How to Buy an NFT (And What can You Do with It?)

The exploding popularity of non-fungible tokens (NFTs) was one of the most significant shifts in the crypto world in 2021.

The crypto world saw a surge in NFT purchases from digital art collections such as the Bored Ape Yacht Club and CryptoPunks. Prices also increased to record highs. For example, an NFT by a digital artist known as Beeple sold for $69 million in 2021.

While NFT prices have struggled in 2022, and reflect the broader decline in cryptocurrency prices, that doesn’t mean it’s game over. The market capitalization for NFTs is $24.6 billion as of May 2022.

But how can you access this market? While NFTs might seem cryptic, they only require a base level of crypto knowledge to buy and sell. Here’s how to buy an NFT.

What are NFTs?

Non-fungible tokens (NFTs) are digital tokens representing an asset's ownership. They might be a receipt for that asset or a license to use or display it.

An asset might be digital or physical. For example, an NFT might represent ownership of a digital painting, while another NFT might track the origin of high-end collectibles, like wine.

Fungible vs. non-fungible tokens

To understand what non-fungible means, it’s essential to first understand what fungible means. When something is fungible, one of its units could be exchanged for another. For example, you could exchange a dollar for a dollar or a bitcoin for a bitcoin, defining dollars or bitcoins as fungible tokens.

Your house, car, or painting on your wall aren’t exchangeable in the same way. For example, trading a car for another car often involves using a fungible asset such as dollars to complete the transaction. That’s why your house, car, or art are non-fungible since they aren’t readily exchangeable for one another.

NFTs are non-fungible digital assets. Each NFT is unique, and it cannot function as a currency. You can’t exchange one NFT for another the same way you can exchange dollar for euro or bitcoin for ether, the currency powering the ethereum blockchain.

Smart contracts power NFTs

Employing the concept of smart contracts on blockchains is how NFTs work and come to life.

A smart contract is a digital contract stored on a blockchain that automatically executes itself when certain conditions are met. When two parties participate in a smart contract, they don’t need an enforcing body since the smart contract makes sure that the agreement will be honored.

You need a blockchain built with smart contract capabilities to make or buy NFTs. The ethereum blockchain is the most popular blockchain for NFTs. However, other blockchains offer them, including the flow, tezos, and solana blockchains.

How to buy an NFT

If you know how to buy cryptocurrency, you might find the steps to buy an NFT quite familiar. You need certain ingredients that you could then use to make a successful purchase.

Ingredients to buy an NFT

Before you buy an NFT, you need to have the appropriate cryptocurrency to buy it and a digital storage space to keep it. Here’s what you need:

• Cryptocurrency: Make sure that you use a cryptocurrency supported by the NFT marketplace or exchange you’ll use. OpenSea marketplace, for example, allows you to buy NFTs on the ethereum or polygon blockchains, while Holaplex marketplace uses the solana blockchain.
• Cryptocurrency wallet: Set up a crypto wallet compatible with the exchange or marketplace you want to use. For example, MetaMask wallet and Trust Wallet are compatible with many NFT marketplaces. Coinbase offers a digital wallet that you could connect to several marketplaces, including Rarible. A compatible wallet doesn’t only keep your cryptocurrencies, but it also stores your NFTs after you buy them.
• NFT marketplace account: Lastly, set up an account with the NFT marketplace or exchange you plan to use. Some of the best cryptocurrency exchanges, like Coinbase, have NFT marketplaces. However, you might need to set up a separate account from your trading account.

Directions to buy an NFT

Several well-known exchanges and marketplaces allow you to buy NFTs. In most cases, the first step is to connect your wallet to be able to make your purchase.

• Rarible: You could buy NFTs on the ethereum, tezos, and flow blockchains, in addition to the polygon network that runs on the ethereum blockchain. Start by connecting your wallet and accepting the terms and conditions. Load your wallet with the appropriate cryptocurrency, and simply start shopping.
• OpenSea: You could use this marketplace to buy NFTs on the ethereum, klatyn, and solana blockchain, and also on the polygon network. Start by connecting your wallet and creating an account. You could then buy collectibles, art, trading cards, and more.
• Coinbase: After connecting your wallet to its marketplace, Coinbase requires you to provide an email address even if you already have a Coinbase exchange account. Once your account is ready, you could use your cryptocurrencies to buy NFTs.
• Crypto.com: This exchange also offers an NFT marketplace. You could browse and buy NFTs from this marketplace once you create an account and connect a compatible wallet.
• Holaplex: Connect a compatible wallet such as the Solflare wallet to get started. If you don’t have a compatible wallet, the marketplace helps you set up a Torus wallet using your Google, Twitter, Facebook, or Discord account. You can begin shopping once your crypto wallet is ready and connected.

Tips for NFT purchases

When purchasing NFTs, it’s important to understand what your purchase implies and be aware of any additional costs you might pay. Here are some factors to consider when you buy an NFT:

• Understand the purchase’s terms: Some NFT collections come with commercial rights, which allow you to make money off the NFT through commercial means. Others only offer the right to display the NFT, whether it's an image, video, or otherwise. Know what it is you truly own. Do you own the underlying intellectual property? Or do you just have the right to display the image or video?
• Realize that links and URLs might break: A small part of an NFT is often stored on the blockchain, such as a link or a URL that directs you to where the rest is stored. Links can and do break, and there’s no real way to enforce NFT maintenance. The InterPlanetary File System (IPFS) tries to solve this problem by hosting a file at more than one location, but NFTs that use IPFS could still go missing if all locations are offline or no longer have the file.
• Find out the full cost: Once you buy an NFT, you might need to have it transferred to the blockchain — and that means fees. You might have to pay fees for using a blockchain, known as gas fees, even if you’re only moving the NFT to a different wallet. There might also be royalties owed to the original creator. Carefully check to see what fees might be involved.
• Use a reputable marketplace: Be sure to focus on exchanges and marketplaces that make an effort to verify ownership. When a marketplace works on ownership authentication, there is decreased risk of buying a fake or unoriginal NFT.
• Store your NFTs safely: Keep in mind that hackers might break into your wallet if you aren’t careful. Keep your private keys, which give you access to your wallet, securely stored in offline storage, and have more than one copy of it in case they're lost.

You own an NFT, now what?

Depending on the NFT and how the smart contract is set up, there are several things you might be able to do once you own NFTs. Having an idea about what to use NFTs for might help you make your purchasing decisions.

NFT art collections

NFTs are described as digital artwork. Famous collections like the Bored Ape Yacht Club and CryptoKitties often sell for large sums. The value of NFTs sold on the ethereum, flow, and ronin blockchains in a 3-month period ending May 15, 2022, was about 168.8 million.

Some people buy NFTs from popular collections hoping to sell them later for a profit. While some people might buy NFTs to display them, some social media apps, like Twitter, allow you to use an NFT as a profile picture.

Real and virtual real estate

An NFT might represent ownership of virtual property. When purchasing virtual land or property, your proof of ownership is your NFT. You could then potentially sell that NFT to another person, transferring ownership of the land or property to them.

It’s even possible to expand this to physical real estate to modernize the workflow surrounding real estate transactions in the real world.

Using smart contracts could allow real estate transactions to be completed without excessive paperwork and potentially speed up buying a home. Once the contract terms are fulfilled, the buyer would receive an NFT representing ownership of the property.

One example is a four-bedroom house in Tampa, Florida, that sold as an NFT in early 2022. The buyer paid 210 ethers valued at $654,310 at the time of sale to acquire the rights to the house. These rights were stored in an NFT on the ethereum network.

The metaverse

Some NFTs might play a role in a metaverse, a form of virtual reality where people interact and socialize. Some metaverses allow people to create their own items and sell them in the metaverse, as well as exchange ownership of digital assets.

Your NFT could represent a metaverse property, let you into an exclusive community, or allow you to interact with others who have similar NFTs from the same collection or NFT project. Some NFTs, such as Bored Apes, allow owners of the digital collectibles access to specific areas of relevant metaverses, such as the online Yacht Club.

Web3

Some crypto enthusiasts believe that using NFTs as part of Web3 might support decentralizing the internet and democratizing ownership. Web3 is a broad term that refers to the next evolution of the internet, which isn’t yet fully defined.

Some believe that this revolution could be based on blockchain technology and an economy based on digital tokens such as cryptocurrencies and NFTs. Blockchain technology would support the ease of owning and transferring digital assets and real-life properties under this model.

iNFTs

In addition to static images, videos, music, and other digital files, it’s also possible to include code in the smart contract of an NFT that allows for machine learning. This type of NFT is known as iNFT.

Access to machine learning represents a new way of interacting with artificial intelligence (AI) by creating NFTs with specific capabilities. Some NFTs might use AI to compose music or create images. AI capabilities might also be added to some video games, such as owning an Axie, an avatar in the popular blockchain game Axie Infinity, that could train other Axies.

FAQs about buying NFTs

Bottom line

NFTs have the potential to be an integral part of Web3, as well as offer a form of digital assets that could simplify ownership exchange. Additionally, NFTs might be utilized for real-world scenarios such as property transactions.

However, before buying an NFT, it’s essential to understand where it fits in your portfolio and recognize the potential for loss. Anytime you’re investing money, you should thoroughly consider your investment risks and work on limiting them by building an appropriately diversified portfolio.

Disclosure: the author uses properties mentioned in this article, including Coinbase, Crypto.com, OpenSea, and Rarible. She also has positions in ether (ETH), solana (SOL), and tezos (XTZ).