Published
Aug 12, 2022

A Guide to Investing in NFTs

Venturing into an unfamiliar, risky asset class is always a daunting task. This is doubly true when the asset class is still extremely nascent, has just undergone a severe price correction, and is sometimes viewed as requiring significant domain expertise to invest in safely. Much of this applies to NFTs, the blockchain-based digital assets which did USD$102M in daily sales at the peak of their latest speculative frenzy and have more recently done a scant 2% of that volume. The following article is meant to be a practical guide on investing in NFTs as you consider adding this young but enigmatic asset class to your personal portfolio.

Step 1: Scoping Out Investment Opportunities

The first step to investing in NFTs is settling on the specific assets you want to own. New investors in the space should find no shortage of attractive investing opportunities, with everything from viral collectibles to in-game resources to one-of-one works of art available for purchase. Doing your due diligence before making any investments is essential, and thus you should always begin by perusing the sites for prospective NFT investments and reading any related whitepapers or other documentation on the overall project.

Step 2: Choosing the Optimal Marketplace

Once you’ve settled on a specific class or collection of digital assets in which you’d like to make your first investment, the next question you must consider is in regards to the marketplace from which you’ll buy the NFTs. Such marketplaces can broadly be stratified based on whether they offer a general selection of varying NFTs for sale, or whether they’re built to cater to the userbase of one niche application. We’ve written extensively about your options when it comes to NFT marketplaces here, so for brevity’s sake we’ll avoid going into great depth in this guide. But briefly, some marketplace alternatives to consider include: 

  • OpenSea: a generalist marketplace offering a comprehensive collection of popular NFTs. The marketplace relies on a self-listing model which allows users to mint their own NFTs and sell them to others on the platform, with a modest 2.50% commission fee charged on all transactions. As the largest generalist NFT marketplace today, OpenSea has received funding from world-class venture capital firms.
  • SuperRare: a more specialized marketplace which focuses on the listing and trading of high-end digital artwork. Creators are granted access to the platform on an invite-only basis and are able to earn a 10.00% royalty on all secondary sales of their work in perpetuity. Transaction fees in this marketplace include 3.00% charged to art collectors on purchases and 15.00% charged to art creators on primary sales.
  • NBA Top Shot: a niche marketplace designed exclusively for the trading of tokenized highlight-reel NBA plays. Developed by blockchain gaming studio Dapper Labs, sales on this marketplace are subject to a 5.00% commission charge.


Step 3: Creating Your Digital Wallet

After identifying the sorts of NFTs you want to invest in and the marketplaces on which they’re sold, it’s time to open your wallet. Your digital wallet differs from your physical one in that it doesn’t technically hold any of your cryptocurrency funds or NFTs, but rather allows you to manage the blockchain account that owns them. The digital wallet is vital in that it acts as your key to the blockchain, enabling you to send transactions such as buy orders for NFTs. It’s important to note however that different wallets are compatible with different blockchains, so you must carefully do your research to select a wallet that can interface with the blockchain on which your desired NFTs were minted, and which is integrated into the marketplaces you seek to transact on. For the sake of illustration, we’ll detail wallets compatible with the Ethereum blockchain given that it continues to be the primary home of notable NFT projects both old and new. Some alternative Ethereum wallets include:

  • MetaMask: viewed by many as the de facto wallet for interacting with the Ethereum blockchain. This wallet is accessible through a browser extension or mobile app. It provides a token wallet and token exchange with a clean interface, making it a worthy choice for beginners looking to buy their first NFTs.
  • Torus: another well-regarded choice for blockchain beginners, this wallet significantly removes technical hurdles by allowing users to create new wallets through their logins to familiar Web 2.0 sites (e.g., Google, Facebook, Reddit, etc.). This is especially beneficial in that the wallet can rely on traditional login recovery systems rather than having users store a lengthy mnemonic seed phrase to recover their accounts.
  • Fortmatic: promising to be a better alternative to MetaMask, this wallet furthers the mission of lowering barriers to entry by allowing users to create accounts through their phone numbers and recover lost accounts through traditional recovery emails.

Step 4: Connecting to the Marketplace

Once you’ve chosen a wallet provider and set up your first account, you’re now ready to connect it to your marketplace of choice. Generally, this step should be as easy as selecting the option to connect a wallet – something that should be found in the top right corner of most marketplaces’ landing pages – and simply following the steps on screen.

Step 5: Funding Your Wallet with Cryptocurrency

Following is arguably the most difficult step in the process for beginners, but you may take solace in knowing that it’s effectively the final hurdle you need to jump in order to start investing in NFTs. In order to place bids in open auctions and send transactions to the marketplace’s underlying smart contracts, you’ll need to fund your wallet with ether or some other accepted cryptocurrency to finance the blockchain’s transaction fees. There are a number of options for loading your account with ether, some of which include:

  • Wallets: in select cases, you may be able to buy ether from directly within your wallet. For instance, wallet provider Fortmatic has launched a fiat on-ramp which enables users to buy ether within the wallet application via a debit or credit card.
  • Marketplaces: as a corollary to wallets which provide ether-buying functionality, certain marketplaces will also allow their uses to add new cryptocurrency funds from directly within the marketplace. One notable example of this feature is OpenSea.
  • Centralized exchanges: after a fairly quick sign-up and account verification process, exchanges such as Coinbase or Kraken will allow you to trade your fiat holdings for ether. Following a brief time-delay from your initial purchase of ether to when it becomes available for your use, you can simply transfer your funds from the centralized exchange’s custodial wallet to the wallet you opened earlier.

Step 6: Submitting Your Bids and Settling the Purchase

Now that you’ve created a wallet and deposited an adequate amount of cryptocurrencies in it, you’re ready to make your first purchase. Visit the marketplace of your choosing and take the time to browse the NFTs on offer. Once you’ve found one that captures your attention, be it the same or different from the assets you set your sights on at the start of this process, you can place your bid for it. Depending on the seller’s preferences or the marketplace’s defaults, items may be put on sale in a few distinct formats:

  • Fixed price listing: this is precisely the same as most retail sales in the real-world, wherein there is a defined price and the buyer will have no choice but to pay it.
  • Auction: this format hinges on multiple potential buyers competing to secure the NFT by progressively bidding up its price. Once the duration of the auction expires, the highest bidder will be deemed to have bought the asset at their final bid.

After winning the auction, you’ll be asked to confirm your purchase in order to transfer the NFTs from the seller’s account to yours, and the funds from your account to the seller’s. 

If you’ve made it to the end of this guide then congratulations, you’ve just bought – or you’ve taken great strides towards buying – your first share of the digital asset world!

References

Daniel, W. (2021, June 3). NFT sales plummet nearly 90% from their peak as collectibles market cools. Retrieved from Business Insider.

Kim, J. (2019, November 28). The portal is now open — Fortmatic fiat on-ramp is in public beta! Retrieved from Fortmatic.

OpenSea. (2020, May 8). Welcome to OpenSea. Retrieved from OpenSea.


Share on:
Hungry for
more insights?