ll walk you through it.
Before you do the actual transaction, we’ve listed down four things you need to know in order to make an informed decision:
1- What is NFT? Before pushing through with the transaction, you first need to have a solid foundation about the product.
As the specialized website NFTEvening describes it, NFTs are digital representations of assets. They are non-fungible meaning they are unique and not interchangeable. Unlike other fiat or cryptocurrencies, an NFT can not be swapped with another. Moreover, NFTs are indivisible so they can’t be divided into smaller denominations. NFTs can be used to represent photos, videos, audio, memes, other types of digital files and even physical items.
These characteristics elevate NFTs and enable them to be used for virtually anything the can be stored digitally such as gameplay, music files and digital art.
2- Now that you have an understanding of what NFTs are, it’s time to choose an NFT Marketplace.
An NFT Marketplace is where the creation and selling of NFTs starts. Basically, these are platforms where NFTs can be stored, displayed, traded and in some cases minted or created. In order for you to transact or use an NFT Marketplace, you first need to set up a crypto wallet compatible with the blockchain network that your desired NFTs are using. Most NFTs are still on the Ethreum blockchain so you would need a MetaMask wallet. Meanwhile, you can buy NFTs on the Solana platform using Sollet.
Then, the next step is to fund your wallet. You need to have a balance before you cant mint, trade and sell NFTs. Just like in choosing the crypto wallet, the coins need to be compatible with the supported cryptocurrencies of the platform.
Once you have your crypto wallet and funds you can now set up an account on any NFT Marketplace that you want. This step usually involves linking your crypto wallet to your account. However, there are also platforms accepting credit and debit card payments.
The NFT Marketplaces have their own niche market. If you wan’t a full view of the Marketplaces can you explore then you can check out this beginners guide: How to choose the best NFT Art Marketplace on the Blockchain.
3- Since buying an NFT is a blockchain transaction, you also have to understan what are gas fees. Every transaction on the blockchain is processed and validated by miners, who use powerful systems and large amounts of electricity. The amount of computational effort required to do this is referred to as “gas”.
To carry out the computations, miners have to be paid gas fees, which can go up to hundreds of dollars. Essentially, gas fees serve as an incentive to miners and help reduce the spam on the network.
On most NFT marketplaces, users have to pay gas fees for selling and buying NFTs, as well as for minting NFTs. The amount of the fee depends on the number and type of computations required to verify transactions—the more complex the computations, the higher the gas fee.
This is a bit technical but you have to understand how gas fees work in order to maximize your purchase. Thankfully, there a re plenty of trips and tricks to avoid paying the. You can check them out here: Here’s What You Need to Know About Crypto Gas Fees and the Hidden Cost of NFTs.
4- Now you’re all set to purchase an NFT! We’ve covered the technical part, now it’s time to tackle the strategic part. That is, selecting which NFT to buy.
According to NFTEvening, The contents of the NFT itself are less important than how the tokens work. By using smart contracts, they guarantee a predetermined agreement will always be honoured. So, for example, if we wanted to mint a token containing original digital artwork, this might mean 80% of the sales revenue goes to the artist, and 20% is donated to a charity.
You can also rest assured nobody else owns the NFT, or its content, because by nature they are entirely unique. A non-fungible token is a bit like a digital signature, and we all know the significance of a John Hancock on physical works of art. And, even if the contents themselves are not one-off, the token is. So you can trace exactly where it came from and when, effectively removing the risk of fakes.
The easiest way to explain this is by looking at some of the most successful NFT art collections and the amount these have sold for. ‘CryptoPunks’ is a good place to start as these were the first art tokens to hit the Ethereum blockchain.
The list of NFT art collections, and NFT collections in general, continues to grow by the day. DCL Blogger has a great list of the most successful in terms of generating high value over the past few years. These include Decentraland, a massive virtual reality metaverse in which you can own land. In its first year, 2017, more than $20million US was spent on tokens linked to plots within this space. In June 2021, a single plot went for $1million.
Good luck on your first NFT Purchase!