In the previous article I explained the mechanics of NFTs, and today I’m going to explain how you yourself can begin trading them and what tools you need to get started. I’ll also talk about the process of minting projects in the second half of the article so feel free to skip to that if you already have Metamask and Opensea set up.
First things first, make sure you own some Ether (it can be on any exchange except Robinhood for this process to work). If you do not own any, you could create a Coinbase account and buying it through there, with a credit/debit card or bank account number. Once you have bought Ether (the main currency used to buy and sell NFTs), the next step is creating a wallet on the Ethereum blockchain. The most popular option for this is Metamask and it’s what I personally use, although some other options are Exodus or a cold wallet like a ledger (which I use as secure storage for my long-term holdings). The reason I like Metamask best is that the sign-up process is very easy (the only prompts you need to fill out are a password and an auto-generated 12-word security phrase). Another benefit of its popularity is that it’s accepted on nearly all the Ethereum blockchain apps. It’s also been around for a while and has a pretty good track record in terms of a solid UX and relatively little downtime. Most of these wallets including Metamask can be downloaded as a browser extension that you can access with a simple click of a button.
After you create a Metamask wallet you can move the Ether you bought on your exchange of choice to your brand new wallet. On Coinbase this is done by clicking transfer and putting your Metamask account address under the “transfer to” textbox. Your account address is the string of letters and numbers in the top half of the Metamask dashboard and can be copied just by clicking on it.
This is your public key, meaning it contains no sensitive information (other than possibly a record of all transactions on that wallet if your name is linked to it). It alone cannot be used by hackers to steal funds from you, so the only important step here is to double-check that your address is entered correctly because Ethereum is not forgiving- there is no way to reverse a transaction if you sent your tokens to an incorrect address.
Finally, after you have deposited Ether into your Metamask wallet we can move on to the fun stuff: buying NFTs! Although there are many platforms, I buy almost all my NFTs on Opensea as it’s the largest and oldest exchange with a great development team. Once you’ve created your account, take some time to look through the different tabs on the site. The home page will have many new, old, and up-and-coming NFT collections as well as some standalone art, and other pages like Stats and Resources will have more NFT data; I encourage you to check it out.
Upon creating your Opensea account, the website will prompt you to link your Metamask wallet (which should be a very simple process). Once this is done, congrats! You’re now able to start buying NFTs. Let’s start by navigating a listing page on the Opensea page of one of my current favorite collections: 3Landers.
- The total number of items in the collection. This is important because it tells you not only the scarcity of the collection but also the liquidity. Generally, collections of 5,000 to 10,000 are most common
- The floor price. This number changes often because what it refers to is the cheapest NFT in the collection that you can currently buy now (intuitively this excludes auctions). If I buy the cheapest NFT, the floor price goes up to the next cheapest, and if one is listed for less than the floor price, that becomes the new floor.
- Total volume traded. This goes hand in hand with the first figure – more volume means more liquidity which is always a good thing. We want to see a market that is actively buying and selling pieces.
- This is where you can filter the recent activity to your given criteria to view it on the chart. I like to look at recent sales to get an idea of what most pieces are selling for (this can be a very different number from the floor price). the reason selling activity can be different from the floor price is because of the rarity factor. Pieces that are rarer sell for more than pieces that aren’t. The extent to which this is true varies between collections (3Landers seem to be priced more on visual appeal than rarity, but the 1000 rarest pieces are still very expensive).
- Lastly, this graph shows the market activity you chose at step 4 as a trend over the last 90 days. This can be changed to all time, 1 year, and 60, 30, 14, and 7 days. 3landers’ volume has been rocketing over the last 30 and 60 days but has recently started flattening out. This tells me that in the big picture, the project is solid, but it may not see the same growth short term that it has seen in the past. More volume typically has a direct correlation with floor price because it means demand is going up. Occasionally, volume can go up as a collection plummet (during a panic), but this is infrequent because NFTs are not as liquid as crypto or stocks.
Raritysniffer is my favorite tool for finding the rarity of specific NFTs because it automates a large portion of the process. Doing this manually is not impossible, but in the current market, projects tend to have a few if not dozens of factors that determine rarity. Opensea has a tool to filter listings by selected factors, and this can be very useful for finding good value buys. For example, the chance of a 3Lander wearing a camo hoodie and having a Ladio pet is .02%, so these may be good factors to filter by and potentially spot promising listings (only two are currently for sale).
However, a much simpler process to find rare NFTs is to search for your respective collection on Raritysniffer and type the mint number into the search bar. This will display a picture of the NFT associated with that number (which should match the one you see on Opensea), and a rarity rank in the top right corner. Let’s picture a new example: I opened the 3Landers home page on Opensea and saw a cheap listing with qualities that I think might make it rare. I typed the number of it into Raritysniffer and saw that this specific 3Lander has a rarity rank of 3546 (out of a 10,000 supply in the entire collection), which means its qualities are rarer than average while the listed price is close to floor price. To me, this means it’s a good potential buy (as I discussed in point 4, rarity may not be the singular factor here and its importance varies from collection to collection, but it’s the easiest to quantify into an example)
At this point, I’ve done my research and I decided I want to buy this 3Lander because I believe I’m getting a good deal. Some people would send an offer to the buyer around 10 – 20% under the asking price, but I like to simply pay the listed price especially if I have a hunch that I’m early in finding this collection and I want exposure as soon as possible. Furthermore, sending offers has a far lower success rate, and most of the time they are a waste of gas fees (you still pay fees for offers), and especially if the listed price is close to floor, I would usually buy it straight out.
Written By: Benjamin Goroshnik – MSW Contributor