Beginner's Guide to NFTs: How to Choose Your First NFT?
If you are a beginner who wants to understand what NFTs are and how to invest in them, you will find the answers after reading this article.Original Title: "How to Choose Your First NFT - A Purchasing Guide Even My Grandma Can Understand"
Original Author: Dinzz, H.Forest Ventures
On the morning of January 18, local time in the United States, Microsoft announced its acquisition of game developer and interactive entertainment content publisher Activision Blizzard for $95 per share (totaling $68.7 billion), marking the largest deal in gaming history. If you don't understand this sentence and don't know why Microsoft would spend $60 billion to buy a gaming company, that's great! Congratulations, your life is good, and you haven't been captured by Ubisoft, Sony, or Tencent to become a gaming addict.
Similarly, on March 14 of this year, an event occurred that was just as shocking for NFT players as "Microsoft's acquisition of Blizzard": Yuga Labs, the parent company of Bored Ape Yacht Club, acquired the famous CryptoPunks and Meebits NFT series created by Larva Labs. Additionally, Yuga Labs purchased 400 CryptoPunks and 1,700 Meebits from Larva Labs, but the amounts involved in the intellectual property and asset purchases were not disclosed.
If you don't understand this sentence, then it's not so good.
1: What is NFT?
NFT, or Non-Fungible Token, can be distinguished from fungible tokens like BTC and ETH. Fungible tokens are identical; my BTC and your BTC have the same value and cannot be distinguished. However, each NFT has a different value, which is reflected through its external appearance or hash value.
NFTs can take the form of an image, a piece of music, a video, a game character, a game item, etc., with the smallest unit being one.
NFTs exist on the blockchain, and even if the project team does not provide a trading market, you can still trade and transfer them through your wallet or NFT exchanges.
2: If you still don't quite understand, let's look at an example?
Let's take a look at some of the hottest NFT blue-chip projects currently:
Cryptopunks
These pixelated characters are Punks, which you may often see as avatars on social media. Punks are 10,000 NFTs generated by an algorithm on Ethereum, established in 2017. Punks do not have any utility but are considered the "founding ancestor" of NFTs, symbolizing identity in the NFT world and are hailed as the BTC of NFTs. On April 12, 2022, the floor price was 65 ETH, approximately $190,000.
Floor price: The lowest listed price in a particular NFT collection.
#cryptopunks 5822
This pixel character wearing a blue bandana was sold for 800 ETH, approximately $23.7 million.
Bored Ape Yacht Club
This is probably one of the most popular NFT projects. The blue monkey avatar of NBA star Curry comes from the rising NFT project Bored Ape Yacht Club, which is also hailed as the ETH of NFTs. On April 12, 2022, the floor price was 113, surpassing Cryptopunks. The rise of BAYC is inseparable from the excellent operational empowerment of its project team, Yuga:
Yuga uses it as a membership credential for the club;
Airdropped Mutant Ape Yacht Club NFTs (floor price 26 ETH on April 12, 2022);
The project team promised that there would be 3D apes with similar elements in the metaverse.
SandBox
The first two projects might give you the impression that "NFTs are just avatar-like images," but you must have also heard news like "xxx is laying out the metaverse and bought a piece of land in xxx for xxx ETH." For example, the following game:
The image above shows a piece of land in the sandbox game SandBox, which has 166,464 coordinates and various sizes of "plots." Once you own it, you can do anything you want on it: build an amusement park, open a casino, create a private paradise, or leave it abandoned. Yes, the one in the middle is Adidas; they bought it too.
3: What other types of NFTs are there?
NFTs come in various types, and one NFT can belong to multiple types, just like a person can be a programmer, writer, and photographer at the same time.
PFP
Profile Picture: Personal profile picture. The previously mentioned Punks and BAYC fall into this category and can be used as avatars on social platforms. This is also the most mocked aspect, as we often hear people joke: "XXX spent XX million dollars to buy an avatar."
In fact, holding an NFT is a way for people to find like-minded individuals through a collection of NFTs, especially when the NFT has significant value; its function can be equivalent to that of a luxury item. By the way, there is an unwritten rule in this circle—only use NFTs you own as avatars.
Metaverse
The previously mentioned SandBox belongs to this category; it is not just an image but also the infrastructure of the metaverse. SandBox builds the underlying framework, and the application layer above relies on users who purchase plots to build.
Art
Art Blocks is a platform for randomly generated artworks, which has multiple collections of programming codes generated by random numbers. Each collection has a theme, and the number of NFTs for each theme is predetermined.
Opensea Art Blocks Collection
One of the collections
Game
Godz is a P2E (Play-to-Earn) game, where each character is an NFT.
Collectibles
Similar to collectibles in real life, artists permanently store their works on the blockchain. Beeple creates a piece of art every day, and the 5,000 days of work culminated in "EVERYDAYS: THE FIRST 5000 DAYS," which was successfully auctioned at Christie's for $69,346,250 in March 2021.
Beeple's "EVERYDAYS: THE FIRST 5000 DAYS"
Music
In real life, copyright issues in music always trouble every music creator. Turning music into NFTs and publishing them on the blockchain provides a new approach to solving copyright issues.
Singer Chen Huanren released the music NFT "The xxxx is an NFT."
4: How to Determine the Value of an NFT?
Team
Like other crypto projects, the team is a crucial element. Is the team real-name verified? Which country is the team from? Who is the NFT creator? Does the team have experience in operating quality projects? Are they serious about their work? Do they have extensive connections and resources, etc.?
Project Information
White Paper: The completeness of the official website and white paper, whether there are signs of plagiarism. The total number of NFTs in the project, the number of whitelist spots & how to obtain them, mint price, mint time.
Roadmap: Check if the project has a roadmap, whether it is innovative, if there is a possibility of implementation, and observe the team's ability to fulfill the roadmap.
Community Heat/Consensus
Here we mention a characteristic of NFTs: the individual value of NFTs varies greatly, liquidity is relatively poor, and value is determined by the community's heat and consensus. The floor price reflects the value of the NFT. However, once the heat disappears and consensus breaks, NFTs cannot be sold without buyers, instantly becoming worthless. Therefore, checking community heat and consensus is a very important part of assessing NFT value, mainly observing Twitter and Discord activity.
Twitter: Number of followers, account creation time, number of tweets, retweets, likes, and their quality, how many NFT circles are in the following list, and how many NFT KOLs follow the project.
Discord: Total number of members & online members, operational capability (check if the team is familiar with web3 operations & gameplay), etc.
IP
IP is an important part of building community consensus.
Ali and Leng Tu are well-known cartoon characters in web2.
Adidas: A household name brand.
Mfers: meme community culture.
Aesthetics
Unlike hard-core technical projects like public chains and oracles, NFTs are mostly expressed in the form of images, and NFTs also carry the emotional ties of investors, so aesthetics is also an important aspect of NFTs.
Trendy Art Style: It must be said that BAYC very much aligns with Western understanding of trends.
Cute Art Style: In a market filled with trendy and cool monkey, dog, and cat NFTs, the cute, simple, humanoid Doodle stands out.
"Cool" Art Style: Takashi Murakami's collaboration with Nike on the "cool" art style…
And so on…
Celebrity Effect
From Curry's endorsement to Takashi Murakami releasing his own NFTs, the celebrity effect is also quite significant in this circle.
PhantaBear (known as "Jay Chou Bear")
The Heart Project (known as "Kwan Hsi Heart")
Empowerment
DAO/Club Membership Tickets: The DAO membership ticket of NFT KOL LaserCat397 allows holders to enter LaserCat397's community and access quality NFT information. On April 12, 2022, the floor price also reached 3.32 ETH.
Exchanging NFTs for Physical Goods
The OrgNFT of OK Chain allows the project's shoe NFTs to be customized into physical shoes, but it couldn't last even half a month…
Themes
NFTs also have hot topics. For example, in January 2022, female-themed NFTs were quite popular, and several imitations emerged. In March, Chinese-style NFTs quietly appeared.
Female
Female-themed NFT "World of Women"
Chinese Style
Chinese-style NFT "CHinaChic NFT"
Imitations
NFTs also have imitations, which can also hold value. You can see many Punks and Apes on Opensea that use the same or similar elements, or directly mirror and reverse, or combine elements from two or more projects to create a new project. Imitations also vary in quality, but generally, the first few imitations of a new blue-chip project have better market consensus, although the heat does not last long and often requires quick entry and exit.
Punks Imitation
BAYC Imitation
Punks+BAYC Hybrid Imitation
Production Cost
The production cost of NFTs reflects the team's investment and seriousness to some extent. The more refined the production, the more favored it is by investors, often leading to better consensus.
5: Why Do NFTs in the Same Collection Have Different Values?
NFTs introduce the dimension of "rarity." People always pursue individuality and uniqueness that sets them apart from others. For example, among the 10,000 BAYC apes, there are 120 that are blowing balloons (1.2%), and only 2 with crown elements (0.02%). The rarer an item is, the more valuable it generally becomes. Of course, there can also be aesthetic deviations; if you like something, it is worth paying more of a premium.
BAYC
Based on rarity, the NFTs in the entire collection are usually ranked, and you can check the project NFT rankings through the following websites.
https://nftnerds.ai/
https://app.traitsniper.com/
ALINFT #8880
6: How to Find NFTs Worth Investing In?
NFT investment methods differ significantly from other projects. Without institutional investment and financing, the market capitalization calculation based on floor price * quantity is also not very reliable. NFT participants are generally divided into project teams, large investors, and retail investors, so the investment methods also differ from conventional projects.
Having discussed how to assess the value of NFTs, I won't elaborate further here; instead, I will share how to "discover" projects. When it comes to discovering projects, we first need to understand the issuance methods of NFTs.
NFT Issuance Methods
Buying NFTs directly from issuance channels is usually equivalent to primary investment in traditional crypto projects. The main NFT issuance methods include:
Whitelist: Most current NFT projects adopt a two-round sale model, with the first round conducted via a whitelist. The ways to obtain a whitelist typically include:
Twitter Lottery: Conducted by the project team or collaborating KOLs, generally requiring retweets, likes, comments, and tagging friends.
Completing Community Tasks: More quality projects usually have many investors participating. To build community consensus and raise whitelist thresholds, project teams often require investors to complete specific tasks to obtain a whitelist, such as inviting friends to join Discord or requiring Discord to reach a certain level, or even asking investors to create fan art of the project IP.
Holding Other Project NFTs: This is a way for NFTs to interact and empower each other.
Dutch Auction: The blue-chip project Azuki used a Dutch auction method for sales, initially offering at a high price that gradually decreases over time until sold out. Nevertheless, Azuki sold out at the initial price of 1, and on April 12, 2022, the floor price reached 22.9 ETH.
Free+Gas: Many cold-start projects sell NFTs for free, where investors only need to pay gas fees to claim the NFTs. (Some projects offer a portion of the spots for free.)
Methods to Discover NFTs
Data Aggregation Websites
Use the calendar feature of data aggregation websites to check upcoming NFT releases.
https://upcomingnft.net/
https://nftscoring.com/upcoming
https://tasteful-resolution-466.notion.site/NFT-Launch-View-40cedcc2d6c848d195c80df9add08ad4
Through Twitter Information
Conducted by the project team or collaborating KOLs, generally requiring retweets, likes, comments, and tagging friends. You can follow NFT KOLs, mutual friends, and search the tag #whitelist to discover new projects.
Through Gas Anomalies
- Discover gas anomalies using browser plugins.
- Visit tool websites
https://compass.art/collections/minting to check projects currently minting. (The more gas a project burns, the higher the heat.)
- Find the project’s official website through the details page to mint.
Smart Address Collection Method
Check the addresses that purchased before the outbreak of hot projects, review past win rates, filter out the false, and regularly check the projects they minted.
The gas anomaly and smart address methods are most suitable for the first two imitations of new blue-chip projects. Although there may not be much time for analysis, new blue-chip projects often have a hot effect, and the first two imitations tend to have severe FOMO emotions.
Establish an Investment Project Database
Most projects cannot be obtained through primary methods, so you can establish an investment project database to track the progress of potential blue-chip projects for investment.
Follow the NFT burning leaderboard (link); NFT trading volume growth leaderboard (link); mint quantity in a given time (link); frequency of the project appearing on Twitter and in communities. Collect projects with certain heat for further analysis.
Score projects using an NFT value assessment model.
Follow the project team's Twitter to track progress (especially familiarize yourself with the project roadmap).
Invest in promising targets.
