NFTs, or Non-Fungible Tokens, are a type of digital asset that represent ownership of a unique item or piece of content using blockchain technology. They’re also used as digital certificates to proof ownership of real world assets (RWAs). Unlike cryptocurrencies like Bitcoin or Ethereum, each NFT is unique and cannot be exchanged on a like-for-like basis.
NFTs have evolved rapidly since the first few on-chain digital collectibles where created and are used for more than just collecting digital art. Games, music, entertainment tickets are some of the sectors that have embraced NFTs and have applications like accessing token-gated content, skins and custom characters in videogames and much more.
How do NFTs work?
NFTs are created via a process called “minting”. This process converts digital files, which could be art, music, videos, etc., into digital assets or NFTs by creating a new block and adding it to the blockchain. The information in this block includes the metadata of the NFT, such as its creator, ownership history, and any other relevant data. NFTs are typically created on blockchain platforms that support smart contracts.
What’s a smart contract?
Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code. These contracts can automate certain functions, like transferring ownership of the NFT upon payment or paying royalties to the original creator whenever the NFT is resold.
In simple terms, smart contracts are lines of code that execute on-chain actions automatically and transparently – thanks to the nature of blockchain code that’s visible and verifiable by all parties involved.
While smart contracts have the benefit of decentralisation, immutability and trust, it’s important to note that the effectiveness and reliability of a smart contract are heavily dependent on the quality of the code. Errors or vulnerabilities in the code can lead to unintended consequences, including security breaches.
Reviewing smart contracts have become a common practice amongst seasoned NFT traders to ensure their assets are safe.
How to buy NFTs?
Buying NFTs (Non-Fungible Tokens) involves several steps, primarily focused on choosing the right marketplace, having a digital wallet, and using cryptocurrency. Many platforms like Crossmint or Paper.xyz allow users to mint NFTs with their card – offering a simple onramp process to new NFT collectors.
Once the NFT has been minted, it can be resold and traded on NFT marketplaces. There are many marketplaces, and each may have different types of NFTs available (art, music, collectibles, etc.). Some of the popular NFT marketplaces include OpenSea, Blur, and Magic Eden. Always ensure you do your own research (DYOR) on the marketplace and the NFTs you’re planning to trade.
1. Set Up a Digital Wallet
To buy and store NFTs, you’ll need a digital wallet compatible with the cryptocurrency used by the NFT marketplace. “Hot wallets” like MetaMask, Phantom, or “cold wallets” like Ledger (hardware wallet) are commonly used.
If you’re minting an NFT for the first time, you might have an option the option to use your debit or credit card. Ensure the payment gateway is a trusted one.
For NFT trading, you’ll need to buy cryptocurrency. This can typically be done through a cryptocurrency exchange. Once you have balance on your wallet, you’ll be able to move to the next step.
2. Connect Your Wallet to the Marketplace
This usually involves navigating to the marketplace’s website and selecting the option to connect your wallet. Browse the marketplace and find an NFT you want to purchase. Make sure to do your research: look at the artist, the history of the piece, and its price history.
Pro Tip: Bruner Wallet
A common practice when buying NFTs is to use a burner wallet: a type of digital wallet used primarily in the cryptocurrency and blockchain space, designed for temporary or one-time use.
3. Buy a NFT or make an offer
Once you’ve chosen an NFT, you can usually buy it in one of two ways:
- Buy Now: Pay a fixed price set by the seller.
- Auction: Place a bid and wait to see if you’re the highest bidder when the auction ends.
After the purchase, the NFT will be transferred to your wallet, and you’ll have ownership. This ownership is recorded on the blockchain, ensuring it’s verifiable. Always ensure you’re on a legitimate website to avoid scams. Be cautious of phishing attempts and always do your research and understand what you’re getting into before making a purchase.