Future historians may look back at this time as the Age of Speculation. Driven by the boom in cryptocurrencies, some assets are seeing an exponential increase in value. One of them is NFTs, also known as non-fungible tokens. Though not widely understood, some are drawing in enough investor interest to give them nosebleed valuations. Can you make money from an NFT? There’s really no clear answer, but let’s take a deeper look at this new asset class. Here’s our How to Invest in NFT guide.
What Is an NFT?
Non-fungible tokens, or NFTs, are something of value that’s unique. Since it is one-of-a-kind, there’s no recognized market price for the asset. A good example is an original work of art. Since it’s an original and there’s no open market for it, it’s considered non-fungible. That is, it can’t readily be converted into cash at a widely recognized price.
More specifically, NFTs are connected with the cryptocurrency known as Ether. Or more even more specifically, with the Ethereum blockchain. That chain supports NFTs. Read more about what are NFTs in this article.
Are NFTs the Right Investment for You?
NFTs are truly a new thing. Blockchain and cryptocurrencies have been around for nearly a decade, but NFTs haven’t been around that long. But like all things connected with cryptocurrency investments, NFTs are on a tear. Some are even selling for millions of dollars.
Does that make them an investment, or more particularly, the right investment for you?
At this point in the game, it seems as if NFTs are speculations and not true investments. The bubble in cryptocurrencies seems to have extended to all things connected to them, including NFTs.
If you do speculate in NFTs, make sure you’re doing it with as little money as possible. Not only are these assets totally unpredictable, but they have not stood the test of time. Nor do they provide any type of cash flow, like interest or dividends.
Think of them as something you buy only with money you can afford to lose.
How to Find the Best NFTs and Collectibles Tokens
There are specific online marketplaces where you can buy NFTs. Two of the more popular sites are Open Sea, which claims to be the largest NFT marketplace, and Rarible. Both platforms offer the ability to buy NFTs, and create and sell them.
- The basic way to profit from an NFT is to buy it at one price, then sell it at a higher price to another buyer. There’s no exact science on profit, especially on an activity as new as NFTs.
- The best strategy could be to look for digital art you believe to be especially appealing, or that may have greater relevance in the future.
- It’s an inexact science at best, which is why you should limit your investment in any single NFT. It will also help to follow one of the most basic rules of investing, which is to diversify among several tokens.
Steps to Invest in an NFT:
1. Open an NFT Marketplace Account
You can browse an online NFT marketplace without signing up for the service. You’ll need to create a digital wallet, which will be funded with cryptocurrency. Adding the digital wallet to the online marketplace will open your account. Once you have that up and running, you can participate in the marketplace and invest.
2. Create a Digital Wallet to Buy NFTs
A digital wallet acts like a physical wallet, in that it holds your money, but a digital wallet is specifically designed to hold cryptocurrency.
Generally speaking, the best choice is a digital wallet that uses a thumb drive or other physical media to hold your cryptocurrency, also known as a cold wallet. Since it won’t sit actively on the web, it’s less likely the wallet will be compromised.
You’ll need to get a digital wallet that works with the NFT marketplace you want to invest from (for example, Open Sea works with Ethereum). Your wallet must be compatible with the cryptocurrency you want to buy and sell on the platform. MetaMask supports Ether, for example.
3. Fund Your Account
You must buy a cryptocurrency like Ether to participate in an NFT marketplace.
You can do so quickly and easily through investment brokers that accommodate cryptocurrency trading, such as Webull and SoFi Active Invest. Each provides commission-free trading in individual stocks, exchange-traded funds (ETFs) and options. But they also enable you to purchase popular cryptocurrencies like Ether and Bitcoin.
If you want a dedicated cryptocurrency platform, check out Gemini. It’s a full-service cryptocurrency exchange, where you can buy, sell, and store your cryptos. And as a crypto-specific site, Gemini also offers plenty of tools and research information to help you better understand the crypto market.
Once you purchase your cryptocurrency, you can load it onto your digital wallet to use on an NFT marketplace.
4. Buy Your NFT
With your digital wallet active and funded with cryptocurrency, you’ll be ready to buy.
It’s important to understand NFT marketplaces use auction formats. You’ll need to submit a bid for the token you want to purchase. The sale will go through if you are either the highest bidder or the only bidder.
How to Buy Ether
A lot of NFT marketplaces work with Ether, so you’ll likely need to buy some before you can buy and sell an NFT. Start by choosing the platform you want to buy your Ether from. As mentioned earlier, potential providers include Webull, SiFi Active Invest, and Gemini.
The specific process for buying Ether (or any other crypto) depends on the platform you’re using.
In this example, we’ll use Gemini. They use a five-step process, as follows:
- Select a digital asset from the left side of your home page.
- Select “Buy” and select if you would like to make a single buy or recurring buys.
- Click “Next” to input the order amount.
- Click “Review Order” to move to the confirmation screen.
- Once reviewed, click “Place Order” for your order to immediately execute.
Once you purchase your Ether, you’ll store it in your digital wallet. You can then use your digital wallet to make purchases using your stored Ether.
How to Create Your Own NFTs
To create your own NFT you’ll need to work with a marketplace. We’ll use Open Sea as an example, which works with the Ethereum network. If you follow the steps above, you’ll already have Ether and the digital wallet to hold it. You’ll need both to create an account on Open Sea.
Once you do, you can click “Create” on the top bar of the page, then “My Collections.” Under “Create new collection,” click “Create,” and enter your collection’s name with a description and upload an image. Once that’s done, hit “Add New Items.” It doesn’t matter that the image isn’t your desired NFT; you’re adding it just to get started on the page.
Once you’ve completed that step, you can make modifications. For example, you can upload metadata like an image, video or audio file. From there, you can rework your image until it’s the final product you want for your NFT. You’ll need to add a unique name to your NFT, as well as a sequence number if you’re making multiple versions of the same token.
Once you’re satisfied with what you’ve produced, click “Create” and sign the message in your digital wallet. There are no costs for creating NFTs on Open Sea, but there is a 2.5% fee on the final sale price.
There are various methods for listing and selling your NFT, which will be provided by the digital marketplace. Connecting your NFT availability to your social media pages will likely help you sell it.
Risks of Investing in NFTs
- The biggest risk of investing in an NFT is that you won’t be able to sell it for what you paid for it. Even worse, you may find you’re unable to sell it at all.
- NFTs should be thought of as collectibles. Whether you buy or create a token, it may not be readily salable. There may simply not be a market for it right now. But there may be a market for it in the future, as events and trends increase its value.
- This is why it’s important not to invest any more money in NFTs than you can afford to lose. A better approach may be to create your own NFTs. Since there will be little or no cost in the creation of your own tokens, any money you earn from a sale will be pure profit.
Pros and Cons of NFTs
- At least over the past year, NFTs have exploded in value. If that trend continues, there may be more profit potential.
- You can create and sell your own NFTs at virtually no cost. Any proceeds will be pure profit.
- With nearly everything else in the economy going digital, collectibles may be migrating over to digital as well. This might mean the future of NFTs is indeed bright.
- There are already recognized online marketplaces for NFTs. This makes buying, selling, and even creating tokens fairly easy.
- NFTs are a new and unproven asset class.
- There’s no effective way to know, in advance, what any given NFT value might be.
- There’s no way to know if NFTs represent the future of collectibles, or it’s just a bubble waiting to burst.
- Since anyone can create an NFT, the market may become saturated.
- The recent price spikes make current and future NFT purchases even riskier.
- There may be the possibility of copyright infringement if your image uses part or all of someone else’s work. It’s even possible your own work could be easily duplicated.
How Do I Buy NFT Tokens?
You can buy NFT tokens by participating in an online NFT marketplace, like Open Sea or Rarible.
Where Can I Buy NFT Coins?
There are no specific NFT coins. However, each marketplace requires certain cryptocurrencies. For example, Open Sea accepts Ether, so you’ll need to buy Ether through a platform that permits you to do so. Gemini, SoFi Active Invest, and Webull are platforms where you can do just that.
Are NFTs a Good Investment?
Despite the fact that some NFTs have skyrocketed in price in recent months, it’s hard to truly classify NFTs as an investment. As early as we are in the process, it looks to be more of a speculation than an investment at this time.
What Are the Best NFT Tokens?
That depends on the platform you’re looking to buy an NFT on. One may require Ether, while another may only accept Bitcoin. If you plan to be an active NFT investor, you may want to hold several cryptos, so you can trade on multiple marketplaces.
What Gives an NFT Value?
Like everything else that has any value at all, the value of an NFT comes from the marketplace. A token is worth only what a buyer is willing to pay for it. If there are no buyers for that token, it will have no value at all.
How Much Does it Cost to Make an NFT?
If you use an online marketplace like Open Sea, there’ll be no cost to create an NFT, although there is a 2.5% fee on the final sale price. The only expenses you will have will be those incurred in obtaining the “raw materials” to make your token. This may include the purchase of copyrighted material (like background music) or graphic design software. Of course, there will be fees incurred for the purchase of crypto for your digital wallet.
Is Now a Good Time to Buy Ethereum?
There’s little doubt Ethereum was an excellent crypto to buy one year ago, or even a few weeks ago. But there’s no reliable way to know if it will continue to be a winning investment going forward. Just as is the case with NFTs, think of cryptocurrency as speculations and invest only as much money as you can afford to lose.
How Do I Sell an NFT on Rarible?
Like Open Sea, Rarible requires Ethereum. You’ll need to set up a digital wallet (again, MetaMask is the preferred wallet), and add Ether to it. You can sign up for the platform just by connecting your digital wallet. There is no cost to create a token on the platform, but Rarible does take a 2.5% commission on the final sale price. You’ll list your token for sale on Rarible, similar to the way you will for Open Sea. But it’s important to know that while you can lower the price of your token, increasing the price will require you to re-list the item. The better option is to set the price higher and give yourself room to lower it. You can also set a royalty fee for subsequent sales by the buyer. That will give you a piece of all future sales of the token. A 10% royalty is common. If you’re creating a token, you’ll need to upload the files, mint the token, and sign a sell order. You’ll then sign the lock order using your digital wallet. Your item will then be listed for sale on the Rarible marketplace.
Can I Sell an NFT?
You can sell any NFT you either buy or create, as long as you find a willing buyer. That’s best done on an online NFT marketplace, like Rarible or Open Sea. How much you’ll get for your token will depend on how much a buyer is willing to pay, or if multiple buyers participate and drive the price higher.
Bottom Line: What’s the Future of NFTs and Should You Invest Right Now?
Given that there’s not much of a history behind NFTs, it’s not possible to predict their future. It does appear there is a definite market for digital art, which certainly gives NFTs an enduring purpose. But it’s hard to say whether it’s the art itself or the general crypto-mania that’s causing the big price spikes.
NFTs are a novelty at the moment. View any participation as speculation, and invest only as much money as you can afford to lose.