NFT market surging, potential buyers should take steps to protect themselves from scams
The NFT market has surged this year. Sales spiked 101.8 per cent from just one week in August, according to crypto and blockchain site Blockworks. Figures on nonfungible.com, which tracks NFT sales, show thousands of digital avatars on sale. In the last seven days, trading volume has hit more than US$2 trillion.
If you are interested in getting into this market, be warned, scams exist. There are imposters who will rip off an artist’s work and sell it, as Nick Chan, co-founder and CEO of NFT marketplace Refinable explained in the Q&A below.
NFTs (non-fungible tokens) are digital assets that exist on a blockchain and are designed to represent ownership of virtual items. Tickets, houses, land in a virtual world, record covers, and even a tweet can embedded in a blockchain and sold as NFT.
There is a lot of interest in NFTs because they point to the future of ownership.
Initial enthusiasts were the technical crowd but lately traditional financial corporations are sitting up and taking notice of this market.
Credit card company Visa jumped into the fray, paying US$150,000 in Ethereum for one of the unique avatars in the CryptoPunk series, a set of about 10,000 pixel-art characters. It wanted to gain a deeper firsthand knowledge of NFTs so that they can better support their customers as they enter the space.
In Singapore blockchain company Zilliqa occasionally offer sports related NFTs for sale. But before any consumer dives into this hot market, start by understanding the technology that underpins it and learn more about digital asset creators and the NFT markets.
In this Q&A, Chan gives a quick overview on the buying and selling of NFT and highlights the steps potential buyers can take to protect themselves from scams.
1. What is an NFT and how to place a value on a digital asset?
NFTs are an ID system, similar to a passport or identity card. On your passport, it contains an ID that links to you as a unique individual. This is the same for NFTs — each one contains an ID that connects it to any item (physical or digital) which standardises how assets are tracked in both worlds. On top of an ID, people can write software to automate and digitise many different things, including royalties, games or redemptions. This will create an impact on the way we live, across lots of industries.
Value is different for every consumer and is mainly whatever they’re comfortable with. This means that there is no extra or less value for an NFT, but there are pros and cons. When one is valuing an NFT, it is important for the consumers to understand what it actually represents.
Once the consumer has figured out what the NFT represents, they must then determine what it means to them and how much they personally value it. Some people might value one NFT over another because of what it means to them.
2. How can consumers participate?
Consumers can participate in a variety of ways. The first way is through learning what NFTs are and what they can be used for. Once consumers become more familiar with NFTs, they can start to look for NFTs that catch their interest. The NFT space is growing rapidly and there are always new and exciting works being released.
People can also participate by going to local events close to them or attending virtual events. In Singapore and Hong Kong, there have been many events with the aim to educate consumers about NFTs. Through attending these events, consumers will also meet others interested in the space and can get a better idea of what people are looking at buying.
Lastly, consumers can participate by buying their first digital asset. A great place to start would be to go to one of the following exchanges listed below, take a look at what catches your eye and make a purchase. Over anything else, find something that sparks joy and interests you!
3. What are the reputable sites for NFT auctions? Must consumers use crypto or credit card to pay?
The best general marketplaces for NFTs are Refinable, OpenSea and Rarible. Consumers can explore what NFTs are available on these marketplaces.
It’s important to know that there are many different types of marketplaces, but in the most basic sense, it’s important to know which ones are centralised or decentralised. Since NFTs are blockchain native, most decentralised marketplaces require crypto payments such as Ethereum (ETH) or stablecoins which are pegged to the US dollar (USDT/USDC) and are run on the Ethereum blockchain. Some centralised exchanges are currently allowing users to pay with credit cards on top of a crypto payment option.
4. Value of NFT assets, do they appreciate, can I resell them? Where can consumers go to resell them?
Ideally, any item could appreciate in price due to several factors, such as supply and demand, scarcity, or even popularity of the creator of an NFT. It can be compared to the price of houses or luxury watches.
All transactions on NFTs are transparent. Transaction data is public knowledge since they are listed on a decentralised blockchain. Consumers can see the identity of the buyer (at least his/hers digital avatar), the NFT asset, the price he/she paid for it and the transaction date.
For example, Visa’s purchase of Cryptopunk 7610. Anyone can look at the transaction history to see that it was originally bought on July 11, 2017, for 0.3 ETH or US$67. The price has appreciated with Visa paying US$150,000 for it. Cryptopunk 7610 has also changed hands six times since it was originally minted.
NFTs can be easily resold on other marketplaces, but usually they are sold in the same marketplace from which one bought it. Consumers need to be aware of which blockchain they are purchasing their NFT on because sales across different blockchains cannot be executed. For example, one cannot buy an NFT on Ethereum and resell it on Solana. Make sure to research which blockchains each exchange has available for NFTs.
5. How do potential buyers ensure that their NFT transactions are genuine?
Potential buyers should be careful and alert. There are scams and copycats who will try to rip people off. More research allows for an informed decision for the buyer/seller.
One way is to ascertain the seller of the NFT and compare the price with similar NFTs. Joining digital discussion groups on Discord or Reddit would help to verify the potential transaction. It helps that NFT communities are emerging everywhere. Look for NFT events in your location, attending them will give you better understanding and to network with like-minded people.
Understanding the technology underpinning NFTs will give you better knowledge of how the market works. The general media has been carrying informative stories on NFTs while the blockchain and crypto-focussed news sites like Coindesk and Blockworks give more in-depth and technical information and market research.
Most NFTs, as with cryptocurrencies, are purely speculative. If a consumer is to buy an NFT for, let’s say 1 ETH, that doesn’t mean another buyer will be willing to pay the same price. Instead of worrying about turning a profit, buy the NFT that you would be happy to own. It is important to understand the value and satisfaction before any purchase.