So you’re a savvy investor or art lover considering getting in on the $41 billion (and growing) industry of NFTs. But there are a few more steps to buying a Chromie Squiggles NFT with Ethereum than, say, ordering a Picasso print from Amazon. Don’t be deterred! Here’s a run down of what you need to know before buying an NFT.
How to set up a crypto wallet
NFTs are backed by blockchain technology and purchased using cryptocurrency, so the first thing you need to do to buy your NFT is to set up a crypto wallet to purchase digital currency. Since almost all NFTs are sold on the Ethereum blockchain, you’ll need to choose a compatible wallet and fill it with ETH currency. There are two main wallets to consider:
MetaMask is an Ethereum wallet widely supported by NFT marketplaces and other Ethereum-backed apps like OpenSea or Foundation, and can be used either as a Chrome / Firefox extension or as an app for iOS or Android. It’s one of the oldest wallets in the game and one of the earliest used for buying NFTs, since it works strictly with Ethereum assets. More popular marketplaces work with MetaMask or say they prefer MetaMask than any other wallet. Download MetaMask’s extension here.
Coinbase is similarly accepted by most all NFT marketplaces, and can be used either as a desktop extension or a mobile phone app. The big difference here is that Coinbase also works with Bitcoin, so if you’re looking to take a wider approach to crypto investing, Coinbase may be right for you. However, a few marketplaces are currently not working with Coinbase, so if you want to maximize your NFT options it may not be the way to go. Download Coinbase’s extension here.
The process of setting up your wallets works largely the same way as setting up an account on any website, with a few key differences. Both MetaMask and Coinbase will give you a “seed phrase,” which is 12 random words. It’s very important not to lose this. The seed phrase is the only way to recover your account if you want to use your wallet on a new device or if you uninstall the browser/app and need to get back in. Copy your seed phrase down and store it in a highly secure location. Consider saving it with a password manager and also writing it down and keeping the record in a physical safe. You don’t want to be one of the lost crypto millionaires who are permanently locked out of their wallets. If you lose your password and/or security phrase, neither MetaMask nor Coinbase can do anything to recover your account. There is no “forgot password” feature in the world of crypto.
Once you have your wallet set up, loading it with ETH is pretty simple and works more or less like buying anything else online. If you find yourself wanting an expert to hold your hand through the entire wallet/coin purchase process (no shame! this is an important step) here’s a MetaMask tutorial video and a Coinbase Wallet guide video.
Note of caution: you can sometimes also buy Ethereum using a crypto exchange like Binance, Kraken, Gemini, or even Coinbase’s exchange (vs. Coinbase Wallet). However, these are far less likely to work on NFT marketplaces. Also, Ethereum warns against exchanges because they are more vulnerable to hackers than wallets.
Can you buy an NFT without Ethereum?
There are a few things to be aware of when buying an NFT with fiat currency. First, many credit card companies consider crypto purchases to be a “cash advance.” This affects your NFT purchase, because technically when a platform lets you pay with a credit card what’s really happening is that you’re buying the agreed-upon amount of ETH in that moment, facilitated through the marketplace or credit card company, which is then used to purchase the NFT. So if you’re charging your next CryptoPunk, be prepared to shell out for cash advance interest rates and fees. You may want to check these out with your credit card company ahead of time. You also likely won’t rack up cash back, points, or miles for your purchase.
Secondly, no matter how you pay, you’ll still need an ETH compatible crypto wallet. Your wallet holds your NFT once it’s yours, so there’s no skipping that step…yet. Innovation is happening quickly for NFTs, which were only invented in 2015, so there’s no ruling out what the future will hold.
What about Bitcoin? Good question. The answer is…technically yes? Bitcoin’s blockchain does not have the capability to handle NFT sales, mainly lacking Ethereum’s “smart contracts,” feature. However, a new blockchain called Stacks has recently popped up that can handle NFT sales, and is facilitating buying with Bitcoin. However, their NFTs just haven’t popped off. The sales numbers and options are comparatively miniscule, so you can certainly buy a Stacks NFT for less moolah, but it’ll be more difficult to sell. When people talk about NFTs, they’re talking about ETH-backed ones. Still, Stacks may be a good space to watch.
Choosing your NFT marketplaces
OK, now you’ve got your wallet and you’re ready to buy an NFT! The next step is to check out some marketplaces, think Amazon for NFTs. Most marketplaces will facilitate both direct purchases and auctions, depending on the seller’s prerogative. Here’s an overview of the most notable options.
OpenSea is the world’s first and largest NFT marketplace, featuring lots of the most popular NFTs today like Bored Ape Yacht Club along with more niche creators. It’s generally considered eBay for NFTs because it supports auctions as well as fixed-price sales, and there’s something for everyone. It’s a really great place to start and is pretty user friendly for browsing in different categories or price points. It also supports creators minting directly on the platform. Another plus for using OpenSea as a newbie NFT buyer is that because it’s the largest and has been around the longest, there are a lot of online resources to help you navigate the marketplace. For instance, one question you’ll run into when buying an NFT is who pays gas fees—a fee all users must pay to perform any function on the Ethereum blockchain that goes towards authenticating the transaction. There are video tutorials to help you understand, and even avoid gas fees on OpenSea. OpenSea accepts +150 different cryptocurrencies.
Rarible is another popular open marketplace, and works very similarly to OpenSea. The difference is it is a little less popular and a little smaller, which can be a good thing if there is less competition on an auction you’re interested in—though it means fewer options to browse as well. The key difference between Rarible and OpenSea is that Rarible allows creators to set up to a 30% royalty on their sales, whereas OpenSea caps royalties at 10%. This number affects how you re-sell or make money from the NFT you’re purchasing. Rarible is home to a few fun brands getting into the NFT space like Taco Bell. Rarible is also backed by its own blockchain, as opposed to OpenSea which is built on the Ethereum blockchain. Due to this, Rarible has its own cryptocurrency RARI, which it allows marketplace members to earn through routinely using the platform. So if you have the time to commit to being a full-fledged community member, earning RARI will allow you to vote on platform upgrades to shape the future of the Rarible community.
SuperRare is the premium digital art marketplace. If you’re interested in crypto art NFTs, SuperRare is a must-join community. With an editorial art magazine, and even a residency with the Museum of Contemporary Digital Art, SuperRare feels more like a sophisticated art gallery than a marketplace. Unlike OpenSea and Rarible, SuperRare only accepts ETH. The marketplace offers both primary (meaning NFTs are minted directly on SuperRare) and resale options, and due to its prominence in the art world, watching the SuperRare space to get original works when they first drop can be especially valuable. One more thing that sets SuperRare apart: the platform allows collectors (aka you, the buyer) to make passive income through royalties starting at 1% of every re-sale. This can be a huge pro for buying an NFT from SuperRare, since other platforms only allocate royalties to creators.
AxieInfinity is a marketplace dedicated to the ever-expanding universe of NFT-based digital gaming, also called Axie Infinity. It sounds niche, but it’s brokered significantly more than a billion in sales and boasts 2.8 million daily active players. The sophisticated gaming world is it’s own economy, and you can earn meaningful income from playing, though like any other video game there’s a growing list of game play necessities and add-ons to buy. Game characters, tokens, weapons and more are entirely made from NFTs on the Ethereum blockchain. You can only purchase “Axies” using ETH and resell them on the AxieInfinity marketplace or OpenSea. Axies are so in demand that despite the very specific usage, AI is consistently ranked as 2nd in best NFT marketplace lists.
NiftyGateway is another popular NFT marketplace known for exciting artist drops of original art series. The platform helps you keep track of when drops are scheduled, so you can plan your buy instead of having to rely on keeping up with 1,000s of NFT artists’ Twitter announcements. NiftyGateway also boasts the current crown for most expensive NFTs ever sold on a marketplace for Beeple’s CROSSROAD and Pak’s The Merge—the combo sold for $91.8 million in December 2021. They’ve also announced a “wallet-to-wallet” feature which allows you to save up to 75% on gas fees when you buy NFTs on the platform using ETH.
Mintable is a rapidly growing NFT marketplace backed by celebrity investor Mark Cuban. It only accepts ETH and focuses on collectible NFTs, though it has plans to expand into gaming and even to letting everyday people create their own NFT gaming world. Mintable emphasizes being the easiest and fastest platform to mint an NFT on, including covering gas costs for sellers. Notably, Mintable only connects to the MetaMask wallet and has stopped working with CoinBase Wallets.
KnownOrigin is an artist-driven primary and secondary marketplace that cultivates high-quality art by being selective with the creators they’ll work with. They’re known for being artist-friendly, with high re-sell royalty rates starting at 10% and diminishing with each re-sell. KnownOrigin only accepts ETH and the buyer is responsible for the entire gas fee.
If you’re not ready to shell out for an NFT of your own, you can still benefit from this booming industry through fractional investing.
In the same way that real estate and public stocks can be broken into shares, many new platforms securitize collectibles, including NFTs, and then offer shares of the security to investors. Investors can typically purchase via an IPO primary market or from other platform users on a secondary trading market.
There are more crypto-native methods of fractionally investing in NFTs as well. An NFT can be deposited into a locked up NFT vault, with ERC-20s (sets of fungible tokens on the Ethereum network) then minted to represent fractional ownership of the NFT. When someone purchases one of these ERC-20 tokens, they purchase a share of the NFT. Fractional.art was the first platform to offer fractional investing in this fashion, and explains in more detail here.
Recently, investment DAO’s have also been created, such as ApeDAO, which gives members collective ownership of 81 Bored Ape Yacht Club NFTs (though the DAO has been struggling with valuation gaps recently).
A Twitter thread by Richard Chen, general partner at a cryptocurrency investment firm, lists prediction markets and derivatives as another way to gain exposure to blue chip NFTs, and summarizes some pros and cons of all these methods.
Risks to buying NFTs
Like with any investment, there are a few risks to be aware of before buying an NFT.
First, beware copy-cat NFTs posing as popular tokens. Look for verified sellers on marketplaces (OpenSea’s verification looks similar to Instagram’s blue checkmark symbol) to avoid scams. A good example is PAYC—a series that takes the most popular NFTs in the world, the Bored Ape Yacht Club, and sells exact copies of the images, but mirrored. Marketplaces are taking matters into their own hands and banning dupes, but you’ll still want to keep your eyes open and double check your purchases.
In addition to copycat NFTs, you also should be on the lookout for outright theft. The world of NFTs is rife with fraudulent sites that try to entice potential buyers to connect their wallets, only to use the connection to steal the wallet holder’s cryptocurrency and NFTs. The world of crypto is particularly unforgiving once a bad actor executes a theft, so a good rule of thumb is: if you think there’s even a chance something might not be legit, stay away.
Finally, like any popular investment, there is always a possibility that we’re in an NFT bubble that could burst, leaving your NFT worth less than you bought it for. This is pretty par for any market, but you’ll want to educate yourself on what experts think about the space before you buy.
A note on the environmental impact
Like many cryptocurrencies, Ethereum relies on a security system called “proof of work” that requires an enormous amount of energy to pull off. “Mining,” or verifying transactions within POW, is purposefully energy guzzling, and has been successful in deterring hackers. It also means that the Ethereum blockchain literally burns through more electricity than some small countries. Experts estimate the carbon footprint of a single ETH transaction to be 74,000X that of a Visa Card transaction. Your increased carbon footprint is just something to be aware of when buying NFTs.