NFT (Non-Fungible Token) gained a lot of popularity during the CryptoKitties surge in December 2017. NFT is an interesting concept which isn’t widely spread but might become popular in the future because it can be used for many different things. The potential can already be seen in games, digital advertising and while collecting rare items, just to name a few use cases.
NFTs are made possible through blockchain technology which means that nobody can fake or copy one single token or item since they are linked to their owner’s wallet address making them unique. This does not mean that NFTs cannot be duplicated, though – here lies the main risk when investing in crypto collectibles.
Do: Research the market before buying any unique token/item
According to Tyler Swope, a seasoned cryptocurrency investor, you should research the market to see if it’s overheated or if there are any signs that it could be a scam. You should then learn about what makes that particular token unique and how it works before buying into anything. In just a short time, NFTs have expanded their applications outside of gaming. You’ll find the real-world or concrete jungle has a digital Jungle counterpart. If you research the term on the internet, you’ll be surprised that it is also referring to an NFT marketplace. Yes, there is a fusion of digital art, e-commerce, and crypto-collectibles developing in the digital market today. This is all the more reason for interested investors to research the possible applications and potentials of NFT. Also, look at the team behind the NFT. Know what is their track record, what community there is around this app, and if they already have active users. These are crucial pieces of information you need to know before you spend your money.
Don’t: Invest in something you do not understand
The first thing you need to avoid is investing in things you do not understand, according to Tyler. He adds that this is vital to make sure you fully understand the underlying asset of the collectible that you are purchasing. Ask yourself these questions as your guide: Is its value based on scarcity? Demand? Utility? What can you actually do with this token or coin? It’s important to be aware that although this technology may seem new, others have been attempting similar feats since long before blockchain was around. Remember, CryptoKitties is far from the first company to attempt to create a collectible item for sale. Do some research before investing – is there a healthy community of users, and how many buyers have supported similar marketplaces in the past?
Do: Research on other upcoming collectibles/games
Andy Bromberg, co-founder, and president of CoinList, shares that the most important thing to know about NFTs is that there are a lot of really amazing projects coming along with tons of cool use cases. He recommends that people do their homework on all the different projects, read the whitepapers, and find out who the founders are and how they are building their teams. If you can find communities where potential users are already talking about these things you should go in with confidence because if something is exciting enough for people to start talking about it now then there’s probably pretty big interest.
Don’t: Be the last person to know about NFT updates
It is vital not to be the last person to the party when it comes to NFT. So if people are developing really cool stuff with this technology today, then you might need to ask yourself why you’re only hearing about it now, according to Tyler Swope. Again, emphasis is placed on research because you need to learn as much as you can about what makes that particular token unique and how it works before buying into anything
Don’t: Fall victim to social media scams
Andy Bromberg warns about a common scam seen on Twitter where influencers ask their followers to send them ETH and promise an airdrop. This is almost certainly a scam as NFTs aren’t ERC20 tokens and don’t run on Ethereum. Sebastian Serrano, CEO of Rare Bits, adds that non-fungible items are just like any other investment – they carry risk as well as opportunities for gains. And as such, it’s crucial that buyers beware; if something sounds too good to be true, it probably is.
Tyler Swope also advises new investors to not trust social media with their private keys. Use Metamask for Chrome or Trust Wallet on iOS/Android instead. This allows you to safely sign transactions without exposing your private key.
Do: Know about the company before buying from them
Make sure you know what the rules are about selling NFTs in case you want to get out of a market later. It might be difficult if there are U.S. securities laws restricting certain people from trading in a particular asset class. Andy Bromberg adds that you read all legal documentation for any tokens or cryptocurrencies that you purchase so that you understand the rights associated with those assets.
“With any new technology or concept, people need time to learn about it and make mistakes. But if you’re going to buy a digital asset, do your research first. Make sure you know what the rules are around selling NFTs in case you want to get out of a market later. It might be difficult if there are U.S. securities laws restricting certain people from trading in a particular asset class.” -Tyler Swope, cryptocurrency investor.
Do: Take into account scenarios before investing
Ask yourself whether the price listed for a certain NFT makes sense to you: if someone’s asking $100 for what seems like a simple keychain from your favorite series, but from reading more about this product online – which consists of into consideration both people who have actually purchased it and websites specializing in collectibles – you get the feeling that this certain keychain is more worth $20, then go with your gut and don’t buy it.
Don’t: Assume that all collectibles are necessarily worth purchasing
While some people do sell their tokens online for much cheaper than they actually paid for them when originally purchased from the game’s official website, this doesn’t necessarily mean that every token is going to be easily accessible to everyone who wishes to purchase them, so try not to bid on an expensive item unless you’re willing to spend the equivalent amount of money needed to buy it.
NFT Investing is a good and lucrative opportunity but it’s extremely important to be careful and understand what you’re getting into before investing any money in it. To do this, let the Do’s and Don’ts listed above guide you in your investment plans and decisions.