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How to Invest in NFTs6 min read

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NFTs have been around for a few years now, but have only recently gained popularity when celebrities began trading in them. This just shows that the trend toward cryptocurrency isn’t going anywhere.

Maybe you don’t know much about cryptocurrency. Maybe you don’t even know what an NFT is. Or, maybe you know all about these things, but you’re not sure if this type of investing is a good long-term investment, or if you should avoid it altogether.

If you are interested in learning about investing in NFTs, consider this helpful tutorial with the basics of NFTs, how to create them, the pros and cons, and the risks involved.

What Are NFTs?

An NFT, or non-fungible token, is a data unit stored on a digital ledger to represent digital assets. These files track the ownership of different digital photo and video files. NFTs are special assets with unique value–aka they have no specific market price.

Original artwork is considered an NFT because it is a one-of-a-kind original and thus wouldn’t have an open market, making it harder to convert this NFT into cash. This means that NFTs are considered an Ether cryptocurrency.

Cryptocurrency is nothing new, but NFTs are and they are booming. Like, being sold for millions of dollars kind of booming. But, NFTs are not really considered an actual investment and are more of a speculative one. Because they are less known and unpredictable, it is best to try and get them by using the least amount of physical cash as possible and keep in mind that they will not provide you with a cash flow like other types of investments.

How Do NFTs Work?

NFTs are found on blockchains like Ethereum and can only be owned by one person at a specific time. Digital objects like video games, music, art, collectibles, videos, GIFs, and even tweets create NFTs. The owner of the NFT is allowed to store information inside the NFT and NFTs allow artists unique opportunities in monetizing their wares.

For example, say an artist doesn’t want to sell their creation through an auction house or gallery, but they still have to make money. They can directly sell to their fans in the form of an NFT and theoretically generate more profits. This can also be done by programming in royalties to the NFT so they will get a cut every time their art sells.

How Are NFTs Related to Cryptocurrencies?

NFTs and cryptocurrency are very similar and work in the same way, so your NFT transactions will be the exact same as any bitcoin, ether, lumen, or dogecoin transaction. You will hold your NFT in a digital wallet and blockchains will track them.

So, let’s say you want to buy an NFT. The seller will transfer the asset to you and your transaction will be verified by a computer network and it is recorded to belong to your wallet anonymously. You control the contents of your wallet with the public and private keys and can buy and sell your NFT just like stock shares, just without the traditional stockbroker and exchange.

NFTs are only available for purchase in special online marketplaces where you can buy and sell efficiently.

To make a profit on your NFT, you will buy it and then try to resell it at a higher price. But remember, this is a cryptocurrency, so there is no specific price for these “goods”. The best way to invest is to buy digital art that you appreciate and that will increase in value in the future. You should also avoid putting too much money into one NFT, but instead, invest in a variety.

NFT Marketplaces

Opensea

Opensea operates on Ethereum and hosts various digital collectibles such as video game items and digital artwork. Metamask, a web3 cryptocurrency wallet, interacts with Opensea.

SuperRare

SuperRare is where you can find original pieces and you would use Eth coins since they work with Ethereum’s network.

Nifty Gateway

Nifty Gateway is owned by a crypto exchange platform called Gemini, which has primary marketplaces where artists can release their artwork and their secondary marketplace is used to resell the artwork. Nifty accounts are funded with either Ethereum or using a credit card.

NBA Top Shot

This marketplace is only for NBA items, like basketball cards, which are not your regular old baseball cards but are interactive. A card that featured LeBron James doing a dunk on the Houston Rockets recently sold for more than $200,000.

Steps For Investing in NFTs

If you want to invest in NFTs, you’ll want to follow a few steps. These include:

  1. Open an account with an NFT marketplace: Check out the various marketplaces available and choose the one for you. You’ll then create a digital wallet that you will fund with cryptocurrency. Remember, many of these marketplaces have different products and are funded with different crypto, so you’ll need to make sure you’re following their rules.
  2. Fund your account: This is pretty self-explanatory, you’ll need to put in the correct crypto to begin making transactions.
  3. Buy your NFT: Purchasing NFTs is like using eBay, it’s an auction system. The highest or only bidder will win the NFT.

Creating NFTs

Anyone with basic computer skills can create their own NFT. You will need to find a marketplace to create your NFT, as well as a digital wallet. The most commonly used marketplace is Open Sea, so here is how you can create with them:

  1. Open an Open Sea account and click on the Create button on the top bar.
  2. Click on My Collections and select Create New Collection.
  3. Click on Create.
  4. Enter a name for your collection and a description and image.
  5. Click on Add New Items.

After you’ve created your NFT, you can add modifications such as an audio file, image, or video until you’re happy with it.

Once you’re happy with your final NFT, click on Create. Also, make sure you sign the NFT creation message. Open Sea does not charge anything to create an NFT, but there is a 2.5% fee for every sale made. They will also provide you with listing and selling methods, as well as connect the NFT to different social media pages to help it sell faster.

Pros and Cons of Investing with NFTs

Pros

  • Creating and selling NFTs can be very profitable
  • NFTs have a bright future as the world moves towards crypto
  • NFT value continues to increase
  • Online marketplaces make it easier to create, buy, and sell NFTs

Cons

  • NFTs are new, thus unproven
  • NFTs have no specific value
  • The market could become saturated as more people create them
  • Plagiarism and copyright infringement is real possibility
  • Unsecure NFTs can be hacked

Final Thoughts on NFTs

NFTs are a newer idea and while many have made impressive profits in the creation and selling of their digital goods, this is an investment practice that is not without risks. It is possible that NFTs will evolve from digital art to things like business licenses, deed transfers, and vehicle titles in the future.

If you choose to invest a lot of money in NFTs, make sure you do your research and do things securely to protect yourself, your virtual wallet, and your goods.

About 

Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.