How to Buy an NFT and the Core Reasons Why

Many NFT projects are strategizing ways to kickstart the next market cycle. 

The latest Doodles 2 announcement is an endeavor to extend adoption through the world of Web3 media. And NFT marketplace Blur is working to lower barriers to traders through 0 fees and lending options. 

So while the market may still be in hibernation, investors are finding exciting reasons to own digital assets. Here, we will revisit why many make the purchase and explain how to buy an NFT. 

Should you buy an NFT?

There are many reasons to say why you bought something. But oftentimes, the driving impetus behind a purchase is different from what we tell people. This phenomenon is more apparent with NFTs. Explanations for these purchases abound and often change to justify them to others. 

To help you make a decision you can confidently justify, let’s explore the primary reasons (or reasons to say) people buy NFTs.

The artist-first business model

We often hear that the true value behind these digital assets is creator empowerment and a new monetization model. While this in one sense appears true, most investors and collectors don’t buy NFTs to support the artist. 

If that were to be their primary intent, they would donate directly. Expression and speculation is the key motivation behind buying digital art. It not only puts food on the creator’s table, it breathes mimetic desire (mimicking the desire of others) into the creation. Our latest NFT investing guide explains the psychology in greater detail. 

What makes these purchases different from buying a JPEG is the immutable record of ownership – which can have value that goes beyond expression and speculation. Our next explainer on NFTs will explain this core technology.  

Collectability and social expression

In the NFT art world, collectors buy NFTs to participate in the creative expression of the art. This reason is most explicitly demonstrated by the popularity of profile picture (PFP) NFTs.

Many social media platforms including Reddit and Twitter already support the use of NFT images as profile pictures. One may choose to buy or mint an NFT to show off a cartoon character or any art that matches their style. This integration amplifies the artistic expression and even provides a sense of belonging to the online communities of the PFP collection.

Investment opportunities

Some collectors may also consider themselves investors who hope to profit from the art in the near or distant future. 

Similar to cryptocurrencies, NFTs are speculative assets. Their market value can go up or down based on the level of demand and supply. One of the most valuable NFTs on the market today — CryptoPunks — rose from a value of nothing in June 2017 to a floor price of over 120 ETH (during its peak in October 2021).

There is a point however, where some consider investing or “flipping” to be an exploitation of artistic expression. Just as an NFT price tag amplifies an artist’s reach, a falling price can poison public perception. The line between support and exploitation is blurry and almost impossible to spot at the moment.  

Functionality beyond art

But just as all authentication of ownership (such as a house deed) isn’t a means of creative expression, not all NFTs are connected to art. This technology can take form in an endless list of use cases ranging from proof of attendance, exclusive access, reputation, brand marketing and more. Our next article will examine these in greater detail.    

Some will argue that you should only buy NFTs if the digital asset provides a function worth the price tag, expresses your values and taste or is a speculative bet you are willing to lose. Regardless of reasons, all NFT purchasers should be aware of the risks associated with investing in NFTs.

Step-by-step guide to buying an NFT

To buy an NFT, you will first need to set up a self-custodial wallet, choose an NFT marketplace and place a collection bid or outright purchase an NFT from a listing. While some accept credit cards, the purchase will most often need to be with cryptocurrency. Here’s the step by step breakdown:

Step 1: Setting up a wallet

Buying NFTs requires that you set up a self-custodial wallet for storing assets and trading on marketplaces. The MetaMask wallet is one of the most popular options because it supports the Ethereum network and other EVM-compatible networks such as Polygon, Avalanche and BNB Chain where you can also trade NFTs.

If you want to hold and trade NFTs on the Solana network, you’ll need to install the Phantom wallet as it offers a user-friendly interface and other advanced features. Other networks such as Tezos and Cardano also have specific wallet options.

This guide on how to buy an NFT will focus on setting up a MetaMask wallet. The process is as simple as going to the official MetaMask website using your preferred browser, preferably Google Chrome, Firefox or Brave. 

• Click download and follow the prompts to install the MetaMask extension on your browser. 
• Click on Get Started to agree to the wallet terms and initiate the wallet creation.
• Select Create a New Wallet and write down the provided 12-word seed phrase on a piece of paper to store it securely.
• Confirm your seed phrase.
• Set a wallet password and complete the installation process.
• Once confirmed, you can find your wallet address by opening MetaMask and clicking where it says Account to copy your wallet address.

You can use the wallet address to transfer some ETH from your crypto exchange account to MetaMask. Alternatively, you can use the Buy ETH option on MetaMask to top up your wallet using a credit or debit card. 

The process to set up a Phantom wallet for Solana may be slightly different regarding user flow. However, they’re essentially the same and can be completed in a few minutes. MetaMask and Phantom also offer Android and iOS apps that deliver the same user experience.

A web-based or mobile wallet is ideal for a seamless experience, especially if you’re going to trade often. However, the best form of security for NFTs is an offline or cold wallet (more on this in Step 5).

Step 2: Choosing an NFT marketplace

After funding your wallet, the next step is to choose an NFT marketplace that lists the particular artwork or collection you want to purchase. The best NFT marketplaces list a wide variety of items from top-tier collections. You will want to ensure there is sufficient trading volume to process your order within the shortest possible time. 

When connecting your wallet, some marketplaces may require creating an account using an email and password. The onboarding process is typically straightforward, allowing you to complete it in just a few minutes. 

Marketplace security

It’s crucial to recognize the security risks that come with keeping your NFTs connected to an exchange or marketplace. By storing your NFTs on an exchange, you expose them to potential hacks, insider threats, and even exchange outages, which could hinder your ability to access or transfer your assets. 

To counter these risks, some advise transferring your valuable NFTs to a secure personal wallet, preferably a hardware wallet, for safekeeping. This approach allows you to retain full control over your assets while minimizing potential security threats associated with storing them on a marketplace.

Step 3: Finding your NFT

Investors consider many factors when determining the best NFT to buy. For an NFT art collector, the decision would majorly depend on the art’s appeal and potential resale value.

In terms of potential resale value, an excellent way to evaluate this is to review the artist’s pedigree and followership. If they’ve created a lot of art pieces that have been resold at higher prices, your items will also likely be worth more.

On the other hand, investors buying an item(s) within a collection that perhaps has 10,000 NFTs will consider the properties of each asset and their rarity rank. This information is usually available on the market listing for each NFT. You can also use the popular NFT rarity tool to evaluate NFTs independently. Items with a higher rarity rank (closer to 1) are more valuable and desirable.

The final and perhaps most crucial factor to consider when choosing an NFT is its community. You may find it helpful to join Discord communities or review the number of NFT holders regularly promoting the collection by at least using it as a PFP. If the community is helpful, has an active community manager, and members willingly contribute to the project’s growth, then the NFT item may be worth the purchase. 

Step 4: Bidding 

While some NFTs are available for instant purchase, you may need to bid in auctions to access other items. The most common type of auction is English style, where you bid against other investors for a listed item, and the highest bidder wins. Dutch style is slightly different, as the NFT creator defines a higher price, which declines until someone places an order for the item.

If you choose to participate in an NFT auction, consider if the artist has a record for inflating art prices through artificial bids. You can review previous sale history to identify such patterns or discern if previously sold items had grown in market value over time.

Step 5: Secure storage

Browser-based and mobile wallets provide the needed flexibility to connect with and transact on the NFT marketplace. They’re also mainly free and support a range of networks. However, many argue that the best form of security for your NFT assets is a hardware wallet. These devices store your private keys offline, removing the majority of attack vectors from hackers. 

With a hardware wallet such as the Ledger or Trezor, users mainly use the device to sign and verify transactions. Investors typically transfer their NFTs to the address on their hardware wallet and only move to a hot wallet when they need to list assets for sale. Some leading NFT marketplaces such as OpenSea and Magic Eden already support hardware wallets, making it the best choice for investors with significant NFT holdings in their portfolios.

Frequently asked questions

Where is the best place to buy an NFT? 

Popular NFT marketplaces OpenSea and Raible are some of the best places to buy an NFT because they support a wide range of assets across different networks. Meanwhile, other competitors such as Magic Eden and Blur offer unique advantages that see them in the top rankings of the best NFT marketplaces.

How much does an NFT cost?

An NFT can cost anywhere from $10 to several million dollars. The cost depends on factors such as the collection’s popularity, the issuing artist or company and historical background. Certain NFTs also provide access to dividends or future item releases, further increasing their market value.

Is it easy to sell an NFT?

It is easy to sell an NFT if there is sufficient liquidity for the collection. However, this is not always the case as most NFT collections have low liquidity and often require investors to sell below the market floor price if they want an instant exit.

Experienced investors know how to sell an NFT, and they are willing to wait until they have a reasonable price and liquidity. These could take several weeks to months, meaning NFTs are not as easy to sell as cryptocurrencies.

How to evaluate an NFT

Unlike cryptocurrencies where assets have a fixed market value, investors evaluate NFTs based on rarity and price history. Reading more exhaustive investor guides to NFTs can provide you with knowledge on how to avoid overpricing or underpricing your NFTs.

Common advice before NFT buying

1. Know what you want

It is easy to get overwhelmed by the thousands of NFT collections available. For this reason, it is best to define precisely the kind of artwork or NFT genre that appeals to you. Doing so prevents you from spending money on just anything you find and increases your chances of making a purchase that pays off in the long run.

2. Compare fees and auction types

Most NFT marketplaces charge a fee for every purchase. OpenSea has a fixed 2.5% fee while Magic Eden charges a slightly lower 2%. Blur was the first to have 0 fees. When it launched its marketplace, it made royalties optional but now enforce a minimum 0.5% royalty. 

SuperRare has a fixed 15% seller fee while Rarible charges 2.5% from the buyer and seller, respectively. It is advisable to spend some time comparing fees for similar NFTs on at least two platforms and then settle for the cheaper option.

Another thing to pay attention to is the auction style used on the NFT trading platform. Although it is possible to make instant NFT purchases for assets listed as such, some require participating in timed auctions. Others use the more sophisticated Dutch auction style, which considers all investor bids to determine a ceiling price that subsequently declines as investors purchase the auctioned assets. Endeavor to understand how each action type works on your chosen NFT platform before placing an order.

3. Prioritize cold storage

Hackers often target NFT investors and have enjoyed remarkable success since a significant chunk of investors only use browser-based or online Web3 wallets. It is advisable to set up a secure cold storage solution for NFTs. This way, assets are stored securely offline and out of the reach of hackers. 

A cold storage option is optional but it is especially needed if you plan to invest significant amounts in building your NFT portfolio. Once you have your cold storage solution sorted, you’re ready to learn how to buy NFTs.

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