How to buy NFTs – Forbes Advisor

An artwork called “The Merge” by artist Pak sold last year for $91.8 million. To date, it is the most expensive work of art ever sold by a living artist, but “The Merge” is not a painting or sculpture. It is a non-fungible token (NFT).

An NFT is a digital asset that can represent real-world objects, such as artwork or even real estate. These cryptographic assets are bought and sold online, often with cryptocurrency, and the ownership information is secured and stored on a blockchain, a type of distributed ledger.

With values ​​of art and sports NFTs rising into the millions of dollars, many investors are wondering if NFTs are a good investment. Let’s take a closer look at how you can buy an NFT.

What is an NFT

An NFT is something that cannot be duplicated – it is the opposite of fungible.

The first known NFT, “Quantum”, was a video clip called a graphic that makes money. When it was created in May 2014, it eventually sold for $4. Since then, NFTs have grown into a $1.8 billion market, according to data from CoinMarketCap.

But what exactly is an NFT? Perhaps the first thing to understand is how an NFT differs from a fungible token.

If you think of two separate one-dollar bills, they are the same. If I take your dollar bill and give you my dollar bill, we both still have the same. This means that a one-dollar bill is a fungible asset.

On the other hand, if you have a portrait painted by Pablo Picasso, it is not the same to replace the artist’s work with a picture drawn by a three-year-old. That is the basic premise behind NFTs.

“The concept of fungible versus non-fungible has been in our lives for centuries,” says Merav Ozair, blockchain expert and fintech professor at Rutgers Business School.

Ozair defines a fungible object as something that can be replaced or is indistinguishable from something else.

A bitcoin is a fungible token on a blockchain, and it doesn’t matter which one you own.

An NFT, on the other hand, is a unique blockchain token that cannot be exchanged for any other token found on it or any other blockchain.

Where to buy NFTs

The initial purchase of an NFT is called minting.

Minting is not the creation of NFT; and rather, minting activates an already created smart contract and places the NFT in a specific location on the blockchain network.

In this way, an NFT is a kind of non-fungible cryptocurrency. NFTs have all the same features as other blockchain technologies. A given NFT is immutable on the blockchain, and everyone can see the transactions, says Ozair.

While you could imagine building your own blockchain to create and mint NFTs, most users choose an NFT marketplace to create their NFTs.

There are two types of marketplaces for NFTs: centralized and decentralized.

Centralized NFT marketplaces

The key difference between a centralized and decentralized marketplace is that a centralized one will place certain limitations on what you can do.

When a marketplace is centralized, says Anthony Georgiades, co-founder of tier one blockchain Pastel Network, “You’re not necessarily required as a user to make sure you’re not infringing a copyright.” Instead, the marketplace will take care of it for you.

Decentralized NFT marketplaces

On the other hand, anyone could hypothetically list anything on a decentralized marketplace. This can lead to copyright infringement or even fraudulent NFTs. Each of these factors can harm your investment.

In addition to the suggested price of the NFT itself, they pay for both the NFT and the gas tax when users first create an NFT.

A gas fee is an additional fee that a blockchain network charges for the use of its computational resources.

Ethereum (ETH) is currently the largest network for NFTs, but there are other networks, such as Flow (FLOW), Cardano (ADA), and Solana (SOL), to name a few.

However, each blockchain that supports NFT projects has its unique advantages and disadvantages.

Some networks also charge a gas fee for minting an NFT. Among cryptocurrencies that support NFT, Solana’s gas fees are relatively low compared to most others.

When hitting NFTs, users may also want to look at gas fees for the network.

How to buy NFTs

When an NFT is minted, the user usually has free rein. Users can list the NFT for sale on the marketplace of their choice, trade it to someone else, or give it away for free.

Some NFT marketplaces, such as Nifty Gateway and NBA Top Shot, accept credit cards for NFT payments. But many other NFT marketplaces may require cryptocurrency to make purchases.

However, on any platform you will need a crypto wallet to start buying NFTs.

A crypto wallet is where the keys to your NFT are stored once the NFT is purchased. These wallets can be stored either online or offline. Offline storage is usually recommended as it is considered more secure.

Once the NFT is either minted, purchased from the marketplace, or transferred to you by the NFT’s current owner, it will appear in your wallet.

It’s important to remember when you buy an NFT that “you’re buying a token ID for where that token is actually stored,” Georgiades says.

Of course, if your NFT is a work of art, you can print physical copies of it or save the digital image, but the NFT you own is just the token ID. You do not own the rights to the image or the original image itself unless these ownership rights are specified in your contract.

What is the value of an NFT

Like many things in this world, the value of an NFT is in the eye of the beholder.

This does not mean that NFTs cannot command a high price. For example, in addition to “The Merge’s” $91.8 million price tag, Beeple’s “Everydays: The First 5000 Days” sold at auction for $69.5 million.

“The value extends from the authentication and the uniqueness,” says Ozair.

But not all NFTs come with a hefty price tag. Some are valued at less than a dollar. According to data from CryptoSlam, the average price among $647 million in NFT sales in July 2022 was $115.15.

As with a painting, the market itself will determine its final value. Obviously, not every painting sells for $1 million, but some people believe that some paintings can be worth that much. So they are willing to pay that price.

Of course, NFT does not have to be art. There are also sports NFTs, which include digital variations on trading cards and highlights. For example, a photo of LeBron James taken by Kimani Okearah sold for $21.6 million. The MLB Champions blockchain-based baseball game sold for $21.3 million, while a signed card of World Boxing Council (WBC) middleweight champion Jermall Charlo went for $19.1 million.

Virtual land, which is space in the metaverse, can also be sold as an NFT. However, after many multi-million dollar purchases in 2021 and throughout 2022, the value of virtual lands has reportedly decreased by more than 66%.

In the metaverse, however, NFTs can also include accessories for users’ virtual avatars such as photos and clothing, says Jerry Eitel, partner emeritus and chief metaverse officer at global accounting firm Prager Metis.

As the world becomes increasingly digitized, NFTs can even represent a deed to physical property, a user’s medical records, proof of ownership or proof of attendance. These things may not be as easily transferred from one owner to another, but they can each occupy their own unique space on a blockchain.

Of course, buying an NFT is not like buying a stock or depositing money into an FDIC-protected account.

There is no guarantee that the price of an NFT will go up. That means investors need to take the time to understand what they are buying when they buy an NFT and consider what they think the value of that NFT will be.