How to Invest in NFTs?
NFTs are among the new investment options offered, for example, by Coinbase's crypto-only custodian service. For many investors, this may be a deciding factor in whether or not to invest.
However, these assets require an investor to understand and experience the limitations of minor cryptocurrencies (such as lack of use cases and liquidity) before they can integrate into larger portfolios.
What are NFTs?
NFTs are very clearly defined digital assets that are unique or represent something else. It can be physical or virtual objects, collectibles, coupons, tickets for events, etc. They include cryptocurrencies (Bitcoin) and tokens (Ethereum). The biggest challenge for NFTs is the lack of liquidity related to their specific nature.
The barrier to entry is what makes investing in NFTs difficult for many investors. Because these assets do not have the type of liquidity that allows immediate and easy conversions into other cryptocurrencies, there are fewer options for consumers.
Many popular exchanges allow users to convert their crypto-assets and use them similar to a fiat currency. This means that many investors prefer to invest in cryptocurrencies that can be easily traded for fiat currencies and/or transferred into other exchanges.
Investing in Digital Assets
Investing in digital assets is usually very straightforward. This depends on the type of asset, but the process is usually very similar. The investor buys a major cryptocurrency and then transfers it into an exchange that allows them to buy other digital assets. Once they have done this, the majority of crypto-assets can be converted into fiat currencies or used for transactions on popular platforms.
NFTs are often difficult to integrate because they are limited in their liquidity. This means that they can be difficult to convert back into other assets, which is the main reason why some investors avoid them.
Even if some NFTs provides an opportunity for easy conversion, it is usually not practical because of transaction fees and latency issues with connecting to exchanges. Here's how you can invest in NFTs.
- Open an Account
- Verify your Account
- Create your Digital Wallet
- Fund your Account
- Beware of Phishes
- Beware of high fees
- Invest in NFT
Open an Account
To invest in NFTs, you want to buy some cryptocurrencies. To do this, you will need to open an account. You can buy major cryptocurrencies like Bitcoin or Ethereum on popular exchanges like Coinbase or Gemini. Some of these require minimum deposits; others may charge higher fees for trading than other alternatives.
NFTs often have their own dedicated wallets, so you should consider doing your research before choosing where to buy your cryptocurrencies. You will also want to open an account with a popular decentralized exchange like Bancor, Waves, or IDEX. These exchanges may only allow you to trade certain types of NFTs, but they often have better liquidity and lower fees for trading.
Verify your Account
Once you open an account, your funds should be verified. The verification process for popular exchanges like Coinbase is usually relatively simple and can be done through email or automated phone calls.
You need to upload documents that prove your identities, such as a picture of your driver's license or government-issued ID card. Once this has been confirmed, the exchange will send your funds to the wallet you have connected to.
When opening an account, make sure that it is suitable for crypto-assets by checking the accepted payment methods and deposit limits.
Create your Digital Wallet
Creating your own digital wallet is very simple. It can be done in a few easy steps, with most crypto wallets available today. You need to understand what type of wallet you want before opening an account.
You may choose between software, hardware, or paper wallets, depending on how safe you want your assets to be.
Fund your Account
Once you have your wallet, it's time to fill it with funds. To do this, you need a cryptocurrency address. This can be generated using a private key or a seed phrase from your wallet. You will often find these keys/phrases in the setup process of the wallet.
When transferring any cryptocurrencies to exchange, make sure that you have your key/phrase and the address to send them to. You may also need to provide additional information like 2FA or an email address for receiving confirmation of trades.
Beware of Phishes
Phishing is another common problem for anyone who shops online. This usually takes place when someone has hacked into a website, social media, or email account and is operating under a false identity.
You should always double-check the URLs of your exchanges and the addresses where you send your cryptocurrency. There should be a secure padlock icon on websites. Be sure to check for HTTPS everywhere, including in the browser URL bar, as some phishers will put just HTTP: // before links.
Beware of high fees
Every time you send or receive funds, you will normally be charged money for the transaction. A fee is charged by exchanges and networks to process these transactions. Fees can vary greatly depending on which blockchain network you are using.
Not all exchanges or wallets support all cryptocurrencies, so you might have to look elsewhere if the network fee is too high. This can be a problem when creating a new wallet, as it is often not clear which network fee you should use.
Once you have diversified your portfolio using the major cryptocurrencies, it's time to buy some NFTs. You can do this in several ways.
Some blockchain platforms have developed decentralized exchanges where users can trade their crypto-assets directly on their platform without an intermediary. To store these assets securely, however, you will need a wallet that supports the specific NFT that you are planning to buy.
You can also trade NFTs on decentralized exchanges like Bancor, Waves, or IDEX through popular cryptocurrencies like Ethereum and Bitcoin. These exchanges do not require an account but will charge higher fees than traditional exchanges.
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