How to Invest in NFTs

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Maybe you’re interested in investing because you believe NFTs are the next major frontier of the digital world. Perhaps your interest was sparked by a work of art that you’re passionate about, or maybe your child is just dying for a Fortnite skin for Christmas. Whatever the reason, you’ve decided that you want to invest in non-fungible tokens, otherwise known as NFTs.

Now what? You can’t pick one up at your local supermarket or buy one on Amazon (yet). So, how do you go about investing in NFTs? The process is still not as simple as many of the other online purchases that have become a ubiquitous part of our lives. But as soon as you get past the new terminology—things like blockchain and crypto wallets—it’s simply a new type of commerce.

Think about it this way—just a few years ago if someone had said, “I feel like Chinese food — I’ll order it on the Door Dash app and you can pay me back on Venmo,” none of us would have understood a word. Today, we wouldn’t give it a second thought. So, let’s dive in and learn more about investing in NFTs.

Buying an NFT

One way to invest is to purchase a specific NFT, like a digital work of art, video game asset, or sports highlight. An NFT buyer receives a record and ID of the item which is the equivalent of the physical “original,” making it a digital collectors’ item. Although the item can be copied, there is inherent value in owning the digital original, which is why more people are investing in NFTs.

NFTs are managed on a blockchain called Ethereum. That isn’t as scary as it sounds — blockchain is a Decentralized Ledger Technology (DLT). As opposed to being stored on a centralized server, information is stored on independent nodes that all hold the same data. These computer nodes compete to record that information — an effort for which they are rewarded if they succeed — and they do so by cutting up recorded transactions into blocks that are then added to a chain that has preceded them: hence “block-chain.” Blockchains are based on networks distributed across a large number of computers that utilize encryption techniques for security. When you buy an NFT, you receive a “crypto token”, which includes the information and metadata related to the NFT’s contents and whose ownership and provenance can be verified.

Set up a mode of payment

Since most NFTs are Ethereum-based tokens, most NFT marketplaces only accept Ethereum cryptocurrency (ETH) tokens as payment. Therefore, in order to buy an NFT, you usually need ETH      tokens. It’s actually similar to other, more familiar experiences—if you’re planning a trip to the UK, and expect to make purchases while you’re there, you would convert dollars to pounds before you travel. Likewise, before “traveling” to the NFT ecosystem, you need to convert the currency to ETH.

Put your money in a wallet

Unlike the physical dollar or pound bills, cryptocurrencies are completely virtual and require a bit of “infrastructure” to enable you to buy and sell them. The first item you need is a “crypto wallet” which is where your cryptocurrency and NFTs will be stored. The “private and public keys” of the accounts in your wallet prove your ownership of digital money — if you lose your keys, or if someone else takes over them, they have direct access to your cryptocurrency. A crypto wallet allows you to keep your Ethereum safe and accessible and make transactions such as buying an NFT. There are many types of wallets available, both “hot wallets” (online) and “cold wallets” (offline), including Coinbase, SoFi, MetaMask, Robinhood, Ledger, Trezor and more.

Find a marketplace

Once you have Eth in your crypto wallet, it’s time to go NFT shopping. NFTs are usually purchased either directly through project websites, or, on secondary marketplaces. OpenSea is currently the leading NFT marketplace, offering a large variety of NFTs from artwork to video game items, both in primary “NFT drops” and secondary P2P (peer-to-peer) market sales. On OpenSea, your wallet acts as your login, after which you can update your profile data if you choose, or be identified by your wallet ID.

NFTs can be purchased by auction or direct sales, the latter of which can be done immediately if a Buy It Now price is set, or through an accepted offer if you choose to make one. You can either hold it for posterity or try to sell it at a later date for a profit. 

Investing in NFT infrastructure

Buying an NFT isn’t the only way to invest in the NFT space — another option is to invest in NFT stock, or stock in publicly traded companies that are active in the NFT ecosystem (or metaverse). Many VCs are investing in NFT and crypto infrastructure, such as crypto wallets or the NFT marketplace OpenSea. In fact, OpenSea raised $100 million this summer in a Series B round led by Andreesen Horowitz and is now valued at $1.5 billion. As a private investor, you might consider following the lead of the VCs, and invest in individual companies that are developing the infrastructure for NFT commerce and are traded on the stock market.

Another option is to invest in an NFT ETF like Defiance’s NFTZ. As an Exchange-Traded Fund (ETF), NFTZ effectively enables you to invest in several different companies in the NFT ecosystem or collection of metaverse stocks, rather than focusing on a single company or asset. This means that you can buy and sell it like a stock, but its net asset value is linked to the value of its composite stocks, which in this case, are stocks in an index of publicly listed companies with relevant thematic exposure to the NFT, blockchain, and cryptocurrency ecosystems.

Whether you call it a meta ETF or NFT ETF, NFTZ is positioned to capture potential growth in an industry that is showing great promise. It promotes an investment strategy that seeks exposure to this sector while mitigating the risk of buying an individual stock or asset. And unlike buying NFTs, it doesn’t require cryptocurrency, crypto wallets, or any new infrastructure.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. The content was purely for informational purposes only and not intended to be investing advice.