I spent the past few months buying several non-fungible tokens or NFTs. I received my first NFT for free from a crypto influencer. Then, I purchased several cheap NFT's, which cost me 20 or $30 before investing in premium NFTs.
In this article, I'll explain how you can go about buying NFTs. I also explain what you should look for and how you can avoid some of my mistakes.
Unless you're already invested in the cryptocurrency space, buying an NFT isn't easy. Expect some onramp prerequisites before you can acquire a piece of digital art or collectible.
OpenSea is kind of like eBay for those who buy and sell NFTs. Other options include Nifty Gateway, Mintable, and Rarible. OpenSea connects to your MetaMask Ethereum wallet, and you can approve transactions after paying a small fee. As it's the biggest and most popular NFT marketplace, we'll focus on OpenSea for this guide.
Please note, this article isn't financial advice, and NFTs are incredibly risky. I'm publishing this for informational purposes only.
Use Play Money
The NFT market is a bit like the cryptocurrency market but on crack cocaine. Expect the same types of price fluctuations except magnified in both directions. The rewards are astronomical, but many NFT projects are also going to zero.
So, if you're considering purchasing in NFT, don't buy solely for short-term gains. Dozens of new NFT projects are launching or minted every day. But, unfortunately, it's exceptionally difficult to figure out which ones will succeed or fail.
Instead, it's better to buy an NFT because you're a fan of the project or want to hold some appealing digital art or collectibles.
Use fun money or digital currencies you can afford to lose for purchasing an NFT. That way, you won't sweat it when the project floor price plunges. You can learn about how the space works without getting rekt (crypto slang for financially ruined).
NFTs are predominantly bought and sold using the cryptocurrency Ethereum and via the exchange OpenSea. You can't use Bitcoin. Other cheaper NFT alternatives and exchanges exist, which I'll cover briefly.
To buy Ethereum, set up an account on a cryptocurrency exchange like Coinbase. Then, convert fiat currency (USD or EUR) to Ethereum. You'll need several hundred dollars worth to cover the cost of the NFT and gas.
If you'd rather purchase cheaper NFT digital assets or avoid Ethereum gas fees (more about that in a moment), buy some Solana. Again, you can also Solana on Coinbase or Binance and transfer to an appropriate software wallet.
Create Your Software Wallet
A cryptocurrency wallet is a prerequisite for trading Ethereum or Solana for an NFT and securing a digital art piece or collectible.
MetaMask is the most popular ERC-721 or Ethereum wallet. You'll need it to interact with OpenSea. It's also free. During the set-up process, MetaMask provides a 12-word secret recovery phrase.
These are your wallet keys. Never share them with anyone. Don't keep them in an easily accessible place for hackers, like a text folder on your computer on the notes app on your phone.
In short: write down these words and put them somewhere safe, where no one can find them.
After setting up your MetaMask wallet, transfer Ethereum from an exchange to your Metamask address. It'll take five to ten minutes, depending on blockchain congestion. Now, you can use MetaMask to interact with NFT marketplaces.
Technically, you can load up a MetaMask Ethereum wallet with fresh funds using a credit card and skip a cryptocurrency exchange. However, this is a relatively expensive way to buy Eth.
If you're buying an NFT with Solana, don't transfer your funds to MetaMask. They'll disappear! Instead, create a wallet using Phantom or another approved web wallet.
Purchase a Hardware Wallet
If you're spending more than several hundred dollars on Ethereum or want to purchase more expensive NFTs, invest in a hardware wallet. Ledger and Trezor are the two most popular brands of hardware wallets.
A hardware wallet provides NFT buyers with an additional layer of security via a 24-word seed phrase and a PIN. Plus, you have to physically connect it to your computer or mobile to transfer funds or NFTS. It also connects to your software wallet via Metamask.
Then, even if a bad actor gains access to your MetaMask wallet (it happens a lot), they can't move currency cryptocurrency or an NFT without physically signing transactions using your hardware wallet.
In short, they'll need to break into your home, take the device and gain access to your PIN and or seed phrase.
Transfer Funds To Your Wallet
Once you've purchased Ethereum and set up your wallet, transfer Eth from a cryptocurrency exchange like Coinbase or Binance to your MetaMask software wallet.
Unfortunately, this is where first-time NFT purchasers encounter eye-watering expenses. Transferring Ethereum from a currency exchange to a software wallet incurs gas or Gwei fees. You'll also pay these fees when buying an NFT.
They're kind of like an overpriced toll that Ethereum blockchain miners charge users before interacting with the blockchain.
Depending on market fluctuations and how much you're transferring or spending, gas fees range from a few several dozen or several hundred dollars. These fees quickly eat up an NFT budget. Use a website like Etherscan to track Gwei fees before transferring Ethereum to a wallet.
Browse Popular NFT Projects
Next comes the fun part. Browse the OpenSea rankings page to get a feel for attractive and popular blue-chip projects.
The first time I did this, I couldn't believe the floor price of some NFTs (the lowest amount they're available for). They struck me as overpriced JPEGs. I also found it hard to figure out which NFTS are affordable and have a clear roadmap.
The NFT marketplace rankings page is a good starting point, but you'll need to use several NFT websites to evaluate projects before buying one.
Firstly, dive into NFT Twitter to find key NFT projects' accounts and see how many followers they have. A Project's Twitter profiles also provide the correct OpenSea and Discord links.
It is also good to consider when the account was set up and if it's a verified account (look for the blue tick). You can also check engagement on the accounts and see if many respected NFT influencers follow it.
Interact With the NFT Community
Most successful NFT projects are built on the back of Discord communities. It's a type of instant messaging platform popular with gamers and, now, the NFT community.
Once inside a few Discord communities, spend time engaging with other members and reading up on projects via the various threads and channels. Inside a community, you can learn about:
- The project's official roadmap
- If it's under active development
- What community engagement is like
- Planned use cases for an NFT project
- Trading volume
- Typical purchase prices
- Market sentiment
- Potential scams
- Similar projects
Determine the Use Case For Your NFT of Choice
Reading a project's roadmap and spending time in Discord communities will help you understand the use cases of popular and emerging NFT projects.
Some NFTs represent pieces of digital art that live on the Ethereum blockchain. Other NFTs are digital art, which people are happy to pay for, like Artblocks collections.
A few NFTs, like Cyberkongz and Anonymice, visually represent decentralized finance products and services. In addition, some NFTs serve as picture-in-profiles (PFP) for the metaverse, like the Cryptopunks.
Some NFTs are tickets for exclusive communities and real-life events, such as VeeFiends by Gary Vaynerchuk. Those are just a few use cases of NFTs, and many more will emerge over the coming years. However, like it or not, a few expensive ones are nothing more than overpriced memes and GIF images.
The question is: can you hold onto your NFT for that long, even if the price of this digital real estate tanks?
Watch Out For NFT Scammers
After joining several Discord communities, I was shocked by the number of direct messages I received from friendly neighborhood scammers hawking their latest fake projects and sending me suspicious links to click. Unfortunately, the space will never gain mainstream traction until it's possible to navigate NFT-land without constantly worrying about scammers.
If anybody direct messages you on Discord, assume the worst. Block and report them. Never get on a call with any of these people, and do not click on their links or share your screen with them, especially your MetaMask wallet details. That holds true, even if they claim to be support or an official rep for a project.
There's one exception. NFT communities use a bot to verify people and project holders before accepting. Look for messages from collab.land #6372. It'll send you a link to click. Only ever click a link that includes "#6237" in the profile collab.land handle. Anything else is a scam.
Once verified, I recommend turning off "Allow direct messages." That precautionary step alone will dramatically improve your experience on Discord.
Pick Your NFT Project
After spending time on Twitter and Discord, pick two or three projects you like to buy and which fall within your budget. That's harder than it sounds, considering the floor price of big projects often sits above 10 Eth.
Check out my guide to the most expensive NFTs.
Unfortunately, OpenSea search is sometimes problematic. As anyone can list an NFT, you'll find several hundred or several thousand entries for a project. And not all are legit. Using Discord or Twitter, navigate to the official OpenSea project page.
Typically, it makes sense only to purchase NFT near their floor price. This is because that represents the lowest price people are willing to pay for an NFT.
NFTs at the top end of the scale are for blue-chip investors, and they're much harder to acquire. In addition, many are off the market. NFT priced in the middle might look like a good buy, but they're often illiquid and hard to sell on a secondary market later on.
That's a critical difference between purchasing cryptocurrency versus NFTs. Popular cryptocurrencies are liquid and fungible. You can trade one asset for the next relatively easily. One Eth or Satoshi equals one Eth or Satoshi, no matter where you bought it.
However, each NFT differs and are, therefore, non-fungible. So, you may find it hard to sell an NFT in a hurry or at a profit if it sits above the floor price.
Evaluate the Rarity Score of Your NFT
This step is more for experienced buyers. It involves using an NFT website like rarity.tools to check the rarity of digital art.
- Take the number of your NFT
- Find the project on this website
- Input the number to check the rarity score
- Compare the score of other NFTS from the same project that are within budget
This website calculates a score based on all the traits of your NFT versus others from the same project. It'll also show you where your target NFT ranks versus the hundreds or thousands of other pieces from the same collection.
In theory, rarer pieces trade hands for more Eth. So, you may be able to snipe a bargain that an NFT seller underpriced or that other buyers overlooked.
However, unless you're a serious investor or have a large bankroll, it doesn't make much sense to spend a lot acquiring rarer NFTs, simply because they're so expensive and illiquid.
Bid or Buy Your NFT
Pick an NFT project, piece of art, or digital collectibles you like and are happy to hold or hold for several months, if not several years, without selling.
Fun fact: you could have minted a CryptoPunk NFT for a few hundred dollars in 2018. Today, they sell for six and seven figures.
Now, you can either place a bid on the NFT using wrapped ETH (WETH) or you can purchase one directly using Ethereum. WETH is a derivative of Ethereum.
If you're opting for the former, you can bid below the asking or floor price. But, there is a big caveat. You'll need to convert Ethereum using your software wallet. It's easy to do this inside of your MetaMask wallet, but it costs gas or Gwei. Still, if you're bidding on a few, it's a valid strategy.
For this reason, I purchased my NFTs at the full price directly using Ethereum and in my wallet.
Sign Your Transaction
After clicking purchase on your NFT, you have to digitally sign a transaction in your MetaMask wallet. If your software wallet is connected to a hardware wallet, you'll also have to physically verify the transaction.
Again, you'll pay gas or Gwei as part of the transaction. Once you sign a transaction, the NFT is yours! Wait a few minutes for the transaction to verify.
View Your NFT
You can view the NFT in several ways.
- Navigate to your profile page on OpenSea
- Use an app like Rainbow.me, available via Ledger Live
- Navigate to Etherscan.io, input your MetaMask address and click on assets
- Click on assets, then assets inside of your MetaMask wallet
You could go one step further and buy a digital frame from the likes of Infinite Objects, NetGear, or Samsung to display your NFT at home in your office. They're all available on Amazon
Mark Your NFTs To Zero
NFT influencer 6529 recommends marking the value of any NFTs to zero on your balance sheet as it encourages less focus on price action.
6529 also advises if you're sick or worry about how much you're spending on in NFT, it's a sign you are potentially overspending.
The Final Word On Buying NFTs
The market has undergone exponential growth in 2021.
Typically most NFTs these days are digital art pieces or collectibles. However, expect to more emerge in spaces like music, video games, and audio.
As a newly minted NFT owner, remember you're early. So don't sell NFTs.
Digital art, collectibles, and NFT projects will change the face of the creator economy over the coming years. Expect NFT projects to become valuable over time. We'll also eventually start to see more real-world use cases for them.
Remember, none of this constitutes financial advice, and you may lose all of your investment. In short, do your own research before purchasing an NFT.