Barely a decade old, cryptocurrencies and blockchain technology are only just beginning to find real-world use. As one popular way to utilize them, non-fungible tokens (NFTs) have quickly commanded a great deal of attention -- especially among artists, art collectors, and speculators.
If you've decided you want a piece of the NFT action but don't know how to go about buying them, here's how to get started.
How to buy non-fungible tokens (NFTs)
An NFT is a token built and managed on a blockchain (most frequently on Ethereum (ETH -0.56%)) that represents ownership of an asset. So, most NFTs require payment in Ethereum or the other crypto blockchain where they're built.
Here's a step-by-step guide to making an NFT purchase.
- Purchase Ethereum on a crypto exchange (such as Coinbase Global (COIN -5.13%)).
- Transfer your crypto to a crypto wallet. Think of it as a digital checking account that stores and transfers your cryptocurrency. Some exchanges like Coinbase have built-in wallet features that are offered when you open an account, but other options include dedicated wallets like MetaMask.
- Connect your wallet to an NFT marketplace. Once connected, you can start browsing the marketplace's NFT collection and make a purchase.
Where to buy NFTs
There are dozens of NFT marketplaces. Currently, the largest is OpenSea, which primarily uses Ethereum but also supports more than 150 other payment tokens. Other NFT marketplaces that have a wide variety of art and collectibles include Binance NFT, Rarible, and Foundation.
Some marketplaces deal in more specific assets. For example, The Musician Marketplace focuses on music compositions, and NBA Top Shot is the officially licensed marketplace to purchase digital video highlights from the National Basketball Association.
Whether it's art, collectibles, video game assets, or website domain names, there's a marketplace that has what you want.
How crypto wallets play a role in buying NFTs
Crypto wallets aren't just for purchasing an NFT. Once you've made your selection, you'll also need a place to store your NFT. Simple options include Coinbase Wallet and MetaMask, and other cryptocurrency exchanges offer wallet features included with an account to trade cryptocurrencies.
However, there are other wallet options for securing cryptos and NFTs offline outside of an account directly connected to an exchange (known as cold storage). For example, the companies Trezor and Ledger offer actual hardware wallets that can store crypto assets. With a private security key, the wallets can provide an added layer of security for storing NFTs.
Top NFT tokens to consider investing in
Unlike cryptocurrencies themselves, NFTs don't derive value from their utility (as an investment asset, like how many investors have come to view Bitcoin (BTC -0.62%), or for their usefulness in facilitating payments). Rather, NFTs derive value from the media they represent (such as art, music, video, writing, etc.). So investing in NFTs is an investment in a collectible item, and its value over time will be determined by various intangible factors including the quality of the piece, its uniqueness, and the clout of the artist who created it.
It's possible to also invest in tokens used to purchase and govern digital asset networks. Here are the top NFT tokens right now.
- Axie Infinity (CRYPTO:AXS): Axie Infinity is a digital game in which players collect, battle, and trade fantasy creatures called Axies. Axie Infinity is built on the Ethereum blockchain, and tokens can be earned by playing the game and used to make purchases on the game's marketplace.
- Theta (CRYPTO:THETA): Theta is a blockchain network for video streaming. Rather than using remote servers housed in a data center to stream video, Theta is a peer-to-peer network that powers content viewing. Theta tokens are used to govern the network's protocol. Theta.tv is the primary streaming service, but partners include the World Poker Tour, which hosts video programming powered by Theta.
- Tezos (XTZ -0.27%): Tezos is an open source blockchain platform designed to power smart contracts, which are programs stored on a blockchain that automatically execute an agreement or task when certain conditions are met. These contracts can be particularly useful in powering decentralized finance applications, but they also power NFTs and marketplaces. The tokens are used to run these applications. They can also be held and staked to earn interest.
Today, NFTs are primarily used in digital art and media, but their use could extend far beyond guaranteeing ownership of collectors' items. A growing list of companies are working on blockchain and NFT technology to make them more useful in business operations.
As a new technology, tread carefully before investing in NFTs. Crypto asset values exhibit extreme price volatility, and a lot of contenders are vying for user and investor attention. If you decide to buy NFTs and tokens, remember to purchase them as part of a diversified portfolio.
