Non-fungible tokens (NFTs) have driven an incredible amount of hype in the cryptocurrency community. NFT technology enables developers to build collectibles on the blockchain, making them open for anyone around the world to trade easily. Some of the top projects are even being labeled “blue chips” like the big tech stocks.
Decentralized NFT marketplaces like OpenSea have quickly become some of the most popular applications on Ethereum. Some NFT traders are more focused on the technology, impressed at what they call the next great medium of art. However, it seems like most investors only care about the profit potential. That is entirely reasonable because they have made a lot of people inordinately wealthy.
What are NFTs?
When most people hear about NFTs for the first time they are inevitably confused. Even when they learn what the acronym stands for — non-fungible token — it doesn’t help much. But it's quite simple as soon as you know what fungible means. Fungible describes anything that is mutually interchangeable, like a dollar bill or a bar of gold. Non-fungible simply means that something is unique and can’t be easily replaced with a similar thing or asset.
Examples of non-fungible items include houses, used cars and CryptoPunks. So a non-fungible token is just a unique, irreplaceable placeholder on a blockchain leading to a piece of art or a profile picture. Most of the top NFT collections are on the Ethereum blockchain, but competitors like Solana have quickly growing ecosystems, too.
Most of the top NFT collections today are profile pictures or art of some kind, but a few projects are pushing the envelope. Recently, an NFT-based game called Axie Infinity exploded onto the cryptocurrency scene and has 10s of thousands of players every month. In the game, you can make money by battling with your NFT creatures, and you can breed them to make more NFTs.
The concept of pay-to-earn games like Axie Infinity may soon take over the NFT space, overshadowing many of the collecting-focused projects. It’s immensely exciting to see innovative developers constantly building new functionality for NFTs. The NFT landscape may be drastically different and improved in a matter of years or even months.
Top NFT Collections
A majority of the interest in NFTs is concentrated in a few dozen projects, with a few towering over the rest in popularity. CryptoPunks is the highest-value NFT collection by far and for good reason. It was one of the first crypto-collectibles projects ever and was released in 2017. A 2-man software development team called Larva Labs built the collection and pioneered the standard most NFTs use today.
Anyone who wanted to grab one of the 9,000 released CryptoPunks (out of 10,000) could get one for free until they were sold out. They were all randomly generated using a few dozen characteristics, some of which are exceptionally rare. No one had any idea back then what heights the project would reach. Now some of the rarest Punks sell for millions of dollars each and could potentially sell for 10s of millions in the future.
A large portion of the top NFT projects are similar to CryptoPunks in that they are great profile pictures for social media accounts. Many investors like to show off their collection and wealth, and these projects are the perfect solution.
The Bored Ape Yacht Club is one of the most popular collections, made up of randomly generated apes with a fun and unique art style. This trend led to developers and artists teaming up to make similar collections with nearly every animal you can think of. Pudgy Penguins and Cool Cats are only 2 of the long list of successful projects that benefited from the profile picture hysteria.
NFT Prices and Price Floors
The prices of NFTs can range from basically zero to 10s of millions of dollars depending on the NFT and the collection it’s in. New collections from lesser-known creators will often sell for cheap because the artist isn’t too popular. Collectors of NFTs are not much different than those who collect physical items like baseball cards or stamps, they both want rare and sought-after items.
Because CryptoPunks are the most sought-after collection, the rarest Punks have sold for up to $7.58 million. It seems that the prices have risen dramatically since this sale, too, and that same Punk has an offer for more than $111 million. Whoever owns it apparently thinks it's worth more than that! Bored Apes are also ridiculously expensive, and you can’t get one for less than 38 Ether (about $115,000). If you’re looking for a much cheaper project, some of the most interesting are Art Blocks Playground and Galactic Apes.
One of the most important terms to understand when trading NFTs is floor price, although it can sometimes be misleading. The floor price of a project is simply the asking price of its cheapest NFT on sale. It is often used to get a general idea as to the base value of an average or below average rarity item in the collection. However, it can be manipulated by investors buying up all the cheapest NFTs. It can also be misleading if there is one item on sale much lower than the rest.
How to Buy NFTs.
Looking for the easiest way to start investing in NFTs? Look no further than this 3-step guide.
- Open an online account.
Before you can buy any NFTs, you will need some cryptocurrency to trade them for. Most of the top projects can be bought with Ethereum (ETH). Luckily, nearly all cryptocurrency exchanges offer Ethereum trading because it’s the 2nd-largest crypto. Some brokerage apps even offer it.
Some of the best trading platforms include Coinbase, eToro, Voyager, Robinhood, Webull and Crypto.com. Before you can start trading cryptos on any of these platforms you will need to verify your identity. This usually requires you to provide your address, Social Security number and a picture of your driver’s license or other valid government ID.
- Buy a wallet (optional).
You absolutely will need a wallet to buy NFTs, but you might not need to buy one. Buying regular cryptos doesn’t require a wallet because you can store them on the exchange you bought them on. The top NFT marketplaces like OpenSea and Rarible make you connect a separate wallet. There are 2 main kinds of cryptocurrency and NFT personal wallets: hardware and software. Software wallets are generally free, easy to use and perfect for day-to-day trading. Hardware wallets are significantly more secure because they are kept completely offline but can be a bit clunky to use.
- Make your purchase.
Once you have transferred the crypto you need to buy an NFT to your wallet, navigate to OpenSea. If you are using Coinbase Wallet you use OpenSea in the DApp browser tab. Find the NFT you want to buy and click “Buy Now” and then “Check Out.” Your wallet will generate a transaction, and now all you need to do is click accept in your wallet. As soon as the transaction goes through, your NFT will arrive in your wallet.
Bonus section: NFTs are extremely volatile so beware of large price swings. Also, if the crypto market rises or drops dramatically the NFT market could follow its general movements.
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Cryptocurrency Wallets For NFTs
Best Hardware Wallet: Ledger
Ledger is the largest and most popular hardware wallet brand in the world. The company produces 2 incredibly secure hardware wallets: the Ledger Nano S and Ledger Nano X.
The Nano S is the simpler model with all the security you need to keep your NFTs and cryptos safe. The Nano X adds a larger screen and even has Bluetooth functionality to help eliminate much of the clunkiness hardware wallets can have. Both devices have the same certified secure chip where your information is encrypted and stored safely.
If you are worried about losing your NFTs, cryptos or both to a hack, either of these wallets should help bring you peace of mind.
Best Software Wallet: Coinbase Wallet
Many investors get the best of both worlds of personal wallets by using a hardware and a software wallet. A hardware wallet is perfect for long-term storage of most of your portfolio, and a software wallet makes your day-to-day trading a breeze. One of the best software wallets on the market is Coinbase Wallet. It is available as a mobile application on iOS and Android devices.
The app has more functionality than most of its competitors, and it makes buying NFTs simple. It has a useful decentralized application (DApp) browser where you can find an NFT market like OpenSea and buy some collectibles. It also has a place to store your NFTs, and you can even buy cryptos with fiat currency like U.S. dollars or swap for other cryptos.
Current Crypto Prices
The crypto market is still teetering at an important inflection point. The community is still unsure whether the bull market of 2020-2021 is over or not. It’s impossible to tell at this point, but the recent rally that began in July brought the market closer to all-time highs. Both Bitcoin (BTC) and Ethereum have been bouncing back and forth in between important support and resistance levels for the past few weeks. If they both break through either up or down, it could be a sign of what is to come.
Are NFTs a Good Investment?
Some NFTs have made absolutely unbelievable investments. If you managed to get a CryptoPunk or 2 for free a few years ago and held on to it until now, you could be a millionaire. However, most projects will not come close to the success that CryptoPunks experienced, and you may lose your investment. NFTs are incredibly volatile and any investments you make with them should fit your personal risk tolerance.
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