Let's talk about NFTs 🎨
Hey there!
Welcome back to my Day 1 subscribers and a big WELCOME to those who joined the family over this past week! In my last newsletter, I laid the foundation by answering the question “What is Web3?” This week, we’ll dive into all things NFT related!
We’ll cover…
What is an NFT?
My personal experience with NFTs
How to tell if an NFT is a good buy
How to buy an NFT
Criticism and risks associated with NFTs
Recommended action
So, let's dive in!
What is an NFT?
An NFT is a non-fungible token that exists on the blockchain. Now let’s break down exactly what this means. If something is fungible, it means that it can be interchanged with something of the same value. For example, a dollar is fungible. Imagine you have a dollar and I have a dollar, then we switch dollars. Everyone’s happy because at the end of the day we both still have $1. However, something that is non-fungible means that it is completely unique. For example, diamonds are non-fungible because every diamond is a unique combination of colors & cuts and no two diamonds are the same. Keeping this in mind, an NFT is a unique asset, such as digital art, music, or collectibles, that is added (minted) to the blockchain. They are tokens that are used to represent ownership over certain items and they are verified on the blockchain.
My personal experience with NFTs
I first found out about NFTs on Twitter this past December. For work, I follow a lot of Venture Capital investors and people in the tech industry and I noticed that several of them had changed their profile pictures to these weird looking apes (see above). These were the same people who were preaching “Invest in bitcoin!” back in 2013, so needless to say when they talk (or tweet), I listen. After doing some digging, I found out that these apes were NFTs from the Bored Ape Yacht Club (BAYC) and were worth hundreds of thousands of dollars. Yes, hundreds of thousands of dollars. As if that wasn’t crazy enough, I also found out that celebrities I follow, such as Meek Mill and Steph Curry, owned them too. My first thought was “What’s so special about these apes and why would someone pay this crazy amount of money for a jpeg?!” Then after some more research, I realized that purchasing a Bored Ape NFT actually comes with coveted access to a social club, events, and more perks that only token holders of these apes can access. And when token holders are some of the most highly regarded people and celebrities in the world, people will pay a pretty penny to get into this “esteemed” club and boast their BAYC as a status symbol. While I admittedly don’t have $250,000 to shell out for a Bored Ape, the idea of digital art providing utility (even if just for social clout in the case of BAYC lol) piqued my interest in the world and possibilities of NFTs.
I knew I wanted to go through the process of purchasing an NFT as an investment opportunity, but I honestly had no idea where to start. How was I supposed to know what projects would make for a good investment? Where do I even go to purchase an NFT? How do I store my NFT and make sure it’s not stolen? Well, I found out the answer to all of these questions through trial & (lots of) error. I’m now the proud owner of two NFTs — one from the Long Neckie Ladies collection and the other from the Crypto.Chicks collection. I purchased my Long Neckie Lady for 0.3 ETH (~$1,100) and my Crypto Chick for 0.28 ETH (~$900). I invested in Ethereum a couple of years ago so I made some gains on it that I was able to use to play around with NFTs, but I completely understand that’s a lot of money to spend on a new, risky asset class. The good news is that the value of both my NFTs are now higher than what I’ve bought them for and it’s only been a couple of weeks. I’m even getting offers at an average of $4,000+ from people hoping to buy my Crypto Chick! It’s not going to happen any time soon though because I’m holding on to her. Sorry, bots! 😂
How I determine if I'll invest in a project:
COMMUNITY: Get a sense for how active their community of NFT holders is on Twitter. If they have an active Twitter with high social interaction and people seem extremely invested in the project, it’s worth doing more research! (Side note: 90% of the projects on my radar I’ve found through stalking what people I follow on Twitter are investing in. There are pros and cons to this strategy!)
UTILITY: Look for the Utility Roadmap for the project. Yes, you’re buying a piece of digital art, but the best projects I’ve seen are ones that have plans to operate like a business, so I like to think of the utility roadmap as the project's business plan. This will help you understand if they have any strategic partnership opportunities coming up, what you as a community member can expect, and the founders’ plans for ensuring the value of your NFT will appreciate over time.
FOUNDING TEAM: Research the founders of the project. What experience do they have in this space? Are they credible? I personally look for founding teams who have the unique combination of community building experience AND deep technical acumen.
VOLUME TRADED: Go to OpenSea (or whatever platform you use) and look on the Activity tab to determine the cadence at which NFTs from the collection are being bought and traded. I always get excited when a project I’m looking at is selling every couple of minutes, instead of hours or days. This shows that there’s demand for the collection and if you choose to sell your NFT, you will likely be able to find a buyer quickly.
COST: I’m a firm believer in evaluating my finances before any major purchase. “Can I afford to purchase one based on my budget and the amount of cryptocurrency I have available in my wallet?” It’s important to check the floor price of a collection because this shows the lowest price you can buy an NFT from that collection for. Don’t let FOMO have you spending all your hard earned money on NFTs! Lol. NFTs are just one asset class and maintaining a diverse portfolio is key. 💁🏽♀️
Simply put, any NFT I decide to invest in has to have social buzz, a strong utility roadmap, and a highly capable team.
Once you’ve done your due diligence, here’s how you can purchase your own NFT:
Determine which blockchain your NFT is on and make sure you have the right cryptocurrency available in your wallet (check out my last post if you need instructions on how to do this). For example, Long Neckie Ladies and Crypto Chicks are on the Ethereum blockchain, so I had to make sure I had enough Ether in my crypto wallet to make the purchases.
Select an NFT from the collection and determine its rarity level among the entire collection using this website -> rarity.tools. The more rare the NFT is, the more likely you are to be able to re-sell it in the future!
Connect your wallet to the marketplace (i.e. OpenSea)
Buy it! Beware of getting emotionally attached to your NFT once you make the purchase. I’m definitely guilty of this lol
Join the Discord (similar to Slack) or communication platform for your NFT community and stay up to date on all major utility updates & special perks.
Criticism of NFTs
Contrary to some tweets I’ve seen floating around, it’s extremely important to understand that simply buying an NFT will not make you rich. However, buying into the right projects early enough might earn you some real $$$. That’s why the diligence process is important to help discern between those projects that will flop and those that will provide real utility and value.
I also want to acknowledge that there are some valid critiques around NFTs. The most common is that it’s largely speculative. The market is based on proof of unique ownership, “which only really matters for bragging rights and the prospect of selling the NFT in the future.” In a world driven by FOMO, we as humans tend to crave what others tell us we should have. Only time will tell how this market continues to play out, but I’m personally pretty bullish on it. I’d love to hear your thoughts on the space as well!
Recommended Action: Set up your Web3 domain name!
What is a Web3 domain? Well I’m glad you asked! Check out this article which does an excellent job explaining what it is and why everyone will eventually need one. Excerpt below:
“As more people become users of blockchain technology, they will want to connect with friends. Just like you would add somebody’s contact to your phone or follow them on social media, so too will you want to connect with friends across Web 3.0. However, there’s an annoying hang-up to this desire, in that wallet addresses can be so long, complex and boring. Ethereum Name Service (CCC:ENS-USD) aims to ease this inconvenience with its name and lookup service. Additionally, it allows users to take full advantage of Web 3.0 through the assignment of .ETH domain names. But what is Ethereum Name Service, and how can one acquire their own .ETH domain or username?
Ethereum Name Service is a blockchain protocol for users who want to have their own unique and memorable usernames over Web 3.0. Using the service allows you to nail all of your wallet addresses and decentralized websites to a single unique name. For instance, “alice.ETH.” This makes you more recognizable and easier to find across the decentralized space.”
How to set it up:
Invest in Ethereum and transfer it to your wallet! (details in my last post 😉)
Go to app.ens.domains
Search for a user name of your choice. Mine is kendallr.eth (pronounced ken-dollar 💸) & I’m accepting donations LOL
Connect your wallet to the site.
Request to register! And be prepared for potentially crazy high gas fees.
A bonus to having an ENS domain is that it’s also an NFT! So if someone ever wants to buy kendallr.eth from me, I’ll gladly sell it to you for a mil haha.
Hope this was helpful!!
Kendall
This was super informative and the language was very accessible to your everyday person. Thank you!