CHAPTER 8
There are millions of non‐fungible tokens (NFTs) in the various NFT marketplaces. Say that one or two catch your eye. If the price is right, why not put in a bid or buy it outright?
In this chapter, we’ll go through, step‐by‐step, how to buy NFTs. We’ll also offer strategies for building a collection. But first, we’ll discuss various reasons to buy NFTs.
Why Buy NFTs?
A common question we hear goes something like this: “Why buy NFTs when you can access and display an NFT’s image or video without having to buy it?” At the heart of this question is a common sense argument: “Why pay for something that you can get for free?” But this is really a question concerning the technology that makes NFTs unique and scarce, which we covered in Chapter 1, “What Are NFTs?”
This section does not address the technological reasons for buying an NFT, but rather the underlying personal reasons. There can be quite a few reasons, some of which also pertain to why people buy physical art. Some of these reasons are as follows:
· Meaning
· Utility
· Investment
· Prestige
· Collecting
These reasons are not separate and distinct, and a few may apply to any particular NFT purchase.
Meaning
Like a painting or any other work of art, an NFT can move you emotionally, acting as a lens and uncovering deeper meaning or greater understanding, just like Beeple’s Cyberpunk‐inspired NFTs resonated with how people view and feel about the current state of the world and where we may be headed.
Perhaps you identify with the artist and what he or she stands for or has gone through. Their story touches you through their NFTs. Or you may be an avid Back to the Future fan, and the 3D DeLorean NFT with the flux capacitor is something you just have to have.
Whatever meaning an NFT has for you is reason enough to buy it.
Utility
Several types of NFTs provide utility, such as in‐game items, domain names, and virtual real estate. Say that you want to give your car a boost in F1 Delta Time. Try upgrading your transmission for example, with a transmission NFT. Now a transmission NFT may not provide a lot of meaning, but it could offer significant utility.
The purpose of the .eth and .crypto domain names, for example, is to provide utility. You can use them in place of lengthy cryptocurrency addresses. But a blockchain domain name can provide meaning as well, as it’s a way to represent yourself, like an alter ego.
Digital real estate, like actual real estate, also has utility and meaning. It’s a place where you can build and live, while in a particular location that you enjoy.
Investment
We get asked another question frequently, “Are NFTs a good investment?” We’re not offering any financial advice, but we will provide our opinion. If you believe that NFTs are still at an early stage and will be the next big thing, then NFTs would seem to be a good investment in general. But you can’t invest in NFTs “in general,” only in specific NFTs. So, if you’re buying NFTs for investment, what would be some good NFTs in which to invest?
The answer depends upon your investment goals. As in the art world, works of established, well‐known artists have demand and are more likely to increase in (or at least retain) value than works of an unknown artist. However, if an unknown artist blows up, the increase in value could be considerable. It boils down to risk versus reward.
Keep in mind that, generally, investment in art and NFTs is risky. With established artists, you’re laying out a lot of money, which is where the risk enters the equation. Over time, the artwork or NFT could be worth many times your investment. For example, Beeple’s Crossroads NFT was purchased in December 2020 for $66,666 and then resold two months later for $6.6 million.
There’s obviously no guarantee that an established artist’s work will garner a high return. In fact, the value could drop. But for an established artist, the drop would hopefully not be significant. Note that as we covered in Chapter 3, “Why NFTs Have Value,” there’s the additional risk of physical artwork being discovered as a forgery.
On the other end of the investment equation is speculation. This is where you’re buying works of unknown or lesser‐known artists, or NFT creators, hoping that the artist takes off with the prices of their works in tow. Since NFTs of lesser‐known artists will generally be less expensive, you have the opportunity to diversify your risk among multiple artists. If one of them hits, you could earn a sizeable return, taking into account all of your NFT investments. See the “Building an NFT Collection” section later in this chapter.
Some people like to invest in collectible NFTs. For example, they buy multiple NBA Top Shot packs hoping to land LeBron James or another big star and then sell the high‐demand NFT on the secondary marketplace for a nice return. For instance, in April 2021, a LeBron James NBA Top Shot moment NFT of a dunk honoring Kobe Bryant sold for $387,600.
One advantage of investing in NFTs, and art in general, is that you’re able to enjoy the NFTs you bought, especially if they have meaning to you.
Prestige
Let’s face it, lots of people like to show off, and there’s nothing wrong with that. Purchasing and displaying art and NFTs is a great way to do it. Lazy.com is a site built for that purpose. There, you can show off your NFT collection. People can also look up your name or Ethereum address on one of the marketplaces and see your collection there as well.
NFTs are blockchain based, and blockchains were designed to be transparent. So, in a way, NFTs were intended to be shown off.
Collecting
We touched on collecting earlier with respect to art NFTs. But NFT collectibles are booming as well. We talked about it in Chapter 2, “What Are NFTs?” People like to collect. And NFTs are fun and easy (once you’re on the blockchain) to collect. From CryptoKitties to NBA Top Shot to Garbage Pail Kids, there are tons of great collectible NFTs. What do you like to collect?
For a deeper dive into collecting NFTs, see the section “Building an NFT Collection” later in this chapter.
Buying NFTs
This section presents a step‐by‐step guide to buying NFTs. As with the earlier chapters, we’re going to continue to use OpenSea as a guide, mainly since you’re already set up with an account and have your MetaMask wallet connected.
To buy an NFT, you must first find one that you’d like to purchase.
Finding an NFT to Buy
The first step in finding an NFT to buy is to consider why you’re buying an NFT. See the previous section, “Why Buy NFTs?” You may have no particular reason other than to try it, and that’s fine. But there’s probably some type of NFT that you’re leaning toward. If not, there are plenty to browse through until something catches your eye (or your heart).
The OpenSea home page is a good place to start. There you’ll find sections for exclusive drops and trending collections, or you can browse by category. The categories currently listed on OpenSea are as follows:
· Art
· Music
· Domain Names
· Virtual Worlds
· Trading Cards
· Collectibles
· Sports
· Utility
· All NFTs
The last category, All NFTs, is, in essence, no category if you’d just like to browse everything. There’s also a search bar on the OpenSea home page if you have something in mind.
A word of caution: as we discussed in Chapter 2, “What Are NFTs?” anyone can create an NFT with any name, including fake versions of existing items. Please do your own research, particularly when looking for a specific artist, NFT creator, collection, or NFT, to ensure that the NFT is what it claims to be. Look to see if the NFT is in a verified collection—one that has a blue check mark. See the “Verification” section of Chapter 6, “Creating and Minting NFTs.” If there’s no blue check mark for the collection, the collection could still be fine; just make sure to do your research.
Once you’ve found an NFT that you’d like to buy, you need to know how it’s listed for sale.
Ways to Buy NFTs
As we covered in Chapter 7, “Selling NFTs,” there are three ways in which NFTs can be sold:
· Leave it open for offers.
· Set a price.
· Start an auction.
We’ll go through how to buy NFTs for each listing method.
NFTs Left Open for Offers.
If the NFT you’d like to buy is left open for offers, you can simply make an offer. But there are some steps you must take first.
1. On the NFT’s page on OpenSea, click the Make Offer button in the Offers section. The Make an Offer pop‐up will appear (see Figure 8.1).
Currently, you can only make offers in WETH, DAI, and USDC. As discussed in Chapter 7, DAI and USDC are stablecoins designed to be pegged to the U.S. dollar. Notice that you can’t use ETH to make an offer. So, what is WETH?
WETH is Wrapped Ethereum, a token with the same value as Ethereum (ETH). The reason why OpenSea uses WETH instead of ETH is that WETH has more functionality. For example, if you used ETH for making offers and you wanted to bid 1 ETH on five different NFTs, you would need a total of 5 ETH, one for each NFT. With WETH, if you wanted to bid 1 WETH on five different NFTs, you would need only 1 WETH, not 5. In this case, your WETH would go to the first bid that’s accepted, and your four other offers would be automatically canceled unless you have at least 1 WETH left in your wallet to cover them. So, the advantage of WETH is that you can make offers on multiple NFTs with just a small amount.
FIGURE 8.1 NFT Make an Offer pop‐up on OpenSea
2. If you don’t have any WETH in your wallet, click the Convert ETH button in the Make an Offer pop‐up. If you do have WETH (or DAI or USDC), skip to step 3.
In the Convert WETH pop‐up, click the Select a token button. Then select ETH or another token in your wallet that you would like to convert to WETH.
Enter the amount of ETH (or another cryptocurrency that you selected) that you’d like to convert to WETH. We don’t recommend converting all your ETH to WETH because you’re still going to need some ETH for gas. It’s always a good idea to keep some ETH in your wallet because you never know when you may need it for gas. Also, most NFTs on OpenSea with a fixed price are priced in ETH, so if you’d later like to buy an NFT with a fixed price, you should keep some ETH around for that as well.
After you enter the amount to convert to WETH, click the Wrap button. Your MetaMask wallet will pop open. If it doesn’t, then open your MetaMask wallet. You’ll need to pay a gas fee to convert your ETH (or another cryptocurrency that you selected) to WETH. Click the Confirm button in your MetaMask wallet. The transaction will likely be pending for a few (or several) minutes. After the transaction completes (is confirmed on the Ethereum network), close out the Convert WETH pop‐up.
3. On the NFT’s page, click the Make Offer button. In the Make an Offer pop‐up, enter the amount of WETH that you would like to bid. Obviously, you need to bid more than the current bid. Next, select the Offer Expiration period, which is the time period that you would like your offer to be open and the time of day your offer will expire (on the final day your offer is available). The Offer Expiration period is really up to you. There’s no harm in keeping your offer open for a while. Just note that if you’d like to cancel your offer before it expires, then you’ll have to pay a gas fee. When ready, click the Make Offer button.
Your MetaMask wallet will pop open. If it doesn’t, then open your MetaMask wallet. Click the Sign button in your MetaMask wallet. There’s no fee—you are simply signing.
Your offer should now appear in the Listing section of the NFT’s page. You can cancel the offer at any time by clicking the Cancel button associated with your offer. Your MetaMask wallet will pop open. If it doesn’t, then open your MetaMask wallet. As mentioned, you’ll have to pay a gas fee. Click the Confirm button in your MetaMask wallet to pay the gas fee and cancel the offer. Or click the Reject button if you decide not to pay the gas fee and keep the offer intact.
If the seller accepts your offer, then the sale will be completed. Your WETH (the bid amount) will be sent to the seller, and the NFT will be sent to you. Note that in this situation (on OpenSea), where the seller accepts an offer, the seller will pay gas for the sales transaction.
Congratulations! You are now an NFT collector. You can view your new NFT on your account page. To go there, just click your profile icon in the upper‐right corner of any OpenSea page.
NFTs with a Set Price.
If the NFT you’d like to buy has a set price, you can simply accept that price. If you think the price is too high, you can make an offer for less. Just follow the steps in the previous section.
To accept the price, click the Buy Now button. On the “Checkout” pop‐up, click the Checkout button. Your MetaMask wallet will pop open. If it doesn’t, then open your MetaMask wallet. You will need to confirm the transaction, which includes a gas fee. Note that on OpenSea, when a buyer accepts a set price, the buyer pays the gas fee. If the transaction looks good, click the Confirm button in your MetaMask wallet. Otherwise, click the Reject button to cancel the transaction.
You’ll be taken to a page saying that your transaction has started and that “The Ethereum network is processing your transaction, which can take a little while.” This page may ask for your email address and nickname if you haven’t already set that up in your profile settings. Enter an email address and nickname. Note that you cannot have the same nickname as another OpenSea user. Then click the Save button. Your MetaMask wallet will pop open. Click the Sign button to sign into your OpenSea account.
OpenSea may then send you an email to verify your email address. Click the Verify My Email button in the email they sent.
OpenSea will email you when the Ethereum network has confirmed your transaction. Then you will be able to see your new NFT on your account page.
NFTs on Auction.
This section pertains to NFTs being sold by English auction. The previous section also applies to NFTs that are being sold by Dutch auction.
If you’d like to bid on an NFT on auction, click the Place Bid button. The “Place a bid” pop‐up will appear (see Figure 8.2).
You will only be able to bid in the cryptocurrency with which the NFT is being auctioned (usually WETH). For more information on WETH and how to convert ETH to WETH, see the earlier “NFTs Left Open For Offers” section.
FIGURE 8.2 NFT “Place a bid” pop‐up on OpenSea
Your bid amount must be higher than the current highest bid. If you don’t have enough funds to make a high enough bid, you must add funds to your MetaMask wallet. See the “Funding Your MetaMask Wallet” section of Chapter 7.
In the “Place a bid” pop‐up, enter the amount of cryptocurrency you would like to bid, and then click the Place Bid button. Your MetaMask wallet will pop open. If it doesn’t, then open your MetaMask wallet. Click Sign in your MetaMask wallet to continue with the offer. Note that the buyer of an NFT sold by auction (English auction) will not be responsible for a gas fee.
You will see your offer on the NFT’s page in the Offers section. Your offer will be open for seven days. You can cancel your offer at any time, but you will have to pay a gas fee to do so.
If your offer is the highest when the auction ends and your offer is greater than or equal to the reserve price, then OpenSea will automatically complete the transaction. Note that the seller can accept your offer anytime, regardless of when the auction is scheduled to end.
Good luck with your bids.
Building an NFT Collection
We all collect for a variety of reasons, whether it’s a childhood passion brought back to life, supporting the creators, the thrill of the hunt, the aesthetics, or just for fun. We cannot tell you what to collect or why you should collect it. It’s your money. And if something simply catches your eye, go for it.
Most likely, though, you’re curious about NFTs, and perhaps you’re hoping to make money with them.
Be careful, because the Greater Fool Theory can be at play in the NFT market. The Greater Fool Theory posits that prices go up not due to an increase in value of the item but simply because people are able to sell an overpriced item to a “greater fool.” It doesn’t matter if the investment is clearly overvalued, so long as there’s someone else who will take it off your hands. And, of course, you don’t want to be the last person stuck with the investment when there are no greater fools left.
For the vast majority of NFTs, we believe that the Greater Fool Theory will take shape. But that’s not to say that all NFTs will fall into this trap. Certain artists will make a name for themselves and become highly sought after for their work, and some NFT projects will create compelling utility and add something to society that is needed.
By no means can we tell you exactly which NFTs those will be. We can, however, outline a few collecting strategies that could put you in a better position for success.
Collect Like an Angel Investor
It can be tempting to put all of your eggs in one basket with NFTs and go all in on just one project—especially when there’s a lot of hype and demand around it today. But the danger here is that nobody truly knows who or what will still be around in the near future.
This is why it’s wise to invest like an angel investor or venture capital fund. They are known for taking lots of bets on budding businesses. If they’re fascinated with app‐based insurance, then they find a way to invest in two or three businesses building this future. And even if they cannot get their money in multiple companies building a particular industry in parallel, they still make many investments across several different verticals. Diversification not only gives exposure to lots of different opportunities, but it also reduces risk. It takes only one of those investments to hit it out of the park in order to cover the losses of the other investments—and then some.
It’s challenging to pick the NFTs today that will be winners tomorrow. This doesn’t mean that there aren’t things to look for in a project. Here are some questions to contemplate:
· Who’s creating the NFTs?
· Are they putting forth a unique, authentic vision driven by longevity?
· What’s the use case or utility of the NFT project?
· Does it seem like a project in which many people will want to partake?
· Is the team responsive to your questions?
· Who else is collecting the project?
· Are there people with extensive collections getting in?
· Has there been any institutional money put behind them?
It’s important to recognize and accept that all NFT creators are going to run into challenges. Something happens in life that shifts their attention away from their art. The project could run out of money and stop building additional experiences and NFTs. Their wallet could get hacked, and their NFTs leaked. Copycats could steal some of the demand or, worse, start selling fakes (which happens more than you’d imagine).
Regardless of what happens, you still get a cool piece of art that spoke to you in some way, even if its value plummets. That’s why we recommend you collect NFTs that you’re entirely OK with never exploding in value. Be an NFT appreciator first and foremost. If you’re passionate about the NFTs that you’re collecting and you can put into words why you’re into a project, others will gravitate to your motives on why you’re collecting it.
For this reason, we believe that now is the time to create an identity for what you’re collecting.
Have a Collecting Identity
We haven’t quite reached the point where people have an ultra‐selectivity in how they curate their collections. Most are just money hunting, which is reflected in the mishmash of NFTs in most people’s collections.
However, what many people aren’t talking about right now is that everyone can create a name for themselves as an NFT collector—not just via headline‐grabbing, massive NFT purchases, but rather through how they curate their NFT collection and the identity that they craft around what they collect.
Maybe you collect only movie‐based NFTs. Maybe it’s NFTs that are the color green. Perhaps you like building a collection entirely consisting of the first NFT that people make. Comedy NFTs, NFTs that support a charity, Pop Art NFTs—there are so many unique features around which you can design your collecting identity.
If we build upon the earlier financial parable, collecting like an angel investor, you can curate your NFT collection in the same way that an exchange traded fund (ETF) is built around one particular asset class or theme. ETFs are a type of investment fund that groups assets, such as stocks, bonds, currencies, or commodities, into one asset that you can buy or sell on a stock exchange.
ETFs generally have a theme to the assets they hold. For example, the SPDR S&P 600 Small Cap Growth ETF gives you exposure to 600 companies with high growth potential. The IPAY ETF holds several stocks in the payment processing and digital payments industry, such as Visa, MasterCard, PayPal, and Square.
You can curate your NFT collection in much the same way, building around a theme. Like ETFs, this way of building a collection gives you the diversity of investments that we talked about earlier, while also creating an identity for yourself as a certain type of collector.
Realistically, the only example we’ve seen of these collector identities would be the Virtual Land Dealers who buy and sell land in blockchain games like The Sandbox, Decentraland, and Axie Infinity. This means that there’s ample opportunity to do this in other categories of NFTs.
Designing an identity as a collector is not necessary. However, we feel it’s how NFT collecting will evolve over the next decade, especially when you think about the opportunities and streams of revenue that you can build off of this identity. Whether you become a digital gallery curator, build a following in your niche category for breaking out new NFT artists, or some other branding opportunity that we cannot even imagine right now. Not to mention, it would be pretty cool to be able to say you’re the longest‐living or biggest collector of X, Y, or Z category of NFTs.
Remember, if you buy your first NFT today, then you’re one of the first million NFT collectors. That means something. The first million people on Twitter had a lot of opportunities to build a following before everyone else got involved. The first million Instagrammers, when it was primarily a photography sharing app, could break ground and do things no one else was doing. Who knew that Kim Kardashian would ever come along and use Instagram to build a billion‐dollar beauty empire?
Being an early NFT collector gives you opportunities that later collectors simply won’t have.
For instance, we believe there’s a future where having the ability to curate a remarkable collection will be a business in and of itself. A few years from now, NFT collectors who don’t want to put the work into researching and deciding on which NFTs to collect will buy people’s entire collection as an easy way to get started. Instead of seeking NFTs on the secondary market, they’ll simply find someone’s collection they like and buy their entire wallet from them—similar to how people buy kids’ entire Pokémon, Yu‐Gi‐Oh, or Magic: The Gathering deck. Mark our words; this will happen with NFTs, especially considering it’ll be a social validator to have a wallet with transactions dating back to 2021, 2020, or even earlier.
Not everyone can be one of the NFT whales, like WhaleShark or Metakoven. But you can make a name for yourself as a collector in different ways. And a great way to dip your toe into the water is through free NFTs.
Where to Start
Browse around on the NFT marketplaces for a few days. See what people are talking about in different NFT communities on the Internet. Find a few that you really like and try reaching out to the creators. Start some conversations and try to get a sense of where they’re taking the project. Heck, you can even reach out to collectors and get a sense from them of how they’re thinking about collecting.
As we discussed in the “Marketing Your NFTs” section in Chapter 7, “Selling NFTs,” it’s possible that there are lots of free NFTs out there. There are various methods as to how these free NFTs are transacted. But most often, you cover the gas fee, and they’ll send it your way.
How do you find free NFTs? Go to OpenSea, click the Marketplace drop‐down at the top of the page, and click All NFTs. Then sort that list using Price Low to High, and voilà! You’ll see loads of free NFTs out there.
It’s a great way to start your collection without dropping thousands of dollars in a couple of hours. And if you wait for opportune times when gas fees are low, you can be on your way to building a nice collection for just a few hundred dollars.
We’re very much in the early days of NFTs, which means that there’s an opportunity to have a theory on NFT collecting and just do it. Nobody has a crystal ball, which means that there’s no wrong way to collect NFTs.
You can just start with one, and see how you like it. NFT collecting doesn’t have to be complex. Don’t overthink it, and just start collecting!