How to Invest in NFTs? A Complete Step-by-Step Guide
It’s an exciting time to invest in NFTs. Although non-fungible tokens were virtually unknown until two years back, now they have become the talk of the town. If you’re interested in investing in NFTs and want to know how to do it, this guide is for you.
Should you be investing in NFTs?
NFT is part of the larger crypto market, and it’s still an evolving domain. Over the years, the apprehension surrounding cryptocurrency and decentralized financial systems has faded. However, NFTs are still new, so the general awareness is relatively low. Indeed, it has gained much traction in just two years, but its future is still uncertain.
Since the value of NFTs is subjective, much like art, it’s difficult to predict how the future will take shape. Moreover, there isn’t enough history to provide sufficient data to extrapolate its growth. There is no denying that NFTs are a risky investment as these tokens are subject to market volatility.
Hence, investing in an NFT is ultimately a personal choice. For opportunistic investors or enthusiastic collectors who want to own a rare piece of digital art, it makes sense to invest in NFTs. The nature of NFTs guarantees that there can never be any duplicates or reiterations of the digital asset. However, NFTs are not without scams or fraudulent practices. It takes due diligence on the buyers’ part to ensure that they are buying an authentic digital asset and not a dupe.
New practices like NFT staking, farming, and renting are bringing more opportunities for creators and buyers. These practices enable investors to earn incentives without selling their NFTs. The capital gains on NFTs are prone to fluctuations because the market is mainly speculative in nature.
It’s crucial to understand that not every NFT will be a million-dollar investment. Some may appreciate in value, while others depreciate over time. Trading a popular NFT for a higher price is not that difficult. However, to maximize your ROI, you have to choose carefully and know how to tap into the true potential of these non-fungible tokens.
With everything said, NFTs in their current state are a hot commodity that is worth investing in. However, you should always do your research, be aware of the risks, and keep track of all developments in order to make higher capital gains from NFT sales.
How to invest in NFTs?
An NFT can be a digital representation of any physical item. It can be a piece of art, real estate, music video, or even a GIF. These digital assets can be bought and sold at any verified NFT marketplace.
NFT marketplace operates like a stock exchange platform wherein investors can sell their assets or buy new collectibles through cryptocurrency payment. Therefore, these platforms operate much like a stock exchange, but instead of stocks, they trade in NFTs.
like UPYO which is considered to be the first and largest Arabic Platform for trading in NFTs.
To invest in NFTs, you need three essential elements: A crypto wallet service.Cryptocurrencies.NFT marketplace.
Most of the NFT platforms today support Ethereum blockchain. Hence, you will need a digital wallet that supports Ethereum and some ether (the native token of Ethereum) to buy new NFTs. However, other options are out there that support other blockchains like Binance Smart Chain, Polygon, Tron, Polkadot, Tezos, EOS, Cosmos, etc.
Depending on which marketplace you choose, you will need to find a wallet compatible with the platform and buy tokens from a blockchain supported by the platform.
Follow the steps below to invest in an NFT:
Create a digital wallet:
You need a digital wallet to carry out different types of crypto transactions. Whenever you’re buying or selling an NFT, a functioning crypto wallet is mandatory. Some wallets have the feature to store NFTs in addition to your cryptocurrencies. Know how to create a Metamask wallet from here.
Moreover, specific digital wallets support only one blockchain while others support multiple blockchains. The best digital wallet services in the market today include: MetaMaskCoinbase WalletAlphaWalletMath WalletTrust WalletEnjin Wallet
Each of these wallet services has its advantages and disadvantages. While shopping for a crypto wallet, you must choose wisely. Some features to look for when finding wallet services are:
Security- A digital wallet must have robust security measures to protect your crypto tokens and assets. Therefore, top security features are one of the most important aspects when selecting a wallet. Digital wallets with a two-step verification process offer superior protection in comparison to the basic verification process.
User-friendliness- A user-friendly interface is always a bonus as it enhances the customer’s overall experience. An optimized user interface can be the difference between enjoying the wallet service or abandoning it altogether. A good wallet service is one that is feature-rich in addition to being easy-to-use.
Multi-currency support- It’s always better to opt for wallet services that support multiple cryptocurrencies. These wallets enable you to buy different blockchain tokens, thus allowing you to invest in diverse NFTs across multiple NFT marketplaces.
Cross-device functionality- One characteristic to look for when shopping for a digital wallet is cross-device functionality. A wallet that is supported on multiple devices enhances accessibility and customer experience. A multiple platform wallet service can be easily accessed through a mobile device or tablet, allowing users to purchase NFTs from any device, anywhere, at any time.
To set up your wallet, you need to go to the wallet application and select the “Create a Wallet” option. Upon clicking the “Create” button, you will have to update personal details like username, email address, password, phone number, etc. Once all details are provided, you will receive a “Seed Phrase,” which is a random 12 alphanumeric phrase.
The seed phrase enables you to recover your account if you lose your password. Hence, you must store the seed phrase securely, as losing it will prevent you from accessing your account in the future. Follow all the prompts on the screen and accept the terms of service to set up and activate your wallet account. After these steps are completed, your wallet will be ready for buying, selling, transferring, and storing digital coins and currency.
Once your wallet is set up, you need to transfer funds to operate it. You have the option of buying cryptocurrency directly from the wallet or buying it from a crypto exchange platform. Purchasing digital coins from wallet services has higher transaction fees. It’s best to buy cryptocurrency from an exchange platform and transfer the tokens to your wallet. You will need sufficient cryptocurrency to pay the various platform and gas fees.
Select an NFT marketplace:
The next step is to review and choose an NFT marketplace. Many new NFT platforms have entered the market in the last two years. Each platform has unique collections of NFTs; some offer a variety of categories while others specialize in a single type of NFT.
Moreover, these marketplaces have different features and incentives. So, research and analyze them before selecting one platform.
The critical thing to look for when choosing an NFT marketplace is the blockchain networks and wallet services it supports. Your digital wallet must be supported by the marketplace so that you can carry out transactions. So, always check whether your wallet service is compatible with the platform of your choice.
The majority of marketplaces available online support Ethereum based NFTs; however, there are few that support other blockchains as well. Moreover, other components such as security features, platform fees, user interface, etc., should be considered when choosing an NFT marketplace.
Pick an NFT to buy:
After you have selected a marketplace, it’s time to review the collection and pick an NFT to invest in. Selecting an NFT will take research and scrutiny on your part as an investor. You need to have a comprehensive knowledge of the market trends, knowledge of NFT drops, famous artists, trending NFT categories, sought-after digital items, etc., to make a sound investment.
On most platforms, you will find top-rated collections from popular companies and solo artists as a dedicated section. You can choose one digital asset that matches your taste. The safer bet is to always invest in unique pieces from well-known creators, as these will likely appreciate over time and have a higher resale value.
Pay the asking price:
Creators might choose to sell their NFT collection directly or through an auction. You can click on the “Buy” option for a direct sale and pay the price through your wallet. If the NFT is being sold in an auction, you must place a bid to purchase the NFT.
The auction can be limited or unlimited. The difference between both is that limited auctions are time-bound, whereas unlimited bids are open-ended. In limited auctions, the auction ends when the timer runs out. On the other hand, in an unlimited auction, bids are allowed till the owner chooses to accept one. Such auctions have no time limits.
To submit a bid, you have to enter the amount of cryptocurrency you wish to spend on the NFT. Keep in mind that your offer must be equal to or higher than the reserve price. If your bid is approved, you must transfer the agreed amount to the original owner.
When the transaction is completed, it will automatically reflect on your wallet. After the transaction, you will become the sole owner of the NFT. You may either retain the NFT or sell it for a profit.
Here is how you can invest in an NFT from UPYO: Connect your crypto wallet to UPYO. Select an NFT from the platform. If it’s a direct sale NFT, click the “Buy” button. If it’s an auction, place a bid. Enable the transaction from your wallet. If you win the auction, NFT will be transferred to you. Check your UPYO collection and wallet to verify that the new NFT has been added.
How to incentivize NFTs?
One of the obvious ways to earn money through NFTs is to sell or trade them. However, there are other ways to incentivize NFTs without selling them. Here are four ways to earn passive income from your NFTs:
NFT staking allows users to safeguard the blockchain network in return for earning incentives for participating. While some staking platforms let you use a variety of NFTs, others require you to buy native NFTs in order to gain token payouts.
NFT holders can deposit or lock up their NFTs on specialized platforms and get rewards based on the annual percentage yield (APY) and the number of NFTs staked. It’s vital to remember that not all NFTs can be staked for rewards. However, for those NFTs that can be staked, owners can earn different incentives, including tokens, new NFTs, fiat money, airdrops, etc.
Part of the benefits of NFT staking is that it provides stakeholders governance tokens in some instances. These protocols provide token holders voting rights over how their ecosystems grow in the future. Coins or tokens obtained through staking NFTs may often be reinvested into other yield-generating protocols.
Renting out NFTs, especially ones in great demand is another method to generate passive revenue. Some card trading games enable players to borrow NFT cards to increase their chances of winning. Emerging platforms like ReNFT, Vera, and Trava allow users to rent or lend NFTs to earn passive income.
Usually, NFT customers have the choice to select their chosen rental agreement period and NFT leasing rate. In NFT renting, smart contracts manage the parameters of the arrangement between the two parties involved. These contracts include pertinent information such as the rental period, expiration details, requisite collateral, and other terms and conditions.
The smart contract runs its cycle and returns the NFT to its original owner when the contract expires. The collateral is subsequently returned to the borrower at the end of the NFT loan period.
Owners and creators may put their assets to work by activating NFT lending and borrowing capabilities. Furthermore, with the advent of new collateral-free NFT rentals, owners can rest assured that their original asset is protected in a smart contract rather than in the hands of the borrower.
The advantage of NFTs is that it allows creators to determine royalty percentage if their original asset is resold on secondary marketplaces. A certain percentage of the overall cost is transferred to the original owner whenever the asset is sold. In other words, recursive selling will help owners earn money in the form of royalty.
Most marketplaces enable creators to set the royalty percentage (usually up to 10%). For example, if a user mints an NFT art and lists it on the marketplace at a 10% royalty fee, they will always get 10% of every transaction that involves the specified art. This is the creation and maintenance of an environment that allows individuals to benefit from the crypto ecosystem.
NFT-based Yield Farming:
Yield farming, also known as liquidity mining, generates a return on digital assets by securing them as a stake or deposit in a DeFi trading or lending pool to serve as a liquidity provider. Yield farming essentially integrates several DeFi protocols to create the maximum potential yield from different types of digital assets.
In the DeFi markets, “NFT farming” is a new means of making money. NFTs may be used to earn tokens, providing usefulness and increasing liquidity for non-fungible digital assets. NFT farming is now most common in blockchain games, where players stake in-game items and collectibles in exchange for tokens or vice versa.
Axie Infinity is a blockchain-based game that includes NFT farming. Players gain SLP tokens in this Ethereum-based game, which they can then use to create new Axies and mint NFTs. Other examples include Aavegotchi, Mobox, and SuperFarm, which offer NFT farming to their users.
NFTs are popular because they provide a unique opportunity for creators to earn money and also give investors the sense of owning a valuable piece of digital work. These distinct characteristics of NFT make it a desirable collectible for many.
Everyone is creating or investing in NFT assets, from celebrities to big companies. While it is unlikely that NFTs will replace traditional assets like equity, real estate, gold, debt, etc., they are an excellent investment for short-term capital gains.
Whether you wish to learn about NFT, Blockchain, Web3.0, Metaverse, or other emerging technologies, we have the vital resources that will enlighten and help you make an informed decision.
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