NFTs, or Non-fungible tokens, have taken the digital world by storm, offering a new way to buy and sell unique digital assets. While they have been around for some time, the hype they’ve experienced in the last couple of years has been unreal. And it’s a no-brainer that everyone wants a piece of the action.
From artworks to collectibles to virtual real estate, NFTs have opened up a whole new market for digital trading. But it’s important to have a pristine understanding of NFT trading before you dive into this world because of all the financial risks involved. In this guide, we’ll take a complete look at how you can start trading NFTs and the things you need to take care of.
What are NFTs?
Before we get to NFT trading, let’s take a brief look at what NFTs are and how they work for the uninitiated.
NFTs are digital assets that are unique and cannot be replicated or replaced. The non-fungible in their name stands for this property of theirs. Anything that is non-fungible is unique by definition whereas anything that is fungible is easily replaceable. Take, for example, a bitcoin, which is another token that exists in the world of Web3. Every bitcoin is the same. You can exchange one bitcoin for another bitcoin and there’ll be no difference between them, just like you can exchange one $1 note for another. Hence, it is fungible. But NFTs are not.
How Do They Work?
NFTs are built on blockchain technology which ensures that they are one-of-a-kind and cannot be counterfeited. Most NFTs are also executed using smart contracts, which are self-executing contracts. The terms of the agreement between buyer and seller are directly written into lines of code of the contract. This helps facilitate, verify, and enforce the negotiation or performance of a contract.
They can be used to represent a wide range of digital assets, such as art, music, videos, GIFs, in-game items, and even virtual real estate.
You can create an NFT using a process called “minting”. To mint an NFT, the artist or creator uploads their digital asset (such as a piece of art) to a marketplace or platform that supports NFTs. The marketplace then mints the asset, i.e., writes it to the blockchain ledger, creating a unique digital token that represents the asset. Since the token is stored on the blockchain, it becomes one-of-a-kind and cannot be replicated.
Once an NFT is minted, it can be bought and sold like any other asset. The buyer receives the digital token, which gives them ownership of the digital asset. The seller receives payment in the form of cryptocurrency, such as Ethereum.
While this was a super-quick guide to introduce you to NFTs, you can check out our guide on How to make an NFT for in-depth knowledge of NFTs that’ll help you better understand the commodity you want to trade in.
Ways to Trade NFTs
Now, let’s get to the part about trading NFTs. There are several ways you can get into NFT trading, depending on which suits you the most.
- Buying and selling existing NFTs on a marketplace: This might be the most straightforward method from the lot. You can simply buy and sell NFTs on marketplaces such as OpenSea, Rarible, SuperRare, and many more. These platforms allow you to browse through listings of existing NFTs, make purchases, and track prices. The goal is to buy NFTs at a lower price and sell them to someone else at a higher price, bringing in a profit.
- Creating and selling your own NFTs: If you are an artist, musician, or content creator, you can create your own digital assets and mint them as NFTs. You can then list them for sale on a marketplace and earn money from their sales. While many people won’t consider it trading in the conventional sense, it is a way to make money from NFTs, and thus trading nonetheless. Instead of investing your money to buy NFTs, you’re investing your skills and time to create one instead.
- Staking or farming: Some NFT platforms and marketplaces offer opportunities to stake or farm NFTs by holding them for a certain period of time, in exchange for rewards or discounts on future purchases.
- Participating in NFT-related events: In the world of Web3, marketplaces and platforms also organize events like auctions, drops, and challenges where users can participate and win exclusive NFTs.
- Investing in NFT-related projects: Many companies and startups are also using blockchain technology to develop new types of NFTs, such as virtual real estate or gaming items. You can invest in these projects by buying their tokens, which can appreciate in value as the project develops.
Let us now take a detailed look at each of these below so you can dive into the world of NFT trading armed with information and decide which path is the right one for you.
Buying and Selling Existing NFTs
While there’s a lot more to it, at the core of it, it can be explained as a step-by-step process. Here’s a simplified overview of what it entails so you can get an idea of the concept without getting overwhelmed.
- Get a digital cryptocurrency wallet: To trade NFTs, you’ll need a cryptocurrency wallet that supports NFTs. Yes, that is a specific requirement you need to keep in mind; you’ll be surprised to know that not all crypto wallets support NFTs. The wallet should also support the blockchain the NFTs are built on. Popular wallets include MetaMask, Trust Wallet, Ledger Wallet, Enjin Wallet etc. If you have yet to choose a wallet for yourself, check out our guide for top NFT wallets to help you make a decision.
- Buy or earn cryptocurrency: To buy or sell NFTs, you will need to use a cryptocurrency, such as Ethereum, since the majority of NFTs are currently using the Ethereum blockchain. Yes, even to sell NFTs, you need cryptocurrency because of the gas fees required for transactions. You can buy cryptocurrency on a cryptocurrency exchange or earn it through mining or participating in a token sale. Some wallets also let you buy cryptocurrency directly using your credit/ debit card.
- Find a marketplace: The next requirement in NFT trading is choosing a platform where you can perform the said trade. There are many platforms and marketplaces that support NFT trading. Some popular examples include OpenSea, Rarible, and SuperRare. You can browse through the listings and find the NFTs you want to buy or sell. Most of these marketplaces support Ethereum as the underlying blockchain, but new blockchain support is also being added constantly. See our guide on Top NFT marketplaces to decide.
- Browse the marketplace: Browse the marketplace to find NFTs that you are interested in buying or selling. Look for NFTs that match your interests and price range.
- Buy an NFT: Once you’ve found an NFT you want to buy, you can make the purchase using your crypto wallet. You’ll need to buy an NFT to further sell it.
- Monitor your investment: It’s important to monitor your investment so you know when to sell it. NFT marketplaces have a search and filter option to help you to monitor your investments and track the prices and trends of your NFTs.
- Sell an NFT: When you want to sell an NFT, you can list it for sale on a marketplace and set a price. Once the NFT is sold, you will receive payment in the form of the cryptocurrency you listed.
How to Assess the Value of an NFT Before Buying It?
Of course, it’s not so simple; it rarely ever is. The whole thing boils down to which NFTs to buy. How do you make that decision? While there’s no exact science to it, there are a few things that’ll help you assess the value of an NFT and make a decision.
Assessing the value of an NFT can be a challenging task, as their value can be highly speculative and depends on a variety of factors. But here are the things you need to consider when assessing the value of an NFT:
- Rarity and uniqueness: One of the key factors that determine the value of an NFT is its rarity and uniqueness. NFTs that are one-of-a-kind or have a limited supply are typically more valuable than NFTs that are widely available. You can also use certain tools, like rarity.tools, to determine the rarity and scarcity of an NFT.
- Creator or artist reputation: The reputation of the creator or artist behind an NFT is also a factor in determining its value. NFTs created by well-known or highly regarded artists or creators are typically more valuable than NFTs created by unknown or lesser-known artists or creators.
- Utility or Functionality: Some NFTs may have specific functionalities that make them more valuable. For instance, some NFTs may give access to exclusive content or experiences, such as virtual real estate, exclusive in-game items, or access to exclusive events. But keep in mind that NFTs that provide access to exclusive events are only valuable up until the date of the event.
- Historical sales data: By looking at historical sales data of similar NFTs, one can get an idea of how much the NFT is worth. This data is available on the marketplaces and platforms where NFTs are being sold. OpenSea highlights are a good place to make this assessment if you’re using OpenSea.
- Market conditions: The overall market conditions for NFTs can also affect the value of an NFT. When the market is hot, NFTs may be more expensive, and when the market is cool, NFTs may be cheaper. Staying informed on the current market conditions and trends can help you anticipate when the market may be hot and when it may be cool, which can help you time your sales and purchases of NFTs.
Creating and Selling your own NFTs
Another way to get into the NFT trade is to create and mint your own NFTs, instead of buying them, and then list them on a marketplace. To know how you can create an NFT on Ethereuem or how to create it for free (if you don’t want to spend any money until your NFT’s sale), check our separate guides that discuss both topics extensively.
But simply minting an NFT does not guarantee any profits, if at all the NFT would even sell. The bitter truth is, that for most artists or creators, NFTs simply don’t sell.
So, how can you increase the value of your NFT? There are a few ways to potentially increase the value of your NFT:
- Increase rarity and uniqueness: You can increase the value of your NFT by making it more rare or unique. To do this, create a limited edition of the NFT or add new functionality or features to it.
- Build reputation and brand: Building reputation and brand is also an important factor in increasing the value of your NFT. By creating high-quality, unique, and desirable NFTs, you can establish a reputation as a top creator in the space, and this can help increase the value of your NFTs.
- Create a community: Creating a community around your NFTs is a great way to increase the value of your NFTs. By building a loyal following of fans and supporters, you can create a sense of exclusivity and scarcity around your NFTs, which can drive up the value. If you already have a following elsewhere, you can try to bring them to the Web3 space. But keep in mind that it takes time and patience, and there are no guarantees.
- Add more utility and functionality: As mentioned before, some NFTs may have specific functionalities that make them more valuable. By adding more utility, such as access to exclusive content, experiences, or in-game items, you can increase the value of your NFTs.
Selling NFTs you create is not always a given. Even if you have a fan following, there’s no guarantee that they will purchase your NFTs, especially if they’re expensive right away. To test out the waters, you can take a page out of Beeple’s book. He did not sell his first NFT for $69 million right away. It took him time to get there. Instead, he first air-dropped a few of his NFTs for a mere $1 when he first arrived at the scene. And the benefit of NFTs is that if they resell for a higher value later (as it did in Beeple’s case), you get royalties. You can then gradually increase the price of your NFTs after you’ve garnered enough interest in the community and established yourself.
Staking and Farming NFTs
Staking and farming refer to the process of holding and potentially earning a return on a specific type of NFT or a group of NFTs. This process is similar to the concept of staking or farming in cryptocurrency, where holders of certain cryptocurrencies can earn a return by holding and supporting the network.
In the case of NFTs, holders of specific NFTs may be able to earn a return through governance or other types of rewards. It’s important to note that not all NFT projects offer staking or farming rewards, and the specifics of how these rewards are earned can vary greatly between different projects.
But there are a number of NFT projects out there that offer staking rewards. For your convenience, we’ll list some examples of NFT projects that offer them. These include:
- Axie Infinity: A blockchain-based game where players can breed, battle, and trade fantasy creatures called Axies. Players can stake their Axie NFTs to earn rewards in the form of in-game currency, called SLP.
- Sorare: A fantasy football game where players can collect, trade, and manage unique digital player cards. Players can stake their Sorare NFTs to earn rewards in the form of in-game currency and other bonuses.
- Rarible: A marketplace for buying and selling NFTs. Users can stake RARI tokens, the platform’s native token, to earn rewards in the form of discounts on transaction fees and other bonuses.
- SuperRare: A digital art marketplace where artists and collectors can stake the platform’s native token, SRARE, to earn rewards in the form of discounts on transaction fees and other bonuses.
- Decentraland: A virtual world where users can create, experience, and monetize content and applications. Players can stake their LAND NFTs to earn rewards in the form of in-game currency and other bonuses.
Participating in NFT-Related Events
Participating in NFT-related events is another way to trade NFTs as you can acquire NFTs, sometimes super-rare or even free NFTs, to further sell them. Here are a few ways you can do that:
- NFT Auctions: Many NFT projects host online auctions where users can bid on and purchase unique NFTs. These auctions can be found on various platforms such as OpenSea, SuperRare, and Rarible. Through auctions, you can get your hands on exclusive NFTs. But remember to research a project to determine the NFT’s value before engaging in any bidding wars.
- NFT Drops: NFT drops, also known as token drops or airdrops, are a way for creators or projects to distribute their NFTs to many people. NFT drops typically involve giving away a certain number of NFTs to the community for free, often through a lottery or a random selection process. You can sell NFTs that you’ve acquired for free and make a profit. Some projects also host “drops” where a limited number of NFTs are made available for purchase at a specific time. These drops are the only way to get your hands on some exclusive and in-demand NFTs. You can find them on the project’s website or through social media channels.
- NFT Trading Card Games: Some NFT projects are built around trading card games, where players can collect and trade NFTs to build the best collection. Some examples of this type of game are Sorare and Splinterlands. Users sometimes pay thousands of dollars to get their hands on a specific trading card (that you might have) for their collection.
- NFT Art Exhibitions: You can also participate in NFT projects that host virtual art exhibitions where users can view and purchase unique NFT art pieces. Some examples of this type of event are KnownOrigin and SuperRare. It’s a great way to acquire potentially valuable NFTs.
- NFT Conferences and Meetups: There are a few NFT projects that host conferences and meetups, where users can connect with other NFT enthusiasts, learn more about NFT projects, and potentially purchase NFTs. If you can attend such an event, it gives you an edge over other users who can’t. You might then be able to sell an NFT purchased at such an event for higher prices.
Investing in NFT-Related Projects
Another way to get into the NFT trading space is by investing in NFT-related projects. But is investing in NFT-related projects even the same as NFT trading? Sure, investing in NFT-related projects isn’t the same as anything else on this list. Investing in NFT-related projects, startups or funds is more akin to investing in a company or a stock, where the value of the investment is based on the performance and potential of the project, startup or fund. While it isn’t the same as directly buying and selling NFTs, it is an alternative nonetheless.
A few ways to get started include:
- Buying NFT project tokens: Some NFT projects have their own native tokens that can be bought and sold on cryptocurrency exchanges. These tokens can provide a way to invest in the project and potentially benefit from its success.
For example, if you buy Axie Infinity’s SLP token, you will be able to participate in the game’s economy and potentially earn returns through trading, staking, or participating in the game’s ecosystem. Additionally, if the project becomes more successful, the value of the token may increase.
- Investing in NFT funds: There are also some funds that let you invest in NFT projects and startups. These funds can provide a way to invest in a diversified portfolio of NFT projects and potentially benefit from the success of the NFT market as a whole. For example, if you invest in an NFT fund, you will be investing in multiple NFT projects, which can provide a way to spread risk and potentially generate returns from multiple sources.
An example of an NFT fund is the “Metaverse Fund,” which is an investment fund that focuses on investing in digital assets and NFTs within the metaverse and virtual reality space. Or another example is the “Nifty Gateway Fund”, which is a venture capital fund that backs early-stage startups and projects in the NFT ecosystem.
- Investing in NFT startups: Some startups in the NFT space are raising funding through venture capital, initial coin offerings (ICOs), or initial exchange offerings (IEOs). Investing in these startups can provide a way to invest in the project and reap benefits from its success.
For example, if you invest in a startup that is creating a new NFT marketplace, you can potentially benefit from the success of the marketplace if it becomes widely used and generates significant revenue.
Advice for NFT Trading
It can be easy to get lured in the promise of making big bucks with NFT trading, especially when you’re hearing influencers talk about their success online. But it’s important to make informed decisions and tread carefully whenever you’re thinking about investing your money in any new space. Here are a few pieces of advice for a first-time NFT trader you should find useful:
- Do your research: NFTs are a relatively new and rapidly evolving area, and it’s important to do your own research and due diligence before buying or selling them. Make sure to understand the technology behind the NFT, the project or creator behind the NFT, and the risks and potential returns associated with it.
- Start small: As a first-time trader, it’s a good idea to start small and gain experience before investing larger amounts of money. This will help you learn how NFT trading works and understand the risks and potential returns associated with NFTs. Even if you make mistakes (which everyone probably does when getting started), you won’t stand to lose out on your whole fortune.
- Be patient: NFT trading can be a speculative and volatile market, so it’s important to be patient and not make hasty decisions. The value of an NFT can change rapidly; it’s important to wait for the right opportunity to buy or sell an NFT.
- Diversify your portfolio: Diversifying your portfolio can help spread the risk and potentially generate returns from multiple sources. Instead of investing all your funds in one NFT, consider investing in a variety of NFTs to spread risk.
- Be aware of the regulatory environment: As mentioned before, NFTs are still relatively new and regulations can vary greatly depending on the jurisdiction. It’s important to be aware of the regulatory environment in your jurisdiction before getting involved.
- Store your NFTs securely: Bt most importantly, store your NFTs in a secure digital wallet and protect them with a strong password and a backup phrase, so you don’t risk losing your NFTs. Never share your secret phrase with anyone.
NFTs might be still new but they look like they are here to stay. And while they’re slowly becoming popular, they’re not quite mainstream yet. And just like any other technology, early adopters can stand to benefit a lot. Just do your research, make sure you understand the space, and where you’re ready, get to trading!