How to get started with NFT’s
There’s no hiding from it, everywhere I go I find myself in the corner of a room talking to someone about NFT’s (Non-Fungible Tokens). Who would have thought 12months ago, that we would all be highly esteemed art collectors? Or at least that’s what some of us may think.
But where are NFT’s going? And how accessible are they to the average person?
Before answering this question it would be useful to explain what non-fungible means. Non-Fungible effectively means that it’s unique and cannot be replaced with something else. These non-fungible tokens are then stored on a ledger (blockchain) which helps to verify ownership and authenticity of the asset (Art, Music Literature).
It may feel like NFT’s were first created in 2021, however, as far back as 2014 people were creating NFT’s, and one person claiming to have created the first-ever NFT on Namecoin blockchain, Kevin McCoy recently sold his “Quantum” NFT for $11.8M.
By August 2021, the digital marketplace OpenSea was recording over $3.4 billion in transactions across 1.67 million non-fungible tokens (NFTs) in one month. How long this bull run lasts remains to be seen. But one thing for sure NFT’s are here to stay.
Naturally, the next question is “Yes, but how do I get involved?”
This is where the NFT space gets a little more intricate. There are a number of different ways that NFT’s can be obtained in the market.
- Airdrops: NFT’s sent to your address by the artist or project team for active members of a *community.
Pros: These NFT’s are sometimes given to early adopters for free to promote to the public and gain momentum. These are usually free to receive and it's on the sender to pay the transaction fee. Cons: Can often be hard to find these projects at the early stages and means actively engaging in a project before you know its true potential.
- Whitelist this gives people early access to *mint an NFT usually on the artist's website before it goes out to the public.
Pros: This gives you early access to mint/buy the NFT and avoid *gas wars. Cons: This requires you to engage with the community, answer questions that new members might ask and promote the project to the public.
- Public launch- this is where any member of the public can try and mint/buy an NFT on its public launch date.
Pros: You can buy the NFT at the public launch price and then hopefully sell it on the secondary market at a profit. This is also referred to as the *”floor has risen” from the initial project launch Cons: This can be costly due to gas wars and you may end up paying gas fees without acquiring any NFT.
- Secondary market — this is buying an NFT from someone who has already owned it previously and is now wishing to sell it. The most notable secondary marketplace is Opensea.
Pros: You avoid high gas fees and can buy once you know there is still a demand for the project. Cons: Sometimes by the time they go on the secondary market they can be significantly more expensive than they were in the public launch.
*Community: is usually a place where people discuss the artist's project, engage with other members, and promote the project to the wider public. These groups normally sit on Twitter, Discord, Telegram, and Reddit.
*Gas Wars: This occurs when a significant number of people attempt to get a transaction confirmed in a very short time window. This leads individuals to increase their gas prices subsequently outbidding other individuals. The person with the highest bid will confirm the transaction first and receive the NFT. Think of this as paying to skip the queue.
*Minting: This is the process of validating information, creating a new block, and recording that information on the blockchain.
*Floor Price: The “floor price” in an NFT market is the lowest price of any NFT within a certain category.
Now that we have a better understanding on:
- What NFT’s are?
- Where the community normally engages with each other?
- How we can obtain one?
All that is left is to find an artist or collaboration that we like.
There's no hard science behind what makes one NFT increase in value and another not, but there are some indicators to look out for:
- Artist: Who is the artist? What is their background? are they visible?
- Artist Story: What's the background of the project? what story are they telling?
- Artwork scarcity: How much art will be distributed? this can range from 1–Infinity. It’s on the artist to determine how many will be released.
- Project Utility: Does the art have any utility outside of the NFT? This could be early access to other launches, invites to private events etc.
- Community size and engagement: Is the community engaged in the project and do they continuously talk about it on media channels?
- Volume traded: If the project is on the secondary market is there a lot of buying and selling of the project?
- Floor price: Has the floor price (the lowest price that someone can buy) risen since the launch of the project.
The NFT space can be tricky to navigate in the early stages and can be slightly overwhelming. How you will get access to the NFT of your choice will come down to the trade-offs you are willing to make. These are usually time and money. My advice is to take your time, look around, see what the artist and community are talking about, if you feel they are a right fit and the project has potential you can make a move.
Here are three projects I have recently researched; In my next post, I will talk about some of my experiences trying different approaches.
