How to Invest in NFTs: The Beginner's Guide

Learn all about NFTs with our guide that breaks down what they are, how they work and how you can get started with them!

*Compared to major competitors. Terms and conditions apply. This is not investment advice or an investment recommendation. NFTs are shown for illustrative purposes and the types of NFTs available may vary. Cryptocurrencies, including NFTs are highly volatile, subject to significant price risk, and may not be suitable for you.

Non-fungible tokens (NFTs) give investors a new way to invest in digital artwork, join communities anchored by profile pictures/avatar, build a collection of memorabilia or even start building assets for engagement in the metaverse. When you buy an NFT, you get full ownership over a digital asset that you can sell, trade, show off, or keep in your private collection. Blockchains make your NFT ownership public via a shared digital ledger, so no one can dispute your purchase.  

Non-fungible tokens are a little different from other types of cryptocurrency in that they are not able to be traded one for one. For example, you can trade one bitcoin for another bitcoin. This ability to trade these equal values is the literal meaning of fungibility. By contrast, NFTs are (as their name says) non fungible, meaning you can’t equally trade one NFT for another, as the value may be different. This is just like other forms of art - each Monet is different from every other Monet, even though the themes may be similar.  

While NFTs are still a new concept that many are just starting to grasp, they're part of a booming market that generates billions of dollars. NFTs come in a variety of options from NFTs that provide access to gated experiences like a lunch with a celebrity to memorabilia such as NBA Top Shot. They also give modern artists power over their work while enabling art enthusiasts to collect, sell, or trade these digital works of art. Overall, NFTs appeal to everyone—and when you buy your first NFT, you'll almost certainly end up wanting to add more to your collection. See our listed NFTs to get started.

What Are NFTs?

Answering the question, “What are NFTs?” is easier than you’d think. An NFT is a piece of data recorded on a blockchain. Content creators attach NFTs to art, music, videos, memes, game assets, and even tweets. When a collector buys an NFT, they receive full ownership of the asset and essentially gain a certificate of authenticity, showing that they are the rightful owner of the asset. Thousands of artists have turned to NFTs to reach new audiences and even build their own collections with their NFT profits.

How Do NFTs Work?

NFTs can work in a couple of different ways. In one instance, an NFT may offer a certificate of authenticity related to a purchase of an event ticket or it may offer the buyer ownership of a digital piece of artwork or memorabilia, essentially allowing them to build a digital art gallery. In either instance, the premise of purchasing the NFT remains the same in that investors can browse through the NFT marketplace and make purchases that are recorded on a public ledger. This makes NFT ownership easily verifiable.

How Do You Create NFT Art?

To create or mint NFT art, you follow a simple process that allows you to upload and sell your NFT in a marketplace. The way to do it might vary depending on the marketplace you use. At FTX, we have a user-friendly interface that makes it easy to mint your own NFT art quickly and securely. 

Why Invest in NFTs?

Some people have wondered if NFTs are worth the investment of their hard-earned money. Why pay for a digital image when anyone could save the file to their hard drive and look at it whenever they want? However, you're not paying for the digital image, per se—you're paying for ownership of that image, which gives you primary control over the asset. 

For example, anyone can look at the Mona Lisa in the Louvre or look at a picture on Google Images. However, that's not the same as owning the Mona Lisa. When you buy an NFT, you're buying an original drawing, song, animation, or a piece of internet history. If you were to buy a profile pic NFT, you’d get commercial rights to it, ensuring that you’d be entitled to compensation if it was ever used in a movie or TV show.  

Buying an NFT can even offer some benefits over buying "real world" assets, as blockchain technology allows for full transparency every step of the way. Anyone can view the blockchain an NFT is stored on to confirm ownership as well as provenance, allowing you to see who owned the asset previously. In other words, NFTs are 100% transparent. Anyone can see who a current NFT owner is, the NFT’s transaction history, and other pertinent information on the ledger. You can see who owns virtually every NFT, if you're curious. 

How to Invest in NFTs

We'll walk you through an easy step-by-step process of how to invest in NFTs.

1. Create an Account on an NFT Marketplace like FTX US

An NFT marketplace like the FTX marketplace provides a safe, easy way to get started buying and selling NFTs, no matter what type of digital asset you want to buy. Think of it as being similar to creating an account on Amazon, but instead, it's a marketplace created solely for NFTs. We make it easy for you to get started with us and set up your account in just a few minutes.

When you sign up for FTX, you’ll have your digital wallet that holds crypto and NFTs  automatically created. On some other NFT sites, you’ll need to connect an external wallet like MetaMask or Phantom to be able to interact with their marketplaces.

2. Deposit Money in Your Wallet or Marketplace Account

Before you decide on the NFT you want to buy, you need to add money to your digital wallet to purchase the cryptocurrency. There are three different ways to deposit money into your wallet with our easy-to-use platform:  

  • Bank transfer: One option is to deposit by bank transfer, where you link your bank account and then can easily deposit funds as needed. Simply go to ftx.us/wallet, click on deposit, then click deposit via ACH, click connect a bank account, connect your bank account using Plaid, and click continue to finish.
  • Credit or debit card: Another way to deposit funds is by using a credit or debit card. It’s as simple as going to ftx.us/wallet, clicking deposit, then clicking deposit via card, entering your details, and submitting your card.  
  • Wire transfer: The third way you can deposit money is with a wire transfer. Simply go to ftx.us/wallet, click deposit, click deposit via wire, enter the amount you want to put in, and hit submit. With this option, make sure the amount is exact or you will need to start over. Review these instructions and include your unique account identifier in the memo when you send your wire. Once you’ve noted all the information needed, click close.

3. Decide on the NFT You Want to Buy

Next, you'll decide what type of asset you want to buy, sell, or create before you start browsing. Different types of marketplaces cater to different types of NFTs. They may also use different cryptocurrencies. For example, at FTX we are the first marketplace to support both Solana NFTs and Ethereum NFTs.

Browse the NFTs available for purchase on the marketplace you chose. Whether you want to buy art, music or another type of digital asset, you will likely be able to take a look at a whole host of collectibles.

Each marketplace will display its NFTs differently, so you might see completely different "shopping options" on various marketplaces.  

Ultimately, you want to look for the following data and analytics:

  • Mint (creation) date
  • Sales numbers
  • Market activity
  • Ownership history
  • Other related information  

4. Buy NFTs  

When you find something you want to buy, most marketplaces will have versions of "buy now," "check out" and "submit." You may also need to agree to pay a "gas fee," which is a payment you make to process and validate transactions on the blockchain.

Trade NFTs Without Gas Fees at FTX

At FTX US we’ve tried to make NFTs slightly more user-friendly when it comes to gas fees. On FTX US, you can trade NFTs without gas fees. FTX US also subsidizes gas fees when you withdraw NFTs from the platform.

What Are the Risks of Investing in NFTs?

If you're on the proverbial fence, you may wonder about the risks of investing in NFTs. Let's go over some risks you'll need to consider before you invest. Because NFTs don't have a long history, it's impossible to know exactly what to expect down the road. Let's walk through a few specific NFT risks you should be aware of before you dive in.

1. The Risk of Fraud

Anyone can create an NFT out of a file that doesn't belong to them and claim it as their own. Wash trading also happens, when people open multiple accounts and trade with themselves, jacking up the price of an asset. A good way to avoid this is by choosing a reputable marketplace. This helps ensure you know where your NFT came from.

2. Evaluation Challenges

Much like other works of art, NFTs are subjective and because they are evaluated by the artists and collectors, their evaluation may vary. You may find a piece more valuable than another collector does. Similar to other collectibles, it often takes experience to better determine what pieces you want to collect or invest in.

3. Market Risks

The NFT market suffers from several challenges, including volatility and liquidity issues. Volatility (particularly price volatility) occurs because of their speculative nature. For example, on Top Shot, some highlight clips that initially sold for a few dollars have ballooned to tens of thousands of dollars. Importantly though, conditions could change and bring those prices right back down again. 

Liquidity can also sometimes be an issue for NFTs. Liquidity refers to how readily you can find a buyer for your NFT should you want to sell. It's kind of like selling a house because you need to find a buyer willing to buy your unique offering. Like selling a house, it's possible that you might not be able to find a buyer, at least right away. Depending on the collection, NFTs can be somewhat less liquid than other forms of cryptocurrency.

Conclusion

Here at FTX, we know how daunting crypto and NFTs can be, which is why we strive to make it as simple as possible for anyone looking to get involved in this booming industry. Whether you’re an advanced trader who’s been involved since the beginning of crypto or someone just getting started and needing more information, we have what you need. Check out our site for more information and to get started today!

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