Everyone by now has heard of Non-Fungible Tokens (NFTs). However, the process of buying an NFT is not so clear cut. From Beeple and Bored Ape Yacht Club NFTs making millions to Opensea’s $1.7 million and Axie Infinity’s $620 million hacker heists, the extreme highs and lows of this high-risk market have been known to scare off even experienced investors.
Read on to learn how to buy NFTs and everything you need to know to safely navigate some of the murkier waters out there.
1. Open an exchange account and crypto wallet
Open a crypto exchange account
The first step in buying NFTs is to open an account on a crypto platform or crypto exchange. To do this, it’s important to first understand the difference between cryptocurrency exchanges, wallets and marketplaces, as there is often confusion between these terms.
- Function as a brokerage where you can buy and sell a variety of cryptocurrency
- Issue and hold your public and, in some cases, private keys
- Secure your access to the cryptocurrency in your account.
- Provide support for account functions like resetting passwords
Exchanges are online platforms that serve as brokerages where you can buy and sell various types of cryptocurrencies. To buy NFTs, you must create an account with the platform of your choice. Different companies offer different services, so you’ll want to find out how they work in regards to public and private keys, cryptocurrency wallets, trading fees, on- and off-chain services and customer support.
Open a crypto wallet
- Store your public and private keys
- Safeguard your digital assets, including crypto coins and tokens, such as NFTs
- Provide independent access to your funds and crypto assets via a seed phrase
- You are fully responsible for safekeeping the seed phrase (phrase, recovery phrase)
- The phrase and keys are two separate things
Despite the name, crypto wallets don't actually store your coins and tokens. What they actually store are the keys that grant access to your digital assets.You’ll be given a unique seed phrase (sometimes simply referred to as a phrase or recovery phrase) to access your wallet. It’s important to safeguard your seed phrase since, much like a physical wallet, if you lose it, you lose everything in it.
Wallets can be hosted on an exchange or may operate independently, meaning you retain full control over and responsibility for your wallet and private keys. When you use a digital wallet hosted by an exchange, the exchange acts like a third-party, or intermediary in the transfer of crypto, much like a bank would. The company holds your private keys and is responsible for the security of your assets.
If, on the other hand, you want to buy, sell and trade NFTs without third-party involvement, you need a wallet that’s tied directly to the blockchain. This way, currency can be transferred directly between people using the public key.
There are two types of wallets available:
- Software, web-based wallets
- Can come as a desktop app, in-browser extension or both
- Convenient and easy to access through websites and apps
- More vulnerable to cyber attacks than cold wallets
- Hardware wallet, physical device
- Most secure option
- Greater risk of loss, no backup available if you lose your seed phrase
René Süss, CoFounder of the Hint of Mint marketplace recommends buying a cold wallet, “You should consider a hardware ledger to keep your crypto. You should buy them directly from the company that makes them.”
You should also be sure the crypto wallet you select is compatible with the Ethereum blockchain, the network that most NFTs are sold on, and Ether (ETH, Etherium), the cryptocurrency that is native to Ethereum blockchain. MetaMask wallet is the most widely used wallet across most marketplaces, but there are other options as well.
2. Buy Ethereum
The majority of NFTs are built on the Ethereum blockchain. Ethereum is a type of network where transactions are recorded and distributed to members on a shared ledger.
The currency native to the Ethereum platform is called Ether or ETH, though you will also hear it referred to as Ethereum as well. As a cryptocurrency, Ethereum is similar to Bitcoin in that it can be bought, sold, traded or saved to increase its value.
Coins vs. tokens
The difference between the terms coin and token might be difficult to understand at first. Crypto coins belong to their own blockchain, are exchangeable, and are a store of value, meaning they retain their value and do not depreciate. In this regard, crypto coins function much like physical coins.
Tokens, unlike cryptocurrency such as Bitcoin, are not native to a blockchain. Rather, they rely on smart contracts, programs stored inside blockchain that enable and verify transactions. Tokens work much like arcade tokens or carnival tickets do – they have value and can be traded for assets (like prizes or food). However, you couldn’t immediately buy gas for your car with your carnival tickets.
Most well-known and trusted marketplaces showcase NFTs that are built on Ethereum’s blockchain, so it’s important to make sure that the exchange and wallet you choose are compatible and work with Ethereum. However, the major issues with Ethereum are the high gas fees associated with it and slow transaction speeds due to network usage.
Having said that, Ethereum-based NFTs are not your only option. For example, the Polygon platform was built on top of the Ethereum blockchain aiming to provide more scalability and lower fees. Other Proof of Stake (PoS) blockchains that support NFTs, like Solana, Flow, Tezos and Cardano are also edging in on Etherium’s lead. However, Ethereum is still considered the forerunner of NFT platforms and the token most widely used to buy NFTs.
3. Transfer Ethereum into a crypto wallet
Once you’ve chosen an exchange and bought ETH, the next step is to transfer it to a wallet. How you do this will be determined by the exchange where you buy ETH, the wallet you use, and the marketplace you’ll buy your NFT from.
For example, if you bought a cold storage wallet, since it’s a piece of hardware, you’ll also need to link your cold wallet to a third-party connection to the NFT marketplace such as MetaMask or Coinbase Wallet. These are the most widely used wallets in NFT marketplaces.
4. Connect your crypto wallet to the NFT marketplace
NFTs began in the digital art world, but you can buy many different types of NFTs nowadays, including:
- Digital art
- Digital collectibles
- Sports highlights
- Video games
- Trading cards
- Event tickets
- Domain names
- NFTs with utility (a physical item that accompanies an NFT)
Although the NFT marketplace landscape is constantly changing, most will fall into one of the following three categories:
- Open marketplace – Anyone can sell, buy or mint NFTs. Minting is the process of converting a digital work into a unique crypto asset on the blockchain. These marketplaces usually offer in-house minting options, though creators can also mint their own works.
- Closed marketplace – These marketplaces are more exclusive. Artists must apply and the marketplace usually undertakes the minting processes. Selling and trading are more restricted.
- Proprietary marketplace – This type of marketplace sells NFTs that are trademarked or copyrighted by the company operating it.
You should consider creating accounts and subscribing to a variety of marketplaces in order to receive announcements about NFT drops. Social media is an important communication tool, and much information is shared on various platforms such as Discord and Twitter, or for investors, Rarity Sniper and Rarity Tools. When coveted NFTs drop, you must be ready to act quickly.
Once an account is created on the marketplace, you should connect your wallet to the marketplace selling the NFT. This process usually functions the same way across sites. Some marketplaces also have a way of setting up a new wallet from within the website, or they use their own proprietary wallet. Using a marketplace’s proprietary wallet might come with discounts and/or a reduction of additional gas fees incurred through the use of external wallets.
All websites will offer step-by-step guides. Be sure to read these guides, usually located in their own tab or in the FAQ section.
OpenSea is currently the largest and one of the most versatile NFT marketplaces out there. It offers a wide range of NFTs in a number of areas – art, music, sports, games, fashion and collectibles. Opensea’s numerous learning resources make it accessible and easy to use.
NBA Top Shot
NBA Top Shot is an NFT marketplace that offers digital NFT collections of momentous NBA video highlights from games and individual players. One draw to NBA Top Shot is its large community of followers. Numerous contests and challenges give a social aspect to this marketplace. They offer numerous guides and support, making the marketplace easy to use.
Nifty Gateway distinguishes itself as a marketplace of heavily curated, exclusive collections from well-known multi- and mixed-media, fine art, video and animation artists. They offer a wide variety of NFT drops, drawing buyers whose aim is to collect or trade art with long-term value.
SuperRare focuses on single edition, unique artwork, rather than a broad range of NFT genres. SuperRare is very similar to a traditional art auction house, and works with well-known artists and high-priced artwork. SuperRare also has an active secondary marketplace. Their Help Center offers guides for navigating the marketplace, though this section is not as complete as those of other marketplaces.
Like their namesake, Mintable focuses on making the process of minting more affordable and offers two options, gasless and traditional minting. This function might appeal more to creators who often bear the brunt of minting costs.
Foundation is a community-led marketplace. This means you must receive an invitation to become a member; you can, in turn, invite others. In this sense, Foundation is not as accessible as other marketplaces, though they do offer quality digital art and video NFTs from well-known and unknown artists.
Rarible is similar to Opensea, but on a smaller scale. A large variety of NFTs across multiple genres are available to buy, sell and trade. They work with more than just the Ethereum network, making this marketplace accessible and relatively easy to use. There is also a community aspect to this marketplace. Rarible aims to become a full-fledged Decentralized Autonomous Organization (DAO). It has launched its own governance token ($RARI) which allows holders to voice their ideas for future development and projects.
5. Buy NFT
Well-known NFTs sell very quickly, so you will want to be sure that your wallet is connected and funded before the NFTs drop. It’s important to remember that buying an NFT doesn’t mean you have bought the copyright unless that is part of the direct agreement between the buyer and creator. Each marketplace might have different restrictions on the NFT you purchased.
Before you buy NFTs, it’s important to spend some time getting acquainted with how to keep your information — and cryptocurrency — safe. Süss stresses the importance of learning about security first and foremost. “You have to be safe in this space. This is the number one rule for everybody. Just like when you first start driving, you go to a driving school to learn the rules and be safe, you should also research what security measures you have to take before you even set up a wallet and buy something. There will always be scams out there.” Süss also recommends using two-factor authentication and doing a transaction with a small amount of money to make sure everything is working as it should.
Some common scams in this field have included:
Phishing scams – Fake links and pop-ups advertising such things as new NFT projects and drops on social media platforms.
Catfishing – Fake marketplace websites, social media accounts, and celebrity impersonators advertising NFT drops and collections.
Pump-and-dump schemes – Hype is built around an NFT or NFT collection so it sells at a high price, but then top-tier investors quickly cash out, leaving the bottom-tier investors with worthless assets.
Counterfeit NFTs – Some people might sell other people’s work as their own original work.
Most experts recommend sticking to some essential cybersecurity practices, such as strong passwords and two-factor authentication. Additionally, while storing your crypto on exchanges is convenient, they recommend that you store it in a cold wallet, a hardware device where keys and assets are stored offline.
What are NFTs used for
There are a number of different reasons why you might want to buy NFTs, as they serve multiple purposes. Here are a few:
- To display in your home – There are a variety of digital displays and frames available to showcase your NFTs.
- For investment purposes – Many NFTs can potentially increase in value over time, in particular those from well-known artists or collections.
- Trading — NFTs have a fast-growing secondary market. Traders aim to make a return on their initial investment using a variety of trading strategies, such as buying the floor (buying at the lowest price) or buying the ceiling (buying rare or valuable NFTs).
- To use on the internet – Many people use their NFTs as a profile picture or avatar. Additionally, NFTs can be put on display in the Metaverse, either in virtual galleries, meeting rooms or your own private space.
How to choose the right NFT
According to Mike Jelinek, an NFT investor, NFTs have a high potential for reward and risk. He adds that “there are buys you look at speculatively, that you want to flip, and ones that you want to hold onto. Understanding your budget and what you’re willing to lose is key.” He also recommends setting “short-term, medium-term and long-term goals for your investments.”
The NFT market is still relatively young and highly speculative. This means that we don’t have the full picture to determine an NFT's long-term value yet. We recommend you take some time and truly reflect on your budget, your situation and your personal goals, asking yourself what you want to get out of the NFT space.
What type of NFT do you want?
- Single edition — The artist has produced only one NFT, also known as a 1/1 NFT or 1x1 NFT
- Multi-edition — The artist has produced a collection or series of related artworks.
- NFT for resale on an active secondary market — Someone who has bought an NFT resells their NFT to a different person.
- Utility NFT — Utility NFTs are accompanied by a physical item such as an event ticket or digital picture display for the home
Jelinek points to utility NFTs as a key point of focus. “In some cases, you are buying a picture, but most of the NFTs, the best ones, have utility built into them. You are buying into a community or business ecosystem that has community, social aspects, games and events. There are also NFT projects that have different mechanisms of earning and passive income.”
NFT Pros and Cons
- You are provided identification and veritable proof of ownership of a digital asset
- NFT investment is open and accessible to anyone
- Decentralized blockchain technology offers increased security and control over stored data
- You gain access to a large community and further investment opportunities
- Young, volatile market
- Security issues as the market is vulnerable to hacks and scams.
- Pump-and-dump and cash-grab schemes
- Environmental cost – cryptomining, the competitive process used to validate and secure transactions on the Ethereum chain, requires vast amounts of computational power resulting in high energy consumption rates. Do note that Ethereum 2.0, which aims to make transactions more sustainable, is slated for full release in 2023.
Make money as a creator: Creators can turn their artwork into NFTs through the process of minting. You must first mint your art in order for it to be sold in a marketplace. Depending on the marketplace blockchain used, this process can be extremely expensive. Many marketplaces are one-stop-shops and provide a minting option for creators in exchange for a commission. This rate varies drastically. Artists can also receive royalties for each secondary sale. Higher-end marketplaces are exclusive and require artist applications or invitations.
Make money as an investor: Some people use NFTs for trading and investing, and NFTs can also be a source for passive income. Using NFTs in this manner requires a substantial effort to learn about the cryptocurrency industry and NFT market. You are also encouraged to be very careful to avoid scams which are prevalent.