Ultimate Beginner’s Guide to NFTs (2022)
Mar 3, 2022
What do Samsung, Nike, Taco Bell, Snoop Dogg, and Paris Hilton have in common? They're all about NFTs these days. This acronym even became Collin’s English Dictionary word of the year. It is true: NFTs are currently taking the digital art and collectibles world by storm. Some even say NFTs might even be the future of digital payments.
But, to begin with, what are NFTs? What are they for? How are they bought? We explain it to you in our definitive guide on NFTs.
What are NFTs?
NFT is an acronym for Non-Fungible Token. It is a digital asset created using blockchain technology. Simply put, blockchain is a huge ‘database’ of transactions. This 'database' is stored on multiple computers around the world. The computers are constantly updating it and making sure each copy is exactly the same as the other ones. Tokens are separate entries within a blockchain. There’s one distinctive feature to a majority of tokens: they are fungible.
In plain English: interchangeable, with the same value.
Cryptocurrencies like Bitcoin, Ethereum, Solana, and others run on the blockchain too. You can swap one gold ingot for another one, and they’ll even look the same. But you can’t swap your kids for your neighbor’s kids. Right? Right?... This means they’re non-interchangeable or non-fungible.
OK, bad example. Let’s talk about works of art. A painting by Monet is not equal to a painting by Picasso, and an mp3 of a song of The Beatles is not equal to one of Beyonce. They are one of a kind.
Of course, you can take a photo of artwork at a museum. Screenshot a unique creation by a digital artist. Even download a song for free (the GASP!) but this doesn’t make you a new owner of it.
In other words, an NFT is a real or digital object the ownership rights to which are stored on a blockchain through a smart contract. A smart contract is a program or algorithm on a blockchain. It activates when predetermined conditions are met. NFT = token + metadata (owner, creator’s name, artwork description, link, etc. ) + media.
What can become an NFT?
Pretty much anything. Text, music, pictures, videos, 3D-models, artwork, collectibles, in-game purchases, domains — you name it.
Singer Grimes (the mother of a boy named XÆA-12, the child of Elon Musk) sold her paintings in NFT format for $5.8 million.
Russian artist Pokras Lampas sold a projection of his artwork at the Chirkey Dam for $28,000.
Jack Dorsey, CEO of The Block (and ex-CEO of Twitter if you’re new here) sold his first tweet as an NFT for over $2.9 million.
DJ 3LAU and musicians like Weeknd and Kings of Leon sold their music as NFTs too. The one that beat all records was the painting "Everydays: The First 5000 Days" by artist Mike Winkelmann AKA Beeple. A JPG file consists of all the images that the artist created every day for 5000 days. It was sold for a whopping $69.3 million.
Here are some other examples.
CryptoKitties is a popular game by Dapper Labs where you can buy, breed, collect and sell virtual cats. The amounts for which you can sell digital pets exceeded $100,000. There’s also a similar game called Axie Infinity.
Decentraland is a virtual world. Every piece of land and every item in there is an NFT. In December 2021, Decentraland averaged 18,000 daily active users.
Luxury brands like Louis Vuitton and Prada are using an anti-counterfeit blockchain AURA. It allows consumers to access product history and proof of authenticity.
Find an NFT to buy
We’ve established what exactly NFTs are. Probably, you can’t hold your desire to buy one for yourself any longer, so let’s answer these FAQs:
- Where to buy NFTs?
- Which wallets should you use?
- Which cryptocurrency do you need for buying and how and where to get it?
- How to actually buy an NFT?
There are dozens of marketplaces where users can buy, sell and auction their NFTs. OpenSea, Rarible, SuperRare, and Nifty are currently dominating the game. Certain NFTs are available only on specific platforms. For example, if you’re a sports fan, you might want to check out NBA Top Shot for some video highlights.
NFTs usually come in collections or projects. The base of a picture (let’s take a Bored Ape as an example) is more or less the same but what changes from one item to another is the smallest detail (color, facial expression, accessories, background, etc.). These small details make every piece unique. Some combinations of features that can change come more often. Others can be very rare which also affects their price.
Each collection consists of a limited number of NFTs and usually has a story. The story ties all pieces together. It motivates the collectors to get their hands on more pieces.
Some NFT collections also come in the form of utility tokens. This means they are not just pretty pictures anyone can screenshot. They also offer exclusive memberships and early access to clubs, events, partner deals.
Whether you wish to buy an upcoming NFT or a well-known one, always remember to do your own research first. Try to find as much information about the project as possible as there are a lot of scams going on.
If you’re willing to join an upcoming project, make sure to prepare beforehand.
How to buy NFTs
First things first, check these two things. Which wallet and cryptocurrency do you need to buy and store your purchases. You can find this information in each project’s description section. Most NFTs are Ethereum-based, which means that you will need to get some ether.
Use Cryptoradar to compare exchange platforms and make better investment decisions. We show you prices, fees, payment methods, and user reviews.
Now, let’s sign up for an exchange. We’ll use Kraken as an example. Kraken is available on the web and as an app. Everything is pretty straightforward: follow the instructions and you’re golden. What we need to do next is deposit your money. Kraken accepts credit cards, bank transfers, and transferring crypto from other exchange platforms.
Set up a crypto wallet
Next, set up a crypto wallet that supports Ethereum. A wallet is a digital address where you can securely store your crypto. Of course, you can leave your assets on whatever exchange you use. Wallets are considered to be a much safer option though. The wallets come in different forms. They are available as software or an offline hardware device that looks like a USB drive. If you want to learn more about crypto wallets, check out this article.
What to look for when choosing an NFT wallet
There are certain things you have to consider when choosing a wallet:
- Compatibility with the marketplace you want to buy NFTs from. Quite obvious.
- Security. Some NFTs can be worth thousands or even millions of dollars.
- User interface should be easy to understand and use.
You might also want a wallet that supports other blockchains. As we mentioned above, most NFTs live on Ethereum. But there are several other blockchains that NFTs can be based on as well.
Metamask is one of the best crypto wallets for Ethereum NFTs. It comes in a form of a browser add-on or mobile app and is very easy to set up and use. Other popular options are Math, Coinbase (yes, like the exchange), Alpha, Trust, and others.
An important thing to remember is that such wallets are different from the ones made of leather. You can keep your cash and photos of your family members in a regular wallet. In crypto or NFT wallet you store the private keys that provide access to your digital assets. They are stored on a blockchain.
Link wallet to NFT platform
Here’s what you should’ve done so far:
- bought some crypto
- transferred it from an exchange to your wallet.
Now it’s time to connect your wallet to an NFT platform. Let’s go swim in an OpenSea together (Cheesy. Couldn’t resist. Sorry). Once you land on the homepage, you’ll be able to browse all available NFT collections and, of course, the main menu. Click on the wallet icon in the top right corner to connect your crypto wallet. Follow the instructions until you see the status “Connecting”. This will mean you’re almost done. Once connected, you will see your profile settings. The only thing that will be pre-filled is your crypto wallet address. Customize your profile and you’re all set. Now let’s go buy them NFTs!
How to buy NFTs on OpenSea
There are two ways you can do this:
- From the landing page, select Explore. Now you can enjoy the process of browsing through thousands of items. Have fun figuring out what you like and what you want to buy;
- Use the search bar if you already know what exactly you’re looking for. There are various filters for search options — from price to rankings.
Bid or buy NFT
Creators can set a fixed price on NFTs or set up auctions where buyers can bid on items.
Buying a fixed-price NFT
Find an NFT you’d like to buy. Check pricing history if you’re looking to get into trading NFTs later on. When you’re ready, click the “Buy Now” button. OpenSea might ask you to review some details and then agree to the terms of service. Click “Checkout” to launch your crypto wallet. There you will see a final cost including applicable gas fees (or simply, fees). If everything looks good to you, click “Confirm”. Congratulations! You’re now a proud owner of your first NFT!
Bidding on an NFT
As mentioned, some NFTs are also available through auction. The bidding process is very simple: find an NFT you’d like to bid on. Review all information about the item of your choice, including current price offers. Each bid must be at least 5% higher than the previous. Click “Make offer” and select the currency you’d like to use. Then, enter your bid and expiration date. You’re done. Just remember: it’s an auction. If you bid on an item you REALLY like and want to have in your collection, make sure to stick around to up your offer.
NFTs as an Investment
Just because you can buy NFTs, does it mean you should?
Yes, NFTs are bright, colourful, fun and everyone’s talking about them these days. It’s cool to have one. Or two. Or print the whole collection and decorate your walls‚ as we did in the '90s and '00s. At the same time, NFTs are still very new and could become a rather risky investment. For each person that says NFTs are here to stay there’s another person who says they’re a bubble that will burst in 3..2..1. Another thing to consider is fraud and theft. Like cryptocurrencies, your NFTs could be stolen. If you've purchased a high-value NFT, consider storing it offline in a secure location. Also, keep in mind that buying an NFT doesn’t mean owning the copyright. If you don’t want any trouble, this is when you actually read Terms and Conditions before accepting them. The above mentioned issues are solvable though.
SO: if you don’t understand how NFTs work, are FOMO-ing or don’t have any spare money you can afford to invest, don’t buy any.
But if you understand the technology and art, are a collector who is looking for another investment opportunity, why not give those non-fungibles that have exploded out of the ether a try. See what we did there? Ether. Go get some.