How to Buy an NFT
In 2021, NFTs went mainstream. It's now 2022 and NFTs have proven that they are not just the next internet fad. Fortune 500 companies from Adidas to Visa dove into the world of crypto and NFTs. Twitter, Instagram, and Tik Tok feeds became overloaded with ads for the next NFT marketplace or collection. But with so much conflicting information, you may still be wondering how to get your first NFT.
Lucky Trader has you covered with this complete guide on how to buy an NFT.
We will cover what an NFT is and the steps required to purchase your first NFT. This guide has compiled the most relevant information on NFTs so that you can confidently purchase your first digital asset and get up to speed on what's happening with NFTs in 2022.
Table of Contents
- What Is an NFT?
- How to Buy an NFT in 4 Steps
- How to Sell NFTs After Buying
- Why Buy an NFT
- How are NFTs Valued?
- Pros and Cons of Buying NFTs
What is an NFT?
A non-fungible token (NFT) is a unique piece of data that is stored on a blockchain and represents ownership and authenticity.
Fungibility refers to the ability of an asset to be interchanged with another asset of the same type. Fungible assets include company shares or dollar bills. In most cases, those assets can be traded equally, so a $100 bill is equal to any other of the many that exist.
While fungible objects are mutually interchangeable, non-fungible objects are the opposite. Non-fungible tokens hold value based on their unique properties. After some observation, you’ll find that many things in life are non-fungible. Your computer, car, or the deed to your house are all non-fungible objects. Not only do these objects have unique identifiers, such as a serial number, but they also have unique value to the individual.
In the NFT space, a token is used to represent a non-fungible digital asset. These tokens serve as certificates of ownership and authenticity which are verifiable by a contract and a unique number identifier stored on a public blockchain like Ethereum.
NFTs can take many forms, not just cartoon jpegs, but art and collectibles are some of the easiest forms of media to represent as a token.
How to Buy an NFT in 4 Steps
Now that we have what an NFT is, let's break down the easiest way to buy an NFT. Below are four steps to guide you on your first NFT purchase.
Step 1: Research and Select an NFT
Researching and properly understanding the NFT you are buying will help you minimize bad purchases and avoid getting scammed. This is the most time-consuming process but also the most important.
Determining what NFT you should buy is purely a personal decision, and there are several different types.
As we mentioned earlier, since NFTs are digital assets built on a blockchain, they have an immense amount of flexibility and many potential use cases.
Below are just a few types of NFTs that you can purchase today.
- Gaming: assets or characters, such as Axies from Axie Infinity
- Identity: traditional 10,000-piece profile picture (PFP) projects, like Bored Ape Yacht Club
- Art: from curation platforms like Art Blocks
- Music: including Snoop Dogg on Sound.xyz
- Collectibles: NBA Top Shot, for example
- Access: like Permies for Permissionless
If you are looking to buy your first NFT, it's important to decide if you are looking to speculate, collect, or use the NFT.
The speculation involves buying an NFT in hopes that its price will rise in the future so that you can sell it for a profit. This can be the riskiest way to participate in the NFT industry. The market for NFTs is relatively young and speculation is very common.
If you are interested in owning a piece of digital art or sports memorabilia like an NBA Top Shot Moment, collecting an NFT to hold for the long term is also a great way to get started in NFTs.
Finally, for those looking to get involved in play-to-earn gaming or exclusive internet communities, consider purchasing an NFT for its utility.
Here are a few more tips to help with the research process.
- Follow projects on Twitter or join their Discord. Take some time to read previous tweets, announcements, and blog posts to get a better idea of the NFT’s utility and the project’s roadmap.
- Make sure to research the team as well. A professional team that has its reputation on the line helps reduce the likelihood that the project will be a scam.
- Be cautious when the project is partnered with or created by a celebrity, athlete, or influencer. In the past, some NFT projects have used star power to build up hype and mask a poor roadmap or product.
It's also important to keep your budget in mind.
Expensive NFT purchases will require more in-depth research. It may be a good idea to seek out a less expensive NFT for your first purchase to help you learn through experience.
Following these tips will help you to be confident in your first NFT purchase.
Step 2: Choose an NFT Marketplace
NFT marketplaces are platforms where you can mint, buy, sell, and store NFTs. Some NFT projects are only available on one marketplace, while others may be available on several. When you have decided on the NFT you want to buy, determine the marketplace or marketplaces where it is available. If you have the option to choose, the next step is to determine which NFT marketplace to use.
There are several types of marketplaces. Some NFT marketplaces like OpenSea aggregate many types of NFTs while others are more curated for specific genres of NFTs such as digital art or gaming assets.
While most NFTs are minted on the Ethereum blockchain and its multiple scaling networks, such as Polygon, there is an especially vibrant NFT ecosystem on the Solana network as well as other blockchains such as Avalanche, and Flow.
Gas — fees paid to facilitate transactions on the blockchain — can be quite expensive depending on demand at the moment, particularly on the Ethereum network. If price is a limiting factor in your first NFT purchase, consider looking at NFT marketplaces on some of the previously mentioned blockchains that have lower transaction fees.
The following is a list of a few NFT marketplaces to help you decide where to buy your NFT.
Network(s): Ethereum, Polygon
OpenSea is the largest NFT marketplace. Anyone can create an NFT collection or mint a single NFT using OpenSea. Want to learn more? Check out Lucky Trader’s comprehensive guide to getting started on OpenSea.
One of the newer NFT marketplaces, LooksRare launched on January 10th, 2022 as a decentralized version of OpenSea and offered NFT traders several incentives to switch platforms. Traders can stake their native token $LOOKS to earn 100% of the trading fees generated on the marketplace. LooksRare only makes a 2% royalty on trades compared to OpenSea’s 2.5%.
Magic Eden is the largest NFT marketplace on Solana and is similar to OpenSea. The platform offers a launchpad for new NFT projects through its community-centered approach. Like OpenSea, Magic Eden also has a mobile app that is great for browsing and displaying your NFTs.
Network(s): Ethereum, USD
Nifty Gateway is a curated NFT marketplace that often has famous artist drops and allows for credit card purchases of NFTs.
Anyone can purchase an NFT from the Foundation marketplace, but in order to post your own, you’ll have to receive an invite from an existing artist. Foundation has done this to help keep its marketplace curated and high quality.
Step 3: Create a Wallet and Fund It
The next step to buying an NFT is to create your own digital wallet to hold your crypto and NFTs. The type of wallet you'll need is determined by the marketplace you're using and the cryptocurrency they accept.
The most popular wallet for the Ethereum network is MetaMask. If you are unfamiliar with MetaMask or need help setting up your digital wallet, Lucky Trader already has you covered with our MetaMask Guide. MetaMask is also compatible with other chains like Avalanche as well.
If you are looking to buy an NFT on Solana, Phantom is a digital wallet that is very similar to MetaMask. Or if you are looking for a wallet that is more mobile-friendly, Rainbow is a great option that makes it easy to show off your NFTs with their app.
After creating a digital wallet, you will need to fund it with cryptocurrencies such as ETH or USDC to buy an NFT. One of the easiest ways to buy crypto is to use a centralized exchange like Coinbase to make your purchase and then send it to your digital wallet.
Credit cards can also be used to purchase crypto within MetaMask, but there is typically a high fee. OpenSea recently announced that they have partnered with Moonpay to allow users to buy an NFT on their marketplace directly with a credit card.
Step 4: Buy an NFT
Once you have decided on the type of NFT you’re going to buy, determined the appropriate marketplace, and created and funded your wallet, the last step is to complete the transaction to buy an NFT.
Primary sales of NFTs can come in the form of an auction or a fixed price drop.
The two most common types of auctions used in the NFT industry are the English and Dutch methods.
In an English auction, the highest bid wins at the end of the auction or a specified time period. In contrast, Dutch auctions use a decreasing-price method where an NFT’s price starts at a certain level and declines by a set amount every few minutes (or sometimes even every second).
If the auction is for a single NFT — Dutch auctions are common for art pieces — then the winner is decided when an individual bids the current price. If a Dutch auction is used for an NFT collection with multiple pieces, then the auction ends after every item is sold.
Fixed Price NFTs
Fixed price drops were made popular with 10,000 NFT projects.
In this case, the entire collection of NFTs is released at once and anyone can purchase the NFT until they sell out.
Usually, these drops are announced beforehand. If the project is popular, their pieces can sell out in seconds. Fixed price drops can result in “gas wars.” During a gas war, demand to buy the NFTs in a particular collection can cause transaction costs on the Ethereum blockchain to soar.
To view upcoming drops, refer to our NFT schedule page.
Other Methods to Buy an NFT
In order to combat gas wars, projects have begun implementing “whitelists” or “allowlists” where buyers can earn a spot in a presale where they may purchase from the collection before the rest of the general public.
Other NFT projects have begun to utilize "stealth drops," where they release their project without any marketing. Some believe that stealth drops are more fair, as they help guarantee that early supporters can buy at least one NFT, prevent huge demand from resulting in gas wars, and can help reduce the chance that whales — people who own vast amounts of crypto — buy up hundreds of NFTs in a public sale.
Depending on which sale type you are carrying out, you'll need to determine how much crypto to have on hand, including enough for gas fees. You can learn more in our complete guide to gas fees in crypto.
Once your wallet is funded, simply click the purchase button on the marketplace. Sign the approval and wait for the blockchain network to confirm your transaction.
Congrats, you have just bought your first NFT! You can now view it in your wallet or on the marketplace you used.
How to Sell NFTs After Buying
Once you have purchased an NFT, the process to sell is also simple. Using OpenSea or other NFT marketplaces, you can go to your profile, select the NFT you wish to sell, and then click the sell button.
You will likely have to approve the NFT to be sold. This gives permission to the marketplace to interact with your NFT and has to be done for every NFT collection once.
Once you click the sell button, the NFT is listed on the open market. If the NFT sells, you will automatically receive the cryptocurrency in your wallet.
Sometimes you will get bids on your NFT. You can choose to accept them before they expire, but make sure to check the floor price before accepting, as most bids are below the floor price.
Check out our guide on how to save money when selling NFTs on OpenSea to avoid overpaying for gas fees.
Why Buy an NFT?
Through NFTs, you can easily buy digital art and collectibles on digital marketplaces. NFTs are verifiable and tradable using blockchain technology. Buying an NFT is the easiest opportunity for you to experience digital ownership while also becoming involved in a community of your choice. As Punk6529 once tweeted, “once you have tasted true digital ownership, there is no going back."
Profile picture NFTs are a great way to become integrated into the evolving internet culture. If you are interested in video games, play-to-earn games and NFTs are a great way to become more experienced with crypto.
Artists and creators are seeing NFTs as a new way to reach larger audiences and retain ownership over their work. Smart contracts allow artists to earn continued royalties by writing contracts that ensure they earn a fee every time their work is transferred. Creators can even leverage NFTs to provide exclusive content to their audience and biggest fans.
How Are NFTs Valued?
NFT prices are notoriously speculative, but as the market has matured there are several factors that investors consider when valuing an NFT. Team, utility, rarity, and market fit all play a role in the underlying value of an NFT. Also, consistent secondary volume is crucial for an NFT project to retain demand and value. Before purchasing an NFT, it is important to understand how the previously mentioned factors will impact each NFT’s value and secondary sales volume.
Digital one-of-one art and collectible NFTs are valued similarly to their physical counterparts. The artist’s reputation and previous work largely factor into the value of the NFT. However, a best practice when buying digital art is to make sure you actually like the art and are not buying the piece because of its current price tag.
Gaming assets are valued mostly by their in-game utility or rarity in the particular game’s ecosystem. If the game is released and playable, the metrics are easier to value directly. If the NFT project is releasing a collection with the intention to raise the funds to make the game, then the value of the gaming NFT is based on its expected utility and strength of the team. Be cautious when buying an NFT for an unreleased game as there is no guarantee that the team will follow through with a quality product or that demand will exist many months in the future.
Identity and PFP projects are the trickiest to value because they are built around the concepts of social capital and status. It is vital for these types of projects to have a professional team because you are relying on them to cultivate a strong brand around the NFT. Bored Ape Yacht Club (BAYC) is an example of an NFT project with incredible social capital as its value is largely derived from the status it gives its holders. PFP NFTs often still require some form of utility to obtain more social capital. This is often accomplished through partnerships with other projects or promises of future token drops.
Access passes are probably the easiest NFT to value. Teams or companies can offer access to events with NFTs. For example, Coachella recently dropped an NFT that offered lifetime access. An individual can easily calculate the annual cost of attending Coachella to determine if the NFT is properly valued.
Finally, one must always consider market conditions when valuing NFTs. Noteworthy projects have begun to be acquired by other major players in the NFT space, so investors may want to include acquisition potential in their valuation analysis. Understanding market narratives comes with experience, so don't be surprised if you make a few mistakes along the way.
Pros and Cons of Buying NFTs
To help summarize everything we covered, below is a list of the pros and cons of buying an NFT.
Advantages of Buying NFTs
- NFTs make it exceptionally easy to buy and sell digital assets or art.
- Digital ownership is verifiable on a public blockchain, helping you to ensure that you are not buying a counterfeit.
- Gaming assets can be sold to other players, allowing current players to extract value from the game once they have finished playing.
- Art and collectibles are able to reach a worldwide audience on a digital marketplace.
- Buying an NFT supports digital creators.
Drawbacks of Buying NFTs
- The NFT industry is young and speculation can cause high volatility.
- Expensive prices can create barriers to entry for high-quality projects.
- Scams are plentiful. Always take the necessary steps to protect your assets.
Now that you know how to buy an NFT, you're well on your way to becoming an NFT collector. For more how-to guides, be sure to visit the "Learn" section of our Lucky Trader articles page. To stay on top of the latest NFT news updates, check out our Lucky Trader Posts & Updates page.