In March 2021, Jack Dorsey, the CEO of Twitter, sold his first tweet ever that read “just setting up my twttr” as an NFT for over $2.9 million. The tweet was precisely 15 years old, having been set up on March 21, 2006, and you have to wonder what makes a tweet so special for it to sell for millions of dollars. Well, you can credit the NFT market, which most people are now interested in, to make a quick buck. Before you rush to get yourself an NFT hoping to strike it rich when you sell it, there are a few things you need to know when buying it. Below is a detailed guide on NFTs and how to buy them.
What are NFTs?
NFTs stand for non-fungible tokens. In economics, fungible goods refer to those which are identical to each other for practical purposes hence are interchangeable; such include dollar bills and common shares. Non-fungible goods, therefore, are those that can be interchanged because you can’t find another identical one; art, for instance, is referred to as a non-fungible good. A non-fungible token refers to a unit of data stored on the blockchain (digital ledger). The token certifies a digital asset as being unique and not interchangeable. An NFT cannot be copied, subdivided or substituted, making it ideal for certifying ownership and authenticity. According to Creative Blog, NFTs are a cut above the typical cryptocurrency because the files store extra information and each NFT has a distinct value. You should note that cryptocurrencies like Bitcoin are fungible because each Bitcoin holds the same value as any other. However, you pay for more than just the file when you buy a music file or JPEG. You receive the ownership rights to the digital asset you have; thus, you can sell it. The most important thing to note is that owning the original artwork or other digital assets facilitates the distinct value you can get from an NFT. Therefore, you should not be surprised that someone was willing to pay $2.9 million for a tweet because he knew it was from the original owner.
Here are the steps to buy an NFT as detailed by NFT Evening.
1. Get a Good Crypto Wallet
As per the article, a good crypto wallet should be user-friendly, offering both beginners and advanced users easy navigation. Also, when choosing a wallet, ensure that it is secure, seeing that you are buying something that could cost you millions or fetch you a fortune when you sell it. Among the most secure features include two-factor authentication and strong passwords. If you plan to engage in different blockchain networks, having a crypto wallet that supports them all is crucial. Otherwise, you could lose your NFT if no bridge facilitates sending the digital assets across the networks. One of the highly recommended accounts is the MetaMask which has a simple user interface, excellent security features and is available as a mobile app. Its only disadvantage is that it does not have cross-chain compatibility.
2. Create an Account
Once you have chosen the wallet you feel is ideal for the investment you are about to undertake, setting up an account is the next step. The wallet you choose also determines the kind of account you set up because you will need to visit the wallet’s website or download the app. Once you launch the app, you can create a wallet, have a recovery phrase, and start using your wallet.
3. Purchase Cryptocurrency
According to Benzinga, most NFTs are Ethereum-based tokens meaning that marketplaces usually accept Ethereum tokens as payment. Therefore, you can exchange the traditional currency for cryptocurrency on websites such as Binance, which is regarded as the best based on traffic, trading volume, and liquidity. Whatever cryptocurrency you prefer, you will have the option of a different payment method, including PayPal, debit card and wire transfers but the transaction fees vary, so be careful when selecting your preferred method. The easiest way is to buy a cryptocurrency from your wallet because all you need is to visit your wallet’s “buy” option.
4. Transferring the Cryptocurrency to Your Wallet
Buying the cryptocurrency does not automatically transfer it to your wallet; you still have to withdraw or transfer the funds to your wallet. To transact in crypto, NextAdvisor informs us that you need a wallet address. Your wallet address is also your public key which acts as your bank account number; therefore, if you have to use it for the exchange to transfer the funds to your account. After the transfer, the time taken for the cryptocurrency to reflect in your wallet varies depending on the type of cryptocurrency.
5. Buying the NFT
With funds in your wallet to buy an NFT, you are ready to visit the NFT marketplace and start bidding for the digital asset you want because some operate like auctions. However, before you place your bid, ensure that you have carried out your due diligence. The price and bidding history should guide you and check on the artist’s credibility and artwork quality. Unfortunately, this is only possible in secondary marketplaces; it is difficult to assess the art demand in the primary marketplace or compare your purchase to previous sales. Once satisfied with the choice of NFT, click the “buy” button. Follow the other prompts until the process is finalized; the NFT is transferred to your wallet. Still, just like cryptocurrency transfer to your wallet, digital assets can take a while to reflect.
What to Consider When Buying NFTs
As with any other investment, you should be careful when investing in an NFT. Here are some factors to consider as laid out by Forbes.
You have to ensure the artist’s credibility because anyone can take pictures, put them in a blockchain network, and purport to sell them, claiming to be the original owner. On August 31, 2021, BBC published the story of a man who had been duped into buying a fake Banksy NFT through the artist’s official website. The sale was by a hacker, and the price was £244,000, which the unsuspecting buyer, a man in his 30s, happily paid, believing he was buying Banksy’s first-ever NFT. The man’s bid was far above his rivals, and it was immediately accepted, but later the hacker returned the money except for the transaction fee of £5,000. Once a bid is placed and accepted, a cryptocurrency is irreversibly transferred. In the Banksy scam story, the buyer was lucky that the hacker refunded the £336,000.
• Ownership Rights
As per the Forbes article, artists have intellectual property rights while the sellers and buyers have rights relating to their own NFTs. A person who uses a certified NFT owes licensing fees to the owner; this may sound confusing, so let’s break it down for you. When you buy an NFT from the creator, the digital asset becomes your property. However, the original creator remains the artwork’s owner, meaning even if you are the NFT holder, you have no right to reproduce the artist’s work or even make the digital assets available to the public.m Therefore, sharing, copying or reproducing an NFT is an infringement of the owner’s copyrights. But you can get the rights by paying licensing fees. With online content, infringement is easy because a blockchain network cannot differentiate between the original work or the reproduction. Since you are not allowed to share the creative works of others even if you are the buyer of an NFT, the only joy of owning an NFT is for speculative investment purposes. If a start-up that issued NFTs goes out of business, you as the buyer will be left holding on to tokens in files that no longer exist.
• Uncertain Future
When you hear of an NFT being hailed as great for “speculative” purposes, then you have to understand that the future can be bright or gloomy depending on market conditions. Some sources say that that you should only invest the amount you can afford to lose or, better yet, create your own NFT such that all money you earn from it will be profit. The thing about NFTs is that the biggest risk is being unable to sell it for what you paid for, or worse, it doesn’t find a buyer at all. You can create an NFT whose demand is not readily available; therefore, investing a large sum of money that could be used elsewhere will not make seen economically. Still, the future can turn around for the better, and your NFT will explode in value, fetching you millions.
Why Should You Buy NFTs
Here are a few reasons people are interested in buying NFTs.
• They are Not Readily Available
Some people feel a certain sense of pride in having something that everyone wants but can’t have. Of course, the high demand and low supply push the price of NFTs upwards, but owning one is what matters regardless of the cost for such buyers. The same investors who speculate on cryptocurrencies are interested in trading NFTs. The valuation reportedly grew by 299% in 2020 to reach $250 million, and artists like Beeple have made a killing. He is among the three topmost valuable living artists, with his NFT having sold for $69 million in March 2021. Such eye-popping amounts are only paid because someone somewhere wants to own something that is not readily available to the rest of us.
N26 also listed collectability as a reason for buying NFTs, and it compares the digital assets to baseball cards for the wealthy. For instance, actor Rob Gough is obsessed with collecting baseball cards such that within the first two weeks of January 2021, he had spent $10 million on different trading cards. He wound up setting the record by buying a 1952 Mickey Mantle card for $5.2 million. You might wonder why such an astronomical figure would be attached to a baseball card, but the same reasoning comes with NFTs. They are worth only as much as the buyers are willing to pay for them; hence they are sold in auctions, with the highest bidder landing the NFT of his choice. Buying one could make you a multi-millionaire in future when you decide to put it up for sale, and someone attaches a high value to it.
Other Risks Involved When Investing in NFTs
Besides fraud and not having full ownership of the NFTs, there are other factors you should consider before buying NFTs. 440 Industries details them as discussed below:
• Environmental Impact
If you are environmentally conscious, buying an NFT will go against your efforts towards creating a greener planet. NFTs are described as literally and figuratively red-hot, meaning they contribute to global warming. The explanation is that mining is needed to create a new piece of art in the blockchain. It entails lots of computing power to solve complex puzzles. With each blockchain created, the puzzle becomes more complex, and more power is needed, resulting in several warehouse cooling units. For this reason, the carbon footprint keeps rising and causes a buildup of greenhouse gas emissions that contribute to climate change. Due to the backlash received, some platforms set on trading in digital assets had to shut down before they began.
• Digital Wear
440 Industries explained that museums invest lots of money to protect whatever they house against the effects of the environment that could damage the artwork. Digitally, NFTs are yet to obtain such protection, yet there are certain risks involved. Digital content can still have fading images, and of course, the amount that a faded picture will sell for hardly compares to a brand new one.