The digital age has simplified the duplication and distribution of files. However, this convenience also led to rampant piracy, significantly harming creators' interests. Non-Fungible Tokens (NFTs) emerged as a solution, gaining massive popularity across gaming, film, music, and digital art collection sectors. This guide explains what NFTs are and how you can start trading them.
What Are NFTs?
NFT stands for Non-Fungible Token. It is a unique cryptographic asset built on blockchain technology. As the name implies, each NFT is distinct, indivisible, and cannot be exchanged on a one-to-one basis with another token.
Think of an NFT as a digital certificate of ownership. It can represent both digital and physical assets—like a profile picture stored on IPFS, a video on a centralized server, or even real-world property. By digitizing these assets, NFTs facilitate more secure and efficient transactions. Since they operate on decentralized blockchains, they eliminate intermediaries and reduce the potential for fraud.
When you purchase an NFT, you are not necessarily buying the underlying artwork or media. Instead, you are acquiring a token that grants specific rights, such as viewing, listening, downloading, or sharing. In most cases, the original creator retains copyright, and the issuer controls the number of tokens minted. However, some platforms, like Royal for music NFTs, do assign copyrights to token holders.
It's essential to consider blockchain network fees, which vary by platform. For example, Ethereum, which hosts the largest ecosystem of NFT decentralized applications (Dapps), often incurs the highest transaction costs.
Buyers typically pay gas fees, transaction charges, and possibly royalties set by the creator. To engage in NFT trading, you'll need a cryptocurrency wallet compatible with the blockchain of the NFT you wish to purchase. Since most NFTs are on Ethereum, Ether (ETH) is commonly used for transactions.
Major NFT Marketplaces
A variety of NFT marketplaces exist, each catering to different niches like art, gaming, or sports. Platforms often require specific cryptocurrency wallets, and no single wallet supports all marketplaces.
OpenSea, launched in 2017, is the largest and most popular NFT marketplace, commanding around 90% of the market share. Other notable platforms include LooksRare, Nifty Gateway, and SuperRare, each with unique features and communities.
Beyond Ethereum, Solana has emerged as a strong competitor due to its scalability and lower transaction fees. Popular Solana-based NFT platforms include MagicEden, Solanart, SolSea, and Alpha Art.
MagicEden, for instance, supports a DAO, launchpad, and dedicated gaming section. It also provides API services and dominates Solana's secondary NFT market with over 90% market share.
👉 Explore popular NFT marketplaces
How to Trade NFTs on a Platform
Many platforms allow users to create, buy, and sell NFTs. They often support various token standards and offer features like blind boxes or physical item redemption.
To start trading, follow these general steps:
- Register an Account: Sign up on a platform of your choice.
- Set Up a Crypto Wallet: You need a wallet to store, send, and receive NFTs and cryptocurrencies. Ensure it is compatible with your chosen platform and blockchain.
- Connect Your Wallet: Link your wallet to the marketplace to enable transactions.
Most platforms accept multiple cryptocurrencies, but stablecoins like USDT are often preferred for fees and trades.
Step-by-Step Trading Process
- Browse the Marketplace: Explore categories to find NFTs that match your interest.
- Review NFT Details: Check the listing for the sale end date, current price, bid options, transaction history, and other relevant information.
- Purchase or Make an Offer: You can buy immediately at the listed price or submit a bid.
- Participate in Auctions: Some NFTs are auctioned; you can place bids, and if yours is the highest when the auction ends, you win the item.
- Complete the Transaction: Transactions usually finalize within minutes, depending on network congestion and fees.
👉 Learn advanced NFT trading strategies
Frequently Asked Questions
What exactly does owning an NFT mean?
Ownership of an NFT represents a digital proof of ownership or rights to a specific asset, often including usage rights like displaying or sharing. It does not necessarily confer copyright unless explicitly stated.
Which blockchain is best for NFT trading?
Ethereum is the most established, but high fees can be a barrier. Solana offers lower costs and faster transactions, making it a popular alternative for newcomers.
Are NFT profits taxable?
In many jurisdictions, profits from selling NFTs are subject to capital gains tax. Always consult local regulations or a tax professional for guidance.
How do I avoid NFT scams?
Stick to reputable marketplaces, verify contract addresses, and be cautious of deals that seem too good to be true. Never share your private keys or wallet seed phrase.
Can I create my own NFT?
Yes, most platforms allow you to mint NFTs by uploading your digital work, though this usually involves paying a gas fee.
What types of wallets are compatible with NFTs?
Hardware wallets like Ledger and software wallets like MetaMask or Phantom (for Solana) are commonly used. Ensure your wallet supports the blockchain of the NFT you're trading.
Conclusion
NFTs first gained conceptual traction around 2018 but exploded in popularity during 2021. They have attracted artists, celebrities, and influencers, riding the wave of decentralized finance (DeFi) to bring innovation and new liquidity to digital markets.
However, the NFT space remains largely unregulated, presenting both opportunities and risks. Investors should exercise caution, conduct thorough research, and rely on trustworthy platforms for transactions. Always remember that investing in NFTs involves risk, and it's crucial to make informed decisions.