At the moment, NFTs are the big deal and there are things to Know Before Buying an NFT. They seem to be the next big thing hitting the market right now, and the fear of losing out is driving a lot of people to invest. For context, 950,000 unique addresses bought or sold an NFT in Q1 2022, up from 627,000 in Q4 2021, according to chainalysis.
A lot of new investors have little to no idea how their NFTs work and are therefore prone to making mistakes that actually could cost them tons of heartache and money. If you happen to be a newbie in crypto, you might want to read our NFT explainer right before we start.
Like tons of other worthwhile investments, you would be required to carry out tons of homework in other ensure that you have a better understanding of what exactly you are buying into. In this quick guide, we would be giving you some hard facts and research that would aid you in getting a clearer picture of what an NFT investment involves. So, if you happen to be considering investing in an NFT, there are some things you need to be aware of before spending the cash.
Things to Know Before Buying an NFT
Not All NFTs are Equal
At the moment, there are newbies that often make the mistake of thinking that all NFTs in a collection are of the same worth. But the thing with NFTs is that it is different from fungible token like Bitcoin in that regard. Each bitcoin can get exchanged for and are equal to another, but at the moment, that is not the case when it comes to NFTs. Each NFT is a unique token, and this means there’s only ever one of whichever NFT you choose to purchase.
You are not Purchasing an Asset
An NFT is a digital token that basically stands for an asset, but it is not an asset in itself. I know it would sound confusing so let’s break it down. Let’s say you own an NFT of Da Vinci’s Mona Lisa, for example. You owning that NFT does not mean you are the owner of the Mona Lisa. Even the creator of the NFT that minted and placed it on the marketplace does not own the Mona Lisa unless Da Vinci himself decides to put up the NFT, and we know that it is impossible.
When you purchase an NFT, you would have full rights and ownership over that NFT. You would have the right to store, sell and dispose of it.
Gas is Expensive
The moment, gas prices are really crazy high at the moment; even online, gas can really be expensive. Whenever you choose to make a transaction on the blockchain, you would be required to pay a transaction charge called a gas fee. This charge is an additional charge required to carry out a transaction. Basically, the gas fee still remains the amount that you would get to pay crypto miners for the computing energy that they use to validate blockchain transactions.
Understand the Math
There are tons of numerical factors that you would be required to understand and analyze right before you make your very first leap into NFTs. This platform is a for-profit investment, after all, and you cannot get those right without having to put some numbers into calculations. The very first one that you need to consider is the floor price of an NFT, just as mentioned above. A floor price happens to be the cheapest amount that you can pay to purchase an NFT in a collection. For example, at the time this writing was done, the cheapest Bored Ape is a bit over $82,000 or about 74 Ether, the Ethereum blockchain’s native coin, as stated by the NFT Price Floor.
Beware of Rug Pulls
What is a Rug Pull you might ask? Well, it is an investment scam in which founders dupe people into investing money in a business, only to leave the project halfway and run away with the funds. Based on the way the anonymity-oriented the crypto world is, these things, unfortunately, happen more often. One example is what happened with Frosties, in what became the very first rug pulls of 2022. Frosties was the very first collection of 8,888 cartoon ice cream NFTs on the Ethereum blockchain.
The project quickly sold out and seem really promising until it was no longer. The collection website and social media account was deactivated suddenly, and the shady founder ran away with about $1.3 million. Although sooner or later the law caught the founders and arrested them, there is no guarantee that the investors would get back their money.
If you do not want to become a victim of a rug pull, do due diligence with research into any prospective project. Read through whitepapers, look up track records, and most importantly do not let your greed for making quick money affect you.