NFTs, or ‘non-fungible tokens’, have garnered significant attention and popularity in recent years. By opening up the possibility of digital ownership, these digital assets have revolutionized the art world and attracted growing numbers of creators, collectors, and investors from across the globe.
For many novice and experienced investors, knowing whether to invest in these digital assets can be a minefield. In this article, we have explained the fundamentals around NFTs to help you make an informed decision.
What Are NFTs?
NFTs are digital assets that can be bought and sold online. They are commonly in the form of artwork, collectibles, music, gaming, and more and are purchased using cryptocurrency. Like cryptocurrency, NFTs rely on blockchain technology to securely record and verify the ownership of assets, giving buyers full ownership rights over them, including the ability to trade, transfer, or sell their NFTs to another party.
Reasons to Buy NFTs
When purchasing such a new and speculative asset, it’s important to know why. Here are the top three reasons to consider purchasing NFTs:
- Potential profit: NFTs can be a potential investment opportunity and many investors buy them in the hope that their value will appreciate over time. For example, in 2021, an NFT collector called Pranksy purchased a digital artwork by the artist Beeple for $66,300. A few months later, he sold the same NFT for $6.6 million, showcasing the potential for substantial profits through NFT resale.
- Portfolio diversification: Due to their non-correlation with traditional financial assets like stocks and bonds, NFTs can provide an alternative hedge, adding diversity to your investment portfolio.
- Support creators: Many people buy NFTs to support their favorite artists, musicians, or content creators. Unlike other models of content creation, where middlemen often take a significant cut of the profits, NFTs offer creators a way to directly connect with their audience and monetize their work. In doing so, NFTs offer a way for buyers to show their support by acquiring their unique digital assets.
How Do You Buy NFTs?
Before you begin building your NFT collection, you’ll need some key items:
- Digital wallet: This is where you store your NFTs and your digital funds. These include wallets like MetaMusk, and CoinBase Wallet as well as blockchains that have official wallets that support NFTs. For example, the Solana blockchain offers the Solana Wallet for Solana-based NFTs and has become a popular marketplace for minting, selling, and trading NFTs.
- Cryptocurrency: You will need to purchase your NFT using cryptocurrencies such as Ethereum or the native cryptocurrency of the blockchain. For instance, when purchasing NFTs on Solana, you will use its native cryptocurrency, which is SOL. You can find the price of 1 SOL to USD here.
- Create an account: To gain access to NFT marketplaces like Solana, OpenSea, or Rarible, you will need to create an account on these platforms, and connect your digital wallet.
When buying NFTs, beware of ‘gas fees’, or transaction fees required to process your NFT transaction. These fees can vary based on factors such as network congestion and the complexity of the NFT transaction.
By learning more about the ecosystem surrounding these digital assets, you can make your first NFT purchase with confidence.
