Blockchain technology and cryptocurrency have been game changers since it was first introduced in 2009. Since then, many people have made a fortune from investing and selling through a blockchain network.
One aspect that has brought much excitement to blockchain technology is NFTs. What are NFTs, and why are people investing a lot of money to collect them? This article will explain why managing NFTs has become so popular nowadays. It might even entice you to start your own collection and get involved in the exciting world of cryptocurrency technology.
What are NFTs?
Non-fungible tokens (NFTs) are digital items that represent real-world items such as art, video, music, and in-game items. They are bought and sold online, usually with cryptocurrency, and encrypted with the same underlying software as many cryptos.
Technically speaking, NFTs have been around since 2014 but have recently boosted in popularity. This is primarily because these digital assets have provided artists to sell their digital artwork directly to buyers. The NFT market was worth $41 billion in 2021, almost as big as the traditional fine art market.
Generally, NFTs are one-of-a-kind or at least available on a limited run. This exclusivity makes buying NFTs so valuable for collectors. Each NFT art has a unique identifying code that verifies a user's ownership. This starkly contrasts with most digital creations, usually infinite in supply. NFTs' exclusivity has driven its value, especially now that more people have become interested in NFT technology.
Many NFTs created are digital creations of things that already exist in another form elsewhere. This may range from securitized versions of digital art you can find online or NBA highlight videos.
Anyone can view the individual images or videos attached to these digital collectibles. However, when you buy NFTs, you're given exclusive ownership of that item, and your request can be verified by anyone who has access to the blockchain network.
NFT's built-in identification technology is a digital deed of ownership, but why do so many people spend millions on NFTs? Let's say you purchase an original Van Gogh painting, something as iconic as The Starry Night. You can easily buy a replica online or in museum souvenir shops. However, the value of the original painting is considerably more than any knockoff available. This is regardless of how accurate the replica may be. NFTs work the same way.
How do you buy NFTs?
You can purchase your first digital collectible by following simple steps. You don't need special equipment or high computing power to get started. The accessibility of NFTs makes them so appealing to most people in the first place.
Open a crypto wallet.
Before anything else, you need a crypto wallet to buy NFTs. This isn't a physical wallet where you store NFTs. This digital wallet stores keys to grant you access to your digital assets. Once you open a wallet, you'll be given seed phrases or recovery phrases to access your account. Much like a physical wallet, it's essential to safeguard your cryptocurrency wallet because you might lose all its contents.
You can choose a wallet hosted on a crypto exchange or operated independently. Hence, you retain complete control of your purse and are responsible for the wallet and its private keys.
When you choose a wallet from a cryptocurrency exchange, that exchange functions as an intermediary or third-party in transferring crypto, similar to what banks do. That private company holds your private keys and is tasked with securing your assets.
If you intend to buy, sell, and trade NFTs without a third-party involved, you can do so by opening a wallet that's directly tied to the blockchain network. Hence, cryptocurrency can be transferred directly using a public key.
There are two types of cryptocurrency wallets: the hot wallet and the cold wallet. A hot wallet is a web-based software that can come in the form of a desktop app, in-browser extension, or both. A hot wallet is easy to use because you can access apps or websites directly. However, a hot wallet is more vulnerable to cyber attacks than a cold wallet.
Meanwhile, a cold wallet is a hardware or a physical device. This is considered the most secure option, but there's a greater risk of loss since there's no backup option in case you lose your seed phrase.
When buying a wallet, you should ensure that it is compatible with the Ethereum network, where most NFTs are sold. It should also work with Ether, the cryptocurrency native to the Ethereum network. Most people like using the Metamask wallet because it's compatible with most NFT marketplaces.
Open a crypto exchange account.
You then need to open an account on a cryptocurrency exchange. These exchanges function as a brokerage where users can buy, sell or trade any cryptocurrency. It can issue and hold your public keys. In some cases, it can even store your private ones.
To buy NFTs, you must create an account at your platform of choice. Different companies have unique services, so conducting research is accessing apps or websites directly .critical before opening an account. The most popular exchanges are Coinbase wallet, Kraken, and Binance.
In general, opening an account isn't that difficult. You must give personal information like full name, date of birth, address, phone number, email address, and the like. The great thing about opening an exchange account is that once your account is set up, you'll be ready for any transactions as long as you continue doing business with that company.
As mentioned, most NFTs are built and sold in the Ethereum blockchain. In case you're not aware, Ethereum is a network where transactions are recorded and distributed on a public ledger.
The Ethereum blockchain has a native cryptocurrency called Ether (ETH), but it's common for people to refer to it as Ethereum. Like the popular Bitcoin, Ether can be bought, sold, saved, or traded to increase its value.
By now, you're probably confused about the difference between coins and tokens. Crypto coins belong to their blockchain. They are a store of value, meaning they retain their value and do not depreciate. They're the digital versions of physical coins.
Meanwhile, tokens are not native to a blockchain. Instead, they rely on smart contracts, programs that enable and verify transactions on the blockchain. Hence, you can say that tokens are pretty much like arcade tokens that have value and can be traded for assets.
Most marketplaces showcase digital collectibles that are built on the Ethereum blockchain. Hence, you must ensure your wallet and exchange are compatible with Ethereum. Ethereum has high gas fees and is prone to slow transaction speeds because of its popularity.
While Ethereum is still considered the forerunner in selling NFTs, other platforms have increased in popularity. You can also try the Polygon platform, which provides more scalability and lowers fees. There are also proof-of-stake blockchains like Solana and Cardano if you want to explore your options.
Transfer Ethereum to your digital wallet.
Once you've chosen exchange and have procured some Ether, you need to transfer the Ether to your wallet. The process will depend on the exchange where you bought the ETH, your wallet, and the NFT marketplace where you intend to buy or sell NFTs.
For example, if you're using a cold wallet, you must link it to a third-party connection to the NFT marketplace like Metamask wallet or Coinbase wallet.
Connect your wallet to the NFT marketplace.
NFT tokens started with the digital art world, but NFT markets have branched out tremendously in recent years. Nowadays, you can find an NFT collection with digital art, music, sports collectibles, video games, event tickets, and the like.
Although NFT marketplaces are constantly changing, they usually fall under three categories: open, closed, and proprietary marketplace. An open marketplace is a platform where anyone can buy, sell or trade NFTs. A good example is the Binance NFT marketplace. The marketplaces offer the option for in-house minting. However, you can still mint NFTs independently.
A closed marketplace is more exclusive. Artists must apply for that marketplace to feature their NFT projects. While other NFT marketplaces allow users to mint NFTs themselves, the marketplace takes charge in a closed setup. You can sell digital art at a more premium price, but trading and selling are more restricted.
Meanwhile, a proprietary marketplace sells the company's NFTs that are copyrighted or trademarked. A great example of this is NBA Top Shot.
It will help if you explore other opening different accounts and subscribing to other marketplaces for a chance of getting an NFT mystery box and to have the latest updates on NFT drops.
Social media is also an important communicative tool, as it provides updates on the latest nifty gateway you might be interested in. A lot of information on NFTs is distributed on Twitter and Discord. When interested in a particular digital asset, you and your digital wallets must be ready to buy non-fungible tokens.
Buy digital items on NFT marketplaces.
Buying an NFT is pretty much like buying things online. There are fixed price sales, while there are auctions that allow you to compete with other users to obtain that digital asset.
If you're interested in purchasing an item from the Bored Ape Yacht Club or World Poker Tour, you should be ready with your crypto wallets before the NFT drops. The NFT space can be very competitive, so you should know what you're getting into.
In addition, you should remember that buying NFTs doesn't mean you have the copyright to those crypto assets. That is unless there's a direct agreement between the creator and buyer. Every online marketplace has restrictions, such as fixed price sales and the like, so you should also read up.
NFT marketplaces and security
Before buying NFTs, you should learn how to secure your information. It would help if you kept your wallet and NFT collection safe. As a start, you can explore using two-factor authentication and making a transaction with a small amount of money to check if the process works.
The NFT marketplace is not immune to scams, which means you can lose your digital assets and coins if you're not careful or your chosen platform has been hacked. The most common scams are phishing, catfishing, pump-and-dump schemes, and counterfeit NFTs.
A phishing scam is a fake link and pop-up advertising like new NFT drops or projects on social media. Catfishing is when people impersonate marketplace websites, social media accounts, and even celebrities to advertise NFT drops.
Pump-and-dump schemes excite an NFT collection so much that its value increases tremendously. When the top-tier NFT investors cash out, the bottom-tier investors are left with worthless assets. Unfortunately, some people might sell other people's work to others.
What are NFTs used for?
Given the hype that surrounds NFTs and crypto apps, you're probably wondering what you can do once you purchase an NFT. You can opt to display the NFT in your home. Various digital displays are available so you can proudly display your NFT collection.
Many NFTs increase in value over time, and you can treat non-fungible tokens like investment pieces you can sell for a more significant amount later. Another widespread NFT use is trading. NFTs have a fast-growing secondhand market. Traders can make a return on their initial investment through various trading strategies.
You can also display your NFT on the internet. Many people use their NFTs to display pictures on social media to showcase their digital ownership of that particular asset. Some users even put them on display on the metaverse for others to see.
Should you buy NFTs in the NFT marketplace?
Now that you know how to buy an NFT, should you make your first NFT purchase? Let's put things into perspective: NFTs have skyrocketed in popularity in a short period, and many people are riding on the hype.
A lot of people have made serious money from selling and buying NFTs. However, some people have also incurred significant losses from the NFT market. If you're looking to buy your first NFT, it would be best if you took things slow. You shouldn't spend all your money on an NFT asset or go for an expensive piece.
The key is slowly to ease your way into the market. After all, you only need a few pennies to buy an NFT from Axie Infinity. That's a nice place to start if you want to know what it's like to own an NFT.
Moreover, you must play things smart. You should guard your private keys and assets carefully. Researching on the seller and platform you're eyeing would be best to verify if they are legitimate. After all, it's better to be safe than sorry.