8 Things To Look For When Buying An NFT

nonfungible token scaled 8 Things To Look For When Buying An NFT

NFTs (aka Non-Fungible Tokens) have taken the crypto world by storm over the last year. Most importantly though, is the fact that they are rapidly moving into the mainstream world. Celebrities like Justin Beiber, Lione Messi, Eminem, Venus Williams, Jimmy Fallon… the list goes on. Not to mention the whole host of companies leaning into NFTs, including McDonald’s, Nike, Coca Cola, Taco Bell, and the NBA.

This level of mass adoption has changed NFTs from a niche new trend in the crypto community to a huge investment opportunity for companies and individuals.

That being said, like any new cryptocurrency project, a lot of these NFTs are either mass-produced junk, a scam, or a project with no artistic vision or utility. As such, we will see 99% of these new projects that are popping up, quickly falling back down to being worth nothing.

The question is, how do we separate the next big NFT, from the next big flop? I will dive into the main 8 things you should consider before jumping into the NFT market. Whether you are an investor or a collector, you don’t want to end up buying a worthless piece of computer-generated “art” that a 12-year-old created in 15 minutes!

Source: BBC

8 Important Points To Consider Before Buying Your First NFT

Consider these top points before you spend your hard-earned money on a digital asset.

1. Utility

The first and most crucial question to ask is, “What is the purpose of this NFT?”

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    The answer will usually fall into one of the following categories:

    Art

    This is simple, the project itself has no utility apart from being a piece of digital art. It is traditional art, brought on to a blockchain. 

    It is hard to always judge and value a piece of art, in traditional art, it can take buyers years to get an understanding and an appreciation, so you can’t expect to do this overnight. This article will cover signs and signals to look for, but two important things to consider – Has this NFT been mass-generated by a computer?

    “Artists” are paying people on Fiverr to create thousands of art with minor variations. Usually, if you see that the NFT is 1 of 10,000, it’s a sign that it is mass-produced and is not unique or special.

    The second thing to consider is the artist. Just like in the traditional world of art, people will buy pieces just because of the artist’s former work or reputation. So do a little digging into their past projects. The NFT market is developing day by day. The development of these NFT markets encourages a variety of services such as NFT friendly website development, website regular updates for the NFT marketplace, blockchain development, etc. It’s very important to have an NFT friendly website that a professional NFT Agency can handle.

    Metaverse

    By now, you will have heard of the Metaverse. Facebook has even changed its name to reflect it. NFTs in the metaverse will be digital items like cars, fashion, or land that you hold and own in a digital world.

    First, it is important to understand what digital real estate is and its significance going forward. The best way is to think of the film Ready Player One. Blockchain companies like Wilder World and Decentraland are looking to build digital universes. If any of these universes are accepted and adopted, the NFT assets held within them will see a huge jump in value.

    If a metaverse becomes one that everyone uses, imagine holding a mansion in the heart of LA? It sounds silly now, but it could be worth (and in some cases already have sold for) millions.

    Source: FT.com

    Gaming

    Like the metaverse, NFT gaming tokens and their value will rely on if the game is adopted and played. Recently Axie Infinity and the NFT characters in it saw a 100x explosion in price. We have seen a wave of new games being launched with NFT characters to buy.

    Many will never release a game and are just money grabs, so it is essential to understand what the game offers and whether it has a working product that you can test. Getting in early though can be incredibly lucrative.

    Event/Entry Tickets

    By purchasing certain NFTs, you will be granted access to online events (or sometimes physical events) or access to “VIP clubs.” These will probably not see the highest returns unless the exclusivity aspect takes off. These are a highly speculative class of NFT and one that I would avoid unless you actually want to use them as an entry ticket!

    Music And Media

    Recently the NFT craze has swept over the music industry. Traditionally musicians receive very little for their work, so by attaching their music to NFTs, there is now a novel way to pay the artists directly.

    We have also seen other media being linked to NFTs like Ashton Kutcher and Mila Kunis’sKunis’s recent cartoon Stoner Cats. To watch the show, you first have to buy a Stoner Cat NFT, which acted as your entry to this gated content. They raised over $8M for this, which led cynics to see it as a bit of a cash grab. 

    Trading Cards/Collectibles

    These are the traditional trading cards made digital. The right project could explode, but most are just cashing in on a trend. 

    The NBA project Top Shots has brought famous NBA moments onto a digital platform and monetized them in the form of an NFT. It is hard to say whether these projects will hold long-term value. As with anything NFT related, there has been hysteria around them, gobbling up whatever can be bought, but in terms of long-term value, people will likely get bored and move on. It is a niche project that, in all likelihood, will not have enough buyers to sustain it.

    2. Artist And Team Behind The NFT

    This is still one of the best measures of an NFT’sNFT’s future success. Do some research into the artist or team who created it. What is their track record? If they have had previous successful projects, or are highly coveted in the space, then their next collection will usually attract the same attention.

    Of course, this can make it hard to get one as if everything popular is being snapped up, so dig deep. Look for a niche artist with loyal fans.

    More importantly, the artist and team should genuinely care about what they are creating. So often, you see mass-generated rubbish copying the latest trend. True artists and teams have a vision, roadmap, and artistic integrity. Whether it is art, gaming, or metaverse, if you dig deep, you will better understand the project and the people behind it.

    Source: The Guardian

    3. Platform And Token 

    You can buy NFTs on a whole host of different platforms, whether Opensea, Solsea, Super Rare, Binance NFT, etc.

    Before doing so, you need to ask yourself a few questions about which is the best NFT marketplace for you:

    1. What is the liquidity like on the platform? If there isn’t much, you will struggle to find a seller down the line. You will also be limited in what you can buy.
    2. What blockchain is it built on? If it is Ethereum, the fees will be incredibly high, so buying a cheap NFT won’t be worth it. Platforms that run on Solana or Binance Smart Chain will have lower transfer fees.
    3. What are the platform’s transaction fees? Some are fixed, some are percentages of the sale, but you should make sure you know before committing.

    The answers will somewhat rely on your budget and what you are looking for.

    4. Metrics

    This is one area that is often overlooked. NFTs look like art, but they are still just digital tokens like cryptocurrencies. By diving into the token’s metric, you can better understand its value and ecosystem.

    Things to look for are:

    Owner % – This is the number of holders / total number of pieces. So if 5,000 unique people hold a collection of 10,000 pieces, then the owner % is 50%. The higher the better as it shows wider interest.

    Activity over time – This shows that it is not a passing fad. Look at growth charts and the floor price to ensure it moves upwards.

    Market Cap – This is the total value of all the tokens (estimated). This will give you an idea of its overall value and whether it may be too late to buy.

    All of these can be checked on Rarity Tools.

    5. Authenticity

    A simple point, but one that has caught people out. You need to verify that the NFT you are buying is, in fact, part of the collection. Sometimes some copycats mimic real collections and dupe people into buying them cheaply. They usually get removed by the platform, but not always in time.

    6. Virality

    At the moment the NFTs that see the biggest climb in value are the ones that are based on viral trends in the media. The more hyped and relevant the project, the more likely it will increase in value initially.

    That being said, these projects usually go to zero. So if you are lucky enough to get in early and buy one, I would advise you to get out as soon as you can, usually with a quick profit.

    Source: CNet

    7. Community

    This is another metric that is often overlooked. The community is the best indicator of the passion and belief behind the project. Go on the project’s telegram or discord group. If it is a bunch of people talking about the price or saying “wen moon,” then avoid it!

    If people are active and talking about the function, improvements, and the artist, it is usually a big tick!

    8. Rarity

    With nearly all NFT projects, each NFT will have its own rarity in the set. So, for example, with BAYC (Bored Apes Yacht Club), a gold Ape with sunglasses could be in the top 100 rarities out of 10,000. The rarer it is, the fewer NFT’sNFT’s that hold that particular trait.

    Of course, this is just arbitrarily inputted by the collection’s creator, but if the collection takes off, then the rarity matters. You can check the rarity of a particular NFT by going to the specific collection on Rarity Tools and entering the Id of the NFT.

    Usually, if the NFT has gained popularity, the rarity will be factored into the price.

    What Else Should I Consider Before Buying An NFT?

    Where Do I Keep The NFT I Buy?

    You will need to create a crypto wallet to hold the NFT. The wallet you choose will depend on the platform you are using to buy the NFT. If Solsea, you need a wallet that can hold Solana NFTs; if Opensea, then a wallet like Metamask to hold Ethereum and NFTs.

    Can I Buy Them With US Dollars?

    No, most platforms will require you to buy them using cryptocurrency. That being said, many NFT marketplaces are looking to allow fiat (i.e., USD) payments going forward.

    Are You A First Time Investor?

    If this is your first time investing in anything, you may want to consider a more suitable first-time investment for beginners. An investment that is more reliable and less likely to plummet to zero. It doesn’t matter how much research you do, the NFT asset class is volatile and high risk.

    So if you are someone who has never invested before, I would even consider using a roundup money-saving app, which takes your spare change from payments and automatically invests it in funds of your choosing, such as green energy, future food, or electric vehicles.

    It’s a fun and low-risk way to learn about investing without overly exposing yourself.