Investing in NFTs for the First Time? Here’s the Only Guide You Need

Wondering what you need to know if you’re investing in NFTs for the first time? Well, here goes…

NFTs grew in popularity in 2021 following the sale of Mike Winklemanns Everydays: the First 5000 Days for a mouth-watering $69.3 million. Since this event, the NFT market has continued to advance leaps and bounds. 

NFT trading volume in the first four months of 2021 exceeded $2 billion USD, which is 10 times the trading volume for the entire year of 2020. Such exponential growth has prompted some skeptics to compare it to the Dutch Tulip. And if you think about it, it’s not entirely out of place considering the numbers. 

For a new person looking to invest in NFTs, the statistics are alluring, making it difficult to resist. But there are basic things to know before making this quantum leap.

What Are NFTs?

Shaun, after watching his favorite basketball team play, meets his favorite player by some stroke of luck. This favorite player of his signs a card and adds the words “for Shaun”.  

There may be a million similar cards. But Shaun has the only card signed by the basketball star “for Shaun”. His card may be similar to the others. But their value pales in comparison to his because of the signature. And as such, Shaun’s card cannot be fairly exchanged with another random card. 

What I’ve just described to you is non-fungibility. Shaun’s card is non-fungible or not transferable because of the players’ signature.  This non-fungibility also confers on Shaun the right to own the card.

This analogy gives a fair idea of what NFTs are. 

An NFT is a digital asset with a unique identity recorded on a blockchain. The unique identity recorded in the blockchain serves as proof of ownership. This means that even if a copy of the digital material is made, its ownership can still be traced. 

As I already explained, NFTs are non-fungible. This non-fungibility means it is not freely exchangeable with other assets and is not of equal value with similar assets. 

Assets like bitcoin are fungible because two bitcoins are similar and of the same value. This means that one bitcoin can be fairly exchanged for another. On the other hand, two similar NFTs, despite their similarity, are not of the same value and cannot be exchanged. 

How NFTs Work

When an NFT is minted, the blockchain assigns a unique code to the digital asset, which serves as proof of ownership. This proof of ownership, and not the digital material itself, is what is exchanged when an NFT is bought. 

You’ve probably wondered what the big deal with NFTs is. After all, digital materials like images and GIFs can be copied by literally anyone on the internet with the click of a mouse. 

But here’s what makes NFTs different. The unique code recorded on blockchain, like the signature on Shaun’s card, serves as proof of ownership. An NFT essentially certifies the holder as the owner of the original copy of a digital material.

NFTs Aren’t Limited to the Art Industry 

NFTs got their first welcome in the art industry. However, its use is not limited to digital art. NFTs can be minted from any digital material. 

A dunk by LeBron James was minted as an NFT and sold for $208,000. Jack Dorsey, the former CEO of Twitter, also minted his first tweet as an NFT. This one sold for a whopping $2.9 million. 

In the gaming industry, players around the world are acquiring in-game materials that can also be sold as NFTs. And then there are NFT lands in the metaverse selling for huge amounts. A good example is Decentraland’s Genesis City which has already been sold out.

So, as you can see, NFTs can be minted from literally anything on the internet. And depending on the rarity of the digital material, these NFTs can be extraordinarily valuable.

What You Need to Know as a Newbie NFT Investor

Perhaps, the most important thing you should know when investing in NFTs for the first time is how to determine rarity.

The rarity of an NFT determines its value. And there are several factors that contribute to the rarity of an NFT, some of which you might not know if it’s your first time investing. This is why a a person starting out needs information before taking the next step.

Thankfully, there are tools that can help make your research easier. These tools will help you search for the rarity of an NFT, track whale wallets, and help with your due diligence to make good investment decisions.

Here are seven of the very best ones you should check out right now.

Seven Important Tools for the First-Time NFT Investor

Rarity.Tools 

The Rarity.Tools website collates real-time data of all NFT arts and collectibles. It has a user-friendly interface and is easy to use, making it a top choice for art collectors.

The website filters NFT collection lists by their traits, sale prices, and market volume in the free version. Clicking on an NFT brings up more data and its price charts.

Rarity is an ideal place to check for upcoming NFT projects. It helps users identify upcoming projects ahead of their public sale or mint. This way, you have the unique opportunity to be an early investor and cash in on an NFT’s profitability before it does a 10X or 100X.

DappRadar

DappRadar is a free-to-access (has no paid version) tool that ranks decentralized applications (Dapps) and NFTs. It helps users analyze, track and discover new NFT projects. The portfolio tracker also helps the user monitor acquired assets.

DappRadar is ideal for a newbie. I recommend it because of its easy-to-use features and its educational platform. The blog features articles on essential crypto topics that will be helpful to new investors. It also carries the latest crypto news to keep readers abreast of the happenings in the crypto space.

DappRadar ranks projects based on liquidity, capitalization, and prices. It also has segments for top NFT sales, top collections, marketplaces, and upcoming projects that guide users to trading volume and price changes in the market.

Icy.Tools

This is another platform I recommend for beginners because of its clear and straightforward user interface. A user can quickly access the list of trending sales, which are ranked by volume and sales price.

In my opinion, the only reason Dappraddar is more favored than Icy.Tools is cost. Icy.Tools has a paid version where you find the more sophisticated features such as detailed analysis, unlimited wallet tracking, and in-depth market charts.

Dapprader, on the other hand, offers all of its features for free. Nevertheless, Icy.Tools remains one of my top picks for beginners.

Etherscan Token Tracker

The ERC-721 is the standard used to build NFTs on Ethereum, and Etherscan offers access to all ERC721 token contracts. 

It is the Ethereum block explorer that provides access to check any wallet, token, transaction, or smart contract. It also has an NFT toolset that allows users to track the complete history of an NFT or search information about said NFT. Such information could include NFT minting, distribution, prices, etc. 

Etherscan is free to access with a very simple UI.

Raritysniffer

I said earlier that NFTs are valued based on their rarity. As the name suggests, Rarity Sniffer ranks NFT projects based on their rarity. It is free to use, but only offers information on the latest NFT collections.

That said, Rarity Sniffer has a Discord channel, which has a subscription fee of 1.5ETH. In this channel, members get exclusive access to the rarity status of new NFTs before their public release.  

Traitsniper 

This website is unpopular, but it still remains one of my favorite tools for discovering new NFT projects. Traitsniper focuses on analyzing established and upcoming NFT projects, and updates users on NFTs with good investment potential based on their rarity score.

Traitsniper analyzes newly revealed projects for rarity status at remarkable speed. In just about 1 minute and 15 seconds, the Traitsniper bot can analyze a revealed project for its rarity status. And guess what? It does this with 95% accuracy!

Traitsniper has a free and paid version. Both give access to the tool, but at different speeds. 

The paid version gives users instant notification on a newly revealed collection. Users on the free version plan, however, receive the information about an hour after the reveal. 

For the paid version, subscription rates are 0.15ETH weekly or 0.5 ETH monthly.

Moby 

Moby is efficient, and it offers real-time NFT feeds and statistics. The data charts in Moby are accessible to paid subscribers for about 0.1ETH for six months.

It provides short window period intervals of 10 mins, 60 mins, 24hrs, etc. This enables investors to make faster decisions on new trends.

How to Make Passive Income With Your NFT Collection

After doing your due diligence and purchasing your NFT, it is not a good decision to allow it to sit in your wallet or wait for it to appreciate before selling. There are several ways your NFT can earn you a passive income in the meantime. Here are a few:

Staking Your NFT to Generate a Yield

You can lock away your NFT or digital assets into a DeFi protocol to generate a yield. This is a better option than just leaving it in your wallet, waiting for it to appreciate. 

Some platforms that facilitate NFT staking include: Only1, Onessus, Kira, NFTX, and more.

NFT Rentals

NFTs in high demand can be rented out for passive income. This is common in NFT gaming. The owner of the NFT can place it on rental for a preferred duration and lease rate. And then gamers who want to play a particular P2E game but can’t afford to buy the NFTs required can then rent these NFTs at a cheaper rate. 

It’s a win-win. The NFT holder renting out gets to earn passive income on their investment. And then the gamer renting the asset gets to play their favorite game for cheap and make some significant income as well.

reNFT is a good platform for NFT rental, which allows the lender to set maximum borrowing periods and daily rental rates.

Provide Liquidity to Receive NFTs

You can provide liquidity with your NFT and earn an NFT in return. This way, you can establish your position in a given liquidity pool. And if you were wondering where you could do that, well, Uniswap has got a feature that might help. 

You can also farm your NFT for yields using NFT powered products. The tokens obtained from providing liquidity with your NFT can be staked in other protocols to get a yield. This is what is called yield farming and is highly profitable if you know what you’re doing.

Wrapping Up

I believe this article has covered all the grounds on all the most important tips you need to know as a first-time investor into NFTs. Let me know down in the comment section which of these tools you’ll be giving a spin first and bye for now.