What to Look for When Buying an NFT

by George Philip
Published: Last Updated on 0 comment

Most investors are familiar with collectibles such as art, fine wines, trading cards, or even classic cars. Often a lot of money is invested in these assets, which is associated with their further growth in price, and their valuations, as a rule, do not correlate with other investment markets. 

With the boom in NFT sales, more people are showing interest in the digital collectibles market. However, do not forget that this is a purchase for which you pay with real money. Unfortunately, there are sellers who work dishonestly in an effort to make a quick buck, and in order not to be a victim, it is recommended to conduct a personal analysis.

  • Before investing in any collectible, it is important to understand who created that asset and how many have been created. In addition, it is important to verify the authenticity of the product, since these markets are usually unregulated and therefore full of fakes.
  • Look for positively active communities – long-term value is determined by interested communities. If there is high community involvement, that is positive, and there is both creator and community involvement, which is the first and most important thing to look for.
  • Look at the team – how transparent it is. Many successful projects have remained in the shadows, but future success may be based on mutual trust. The longer the team works as developers (artists, creators), the better.
  • Analyze followers on Twitter/Discord. Ask yourself, is engagement enough? Do they have an unusually large number of followers but don’t contribute to the posts (could they be bots)?
  • Study the roadmap – does it make sense?
  • Check the contract address to see if it belongs to the creator. Make sure you are buying an NFT designed by the author and not a scam.
  • If you are investing in collectibles, whether physical or digital, it is important to understand that their valuation is highly speculative.
  • In any case, when investing in collectibles, it’s best to have a long-term horizon, as long-term appreciation in value is generally the safer bet.

Understanding the Modern NFT Market

To date, billions of dollars have already been involved in NFTs. However, the technological infrastructure for creating, hosting and trading NFTs is still under development. Creators and artists are still learning about the format and process of creating digital goods, but it’s getting more and more popular every month.

Most NFTs today are already dependent on Ethereum, a popular blockchain hosting many projects. The growth and popularity of Ethereum have created scaling issues on the network, which can sometimes lead to slowdowns as well as high transaction fees.

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In parallel, Ethereum competitors such as Flow, Polygon and Polkadot are rushing to become the de facto NFT blockchain given their already scaled solutions. Therefore, to decide which NFT to invest in, make sure you understand on which blockchain the item was created.

Lastly, invest because you believe the asset has value in and of itself. As noted, collecting should be viewed as a long-term approach, and as NFTs become mainstream, the hype around this technology will fade. Focus on the asset, not the hype.

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