Buying your first NFT can be daunting, especially if you’re new to the crypto space. You need to navigate an exchange to onboard fiat into a currency (typically Ethereum) then move your new digital assets into a wallet (hot or cold?!) in order to interact with mystifying things called smart contracts and mint tokens or else acquire them through an intermediary marketplace. There’s a lot there, but there are few barriers, which is ultimately the point of Web 3.0 democratization and interoperability. Buying your first NFT takes a few steps, but it’s for everyone, and everyone can figure it out. To help you get started—and to remind those who are already in this space—we’ve put together a list of things to know before buying your first NFT.
What is an NFT?
Let’s start with the basics: an NFT is a non-fungible token that exists digitally on a blockchain, which is a distributed ledger or database. By “non-fungible,” we mean that it has its own unique properties, such as a hash (a digital fingerprint) that ensures it is unlike any other token on the blockchain (or at the very least, one of a series of tokens, each with its own unique identifier). NFTs, as we currently think of them, range from profile pictures, works of art (generative or not), trading cards and other collectibles. Outside of the world of digital assets, one can say that a dog is non-fungible because it is unique and cannot be exchanged for another, even if there are many of the same breed that look just like it. A dollar bill, on the other hand, is fungible, which means that one can exchange it for another dollar bill without losing the inherent value of the thing. What about the “token” part? A token is simply a digital certificate stored on a blockchain. That word “certificate” is critical, and leads us to our second point.
What do I own when I buy an NFT?
If a term like ‘non-fungible’ presents conceptual difficulties, new collectors will also likely have to think in new ways about ownership, too. If we’re dealing with, say, a unique picture of an ape or cat or toad, in almost every case, anyone (in other words, non-owners) can download a copy of the image for free (right click to save!). The owner, however, is in possession of the unique certificate that grants true ownership and digital bragging rights. For some, JPEGs (and their associated value through community, membership and perks) are the new Rolexes.
How do I buy the cryptocurrencies needed to buy NFTs?
Once you decide to leap into NFTs, you’ll need to set up a crypto wallet if you don’t already have one. While NFTs can be based on different blockchain ledgers such as Solana or Tezos, the vast majority of NFTs being minted and exchanged today are on the Ethereum network. Ethereum is one of the most accessible cryptocurrencies, as ubiquitous as—or even more so than—Bitcoin. For many who live in countries with burdensome financial and anti-money laundering regulations, you’ll have to create an account on an approved exchange (for example, Coinbase, Gemini or Kraken in the United States), go through the identity verification procedures, then link a bank account or credit card to enable trades, which are tied to your social security number. Those who live in jurisdictions without such regulations can typically acquire cryptocurrencies legally and safely through decentralized exchanges, in-person transactions or cryptocurrency ATMs without verification.
How do I store the NFTs I want to buy?
Given that NFTs are inherently valuable—some much more than others—it’s important to decide whether you’re comfortable holding digital assets on a centralized exchange or “soft” digital wallet integrated into your web browser, like MetaMask. These days, most people recommend that you move assets onto what are known as “cold” physical wallets. These external storage devices range from pieces of paper that include all of the critical passphrase information needed to interact with the cryptocurrency address on the blockchain to small USB-like devices produced by digital asset security companies like Ledger and Trezor.
Where to buy NFTs?
The Internet has exploded with new NFT marketplaces, auction houses and exchange services in the last year. Here’s a list of some of the top players in the space today:
OpenSea – the world’s largest, most widely-used and interoperable NFT marketplace
Rarible – a community-owned marketplace focused on curation
SuperRare – a marketplace focused on 1/1 pieces and high-end art with social media features
Foundation – a marketplace similar to SuperRare, but with a higher level of artist curation
Nifty Gateway – a centralized market with daily “drops” of curated (and, as of recently, verified) artists that lets users use fiat for purchases
The above markets are the easiest way to see what’s out there and build a collection, but there’s a much bigger world. The vast majority of new NFT projects these days involve minting tokens directly from a project website, often as one-time releases, but there’s a growing segment of projects that offer new and unrelated projects regularly, such as Art Blocks, functioning as a unique market for generative artworks. In addition, a number of new services, such as the auction house Zora and exchange service NFTRADER, have sprung up to address specific needs.
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Next week we’ll take a look at some practical considerations, like how to decide what to buy, valuation and how to be careful in this space.
