Learn how to buy and invest in NFTs, with this comprehensive guide. The world of crypto is certainly a confusing one at first, which is why we try and make things simple.
What is an NFT?
NFT means Non-Fungible Token. NFT’s are simply computer code that is stored on a chain of computer universal code, known as a blockchain. When you convert your digital creation (such as PNG image) to an NFT, then a piece of code is stored in the computer code saying you are the creator or owner of that art. Blockchain technology is relatively new, and allows people to track and own digital assets in a secure environment. Lets break down the terminology of Non-Fungible Token, so you have a better understanding of its meaning:
Non-Fungible = Basically means something is unique and cannot be traded for something else. For example, look at our Seal of England NFT below. This is a one-of-a-kind collectible. Therefore, if you traded this Seal of England for a totally different NFT, then you will no longer have that Seal of England NFT. Whereas something that is fungible (such as currency), can be traded for the same value of another currency.
Token = This is the most important term to understand. It means your digital creation is part of a digital code known as a blockchain. It is a unit of cryptographic information that contains specific about the digital creation, such as the time and date of creation, plus the name of the creator. The token also logs the history every time the NFT is transferred to a new owner. Transfers can be done for free, or for a price measured in a digital currency such as Ethereum (ETH). Digital currency can be converted to any normal currency.
Example of an NFT
Below is an example of an NFT, created by us at Crypto Dreams. It is from our Seal of Approval by Crypto Dreams NFT collection. We uploaded this to a popular NFT marketplace called Opensea, which is like an Ebay for NFT trading.
How are NFT’s Created?
There are 3 ways you can create your own NFT. Each depends on your goal:
The NFT Coding Route (If you are a creator)
This is the most complicated root. This is because NFT’s are not just about the art, but also about coding. The official way to create an NFT is to create a smart contract, which is basically a piece of computer code that is deployed to a blockchain. Once on the blockchain, the creator (or anyone else with permission) can interact with it. This is how NFTs are created, also known as minted. There is a lot more to smart contracts then this, but this is a basic overview.
NFT Coding Route Pros:
- Creating your own contract sets rules for the digital asset, making it more trustworthy. But only if you know what you are doing.
- You can select what kind of token standard you want to create. For example, most NFT’s are created to token standard ERC-731, which is considered the best at the time of writing this article.
- You can deply a contract to whatever network you like. At crypto dreams we always deploy to the Ethereum network.
NFT Coding Route Cons:
- Requires coding knowledge regarding smart contracts and meta data.
- Requires knowledge of exactly how NFTs work, such as how they are displayed on marketplaces like Opensea.
- Is expensive to deploy contracts and mint tokens. You have to pay for something called gas, which is the cost to process data on the network.
Lazy NFT Route (If you are a creator)
NFT marketplaces such as Opensea do offer a lazy minting option. This is not obvious becuase they do not call it this. When you first open an account with opensea, you will have the option to upload images to your profile. You can even make a collection. However, do not assume you are creating an NFT by using this technique. The act of doing this is called lazy minting. The image you upload only becomes an NFT is someone actually buys it.
Lazy NFT Route Pros:
- You do not need coding knowledge.
- Can save you alot of time.
Lazy NFT Route Cons:
- Once you uploaded your image to a platform like Opensea, it is not an NFT. It only becomes an NFT when someone buys it.
- You cannot set rules of transaction regarding your image you just uploaded.
- On Opensea, the lazy minting route sets your token to standard ERC-1155, which we believe is not as good as ERC-731.
Buying an NFT (as an investor)
This is probably the easiest way to own an NFT. After signing up to an NFT marketplace such as Opensea, you can bid or buy NFT’s easily. After purchasing an NFT, it will mean you are then the official owner of that token. You can then decide to keep it, or sell it on in the future.
NFT’S and Copyright
Many people get confused when it comes to NFT’s and copyright. You should treat copyright laws the same with another type of artwork. This mean if an artist creates a new piece of artwork, they will automatically acquire a copyright of that new artwork.
What is a Blockchain?
Put simply, a blockchain is an increasing list of records known as blocks. The chain parts refer to this list being serial, meaning one item after another. All blocks are linked together using computer code (cryptography). Each block contains specific data, such as times, dates, creators, owners, etc. This data is incredibly accurate, and can prove the time, date and creator for any NFT art piece on the blockchain. The blockchain system is very reliable, as each block contains information about the block previous to it. This means the system always knows for certain the ownership of any given NFT. Blockchains are therefore very resistant to modification. This is why people are willing to invest in NFT’s due to the robust ownership structure.
Differences between NFT and Bitcoin
Bitcoin is not a physical currency like traditional money, but instead exists digitally. It lives within a blockchain code like we talked about above. The main difference if that digital currencies like Bitcoin are fungible tokens. Fungible means it can be replaced with the copy. This means bitcoins can be exchanged for other items of a simular value. People choose to invest in bitcoin for the same reasons they invest in NFT, they beleive the value will increase over time. Investopedia talks about bitcoins enormous price increase throughout the last decade. We beleive NFT’s will follow the same trend, especially with the up and coming metaverse.
Why people would Sell you an NFTs
When learning how to buy and invest in NFTs, it is important to know why people are selling them. NFT sales is no different from online sales as a whole. It is an exchange of value. So the seller get money in the form of a crypto currency. You the buyer gets the value your NFT provides. The value of the NFT depends on what it is, and what the person likes. People may buy an NFT as a collectible, investment, or something to show off to friends and family. It is a form of bragging rights, as you can say you own that piece of art.
Why Invest in NFTs
Just like bitcoin, NFTs are a volatile market which comes with its own risks. It is best to treat NFTs like a stock market investment. And just like the stock market, you would probably look at the NFT creators goals, social media, enthusiasm and professionalism. The value of art is also very subjective, as it can have different value depending on who is viewing it. You should always ask yourself questions if you are thinking of buying an NFT. Such as, will this NFT to worth something in the future? or Do I like this NFT so much, I want to prove I own and collected it.
| REASONS TO INVEST | REASONS NOT TO INVEST |
| NFT ownership can be proven | Hard to choose what NFTs will be worth more in the future |
| Anyone can invest in NFTs | The NFT you want may be too expensive |
| It is exciting | You may have trouble understanding what it’s about |
| The metaverse is likely to increase the value of NFTs |
How to Buy and Invest in NFTs
Investing in NFTs is also to buy them. There are many NFT market places around on the internet, but we recomend you start your journey with Opensea. This is an internet based NFT platform that allow buying and sellers of NFT art to come together, and make digital transactions. Opensea is like an ebay for NFT artwork. Both sellers and buying need to create a digital wallet so they can login to Opensea.
Opensea Investing Tips
Tip 1: There are 3 ways you can purchase NFTs on Opensea. You can bid at auction, make an offer, or buy it now.
Tip 2: Floor price means the cheapest an item is within that collection.
Tip 3: You can convert Ethereum into any currency using this Ethereum converter.
Tip 4: Opensea creates NFTs on the ERC-1155 blockchain as standard. ERC-1155 is the latest standard for NFT’s when this article was published. However, ERC-731 is the most preferred standard.
Tip 5: Always check the person or business selling the NFT. Good ones usually have a website, and good social media presence.
Tip 6: Click the heart (like) button on images that you want to come back to in the future. They will be added to your watchlist.
The Bottom Line
You should now know How to Buy and Invest in NFTs. If you really enjoyed this article and would like us to write about a similar subject, please reach out to us at info@cryptodreams.co.uk. You can also visit the Crypto Dreams homepage which tells you more about us.
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