5 Things You Need To Understand Before Investing in Cardano NFTs
Forewarned is forearmed
So you’ve decided you want to give Cardano NFTs (CNFTs) a go.
Well, you have come to the right place. Through these articles, I’m looking to provide the key steps to get you started on your CNFT journey.
But before setting up your first wallet and buying CNFTs there are a few things we need to get on the table. This article is a somewhat random set of key points that every CNFT investor needs to understand before diving in.
But it’s best to get them out early. Think of these as a “pre-qualification” checklist for you. If you can’t get your head around one or more of these then it might be CNFTs are not for you.
Enough waffle, let’s dive in.
1) NFTs are an extremely volatile asset class
It may seem obvious, but it’s important to realise that you’re dealing with a very risky asset class.
This volatility is a function of two factors:
- The price of the NFTs themselves is very volatile.
- The underlying crypto they are priced in is also volatile.
So even if the price of your NFT goes up, if the price of crypto crashes, you may still lose out. This applies whether you are trading Cardano NFTs, Ethereum NFTs or Solana NFTs. Any NFTs.
Of course, volatility also brings opportunity for gains. And that is the reason NFTs are so attractive to many people.
But to ensure you protect yourself at the outset it’s best to:
- Never invest more than you can afford to lose. Better still, begin with the mindset that there is a decent probability you may lose it all. Your CNFT portfolio should not be something you need to live on. I once met someone who had to sell an NFT to pay rent. You do not want to be in that situation. Ever.
- Never borrow or leverage up to invest in NFTs. Whilst trading on margin is commonplace in many markets, my view is it is very risky to do so with NFTs. You do not want to be in a situation where you could lose more than you actually own.
2) You may need to accept new forms of social media into your life
Some people love social media platforms; others hate them. Many of you may sit in the middle i.e. you use one or two platforms day-to-day, but don’t have the time to use them all.
Cardano NFT communities exist fundamentally across two major platforms — Discord and Twitter. If you are not on either platform, then you will need to get used to them if you want to get into CNFTs.
Discord is a social messaging platform popular amongst computer gamers. Discord is where the vast majority of CNFT projects host their communities. There they provide a single source of information about the project and a place for the community to interact.
Twitter is an essential resource for finding out new information about projects. Many projects use Twitter as a marketing platform (including running promotions and giveaways). There are also many Twitter Spaces run across the CNFT community where you can discover a host of useful info.
3) People will try to scam you
Sadly, like many walks of life, where there is an opportunity to make money, there is an opportunity to be scammed. The CNFT space is no different, and the scammer feeds off the frenzy, hype and FOMO (fear of missing out) prevalent in the space.
Someone will attempt to scam you at one point or another. Perhaps even several times a day. And, unfortunately, you most likely will fall for it at some point (I speak from painful personal experience).
It’s so important to protect yourself that I plan to do a separate article to lay out some common scams to look out for. For now, suffice it to say:
- Always remain vigilant.
- Never share your wallet seed phrase with anyone (if you don’t know what that is yet, there is another article which covers that here).
- Be suspicious of anyone Direct Messaging (DMing) you via Discord or Twitter.
4) The space does have a few d*ckheads; try not to be one of them!
I should start by saying that the vast majority of people I’ve met across the CNFT space have been awesome. People, by and large, are very helpful and friendly. And I’ve made some great friends by interacting with people over Discord and Twitter.
But like any community, you will find people who throw their toys out of the pram from time to time. Often this is on the back of a mint that has gone wrong. And people, who may have woken up at an awful hour to participate, can understandably get annoyed. Sometimes it is because a project is not progressed fast enough or people disagree on a course of action.
These things do and will happen. My only plea is that you do your best to be patient with others. And in particular, be welcoming to newcomers. Remember that this is still a very new space, people make mistakes and we are all constantly learning. Negativity can put people off which only inhibits growth for us all.
5) Do not assume you are somehow “exempt” from taxes
There is something about the CNFT space, actually, the crypto space in general, that makes some people assume taxes don’t apply. This couldn’t be farther from the truth.
In many regards, blockchain transactions are easier to track and audit than other forms of spending.
The taxes you will be liable for vary depending on where you live and your circumstances. As such I can’t (and won’t dare!) attempt to provide any advice in this domain. But you should be aware that in many jurisdictions you may be liable for certain types of tax for example when you:
- Buy or sell NFTs
- Buy or sell the underlying cryptocurrency (e.g. ADA)
- Receive “free” airdrops
- Receive staking rewards
It is best to keep good records of your activity and plan for this at the outset. There are many tools that can help make this job a lot easier which I’ll cover in the future.
In summary (TLDR)
- NFTs are a highly volatile asset class. Manage your risk and never invest more than you can afford to lose.
- To maximise your experience in CNFTs, you will need to become familiar with Discord and Twitter, if you aren’t already.
- There are many scammers in the CNFT space. Protect yourself from the outset and be vigilant.
- Know that you will encounter some toxic people but do your best to remain positive.
- Like most asset classes, CNFTs are not exempt from taxation in most places. Plan and keep records accordingly.
If you want to access my other content about getting started in CNFTs then head over here.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice.
