There are thousands of NFT projects out there on various marketplaces like Rarible and OpenSea. This article will walk you through some ways to separate the wheat from the chaff and reduce the chance you make a bad investment.
In five simple steps we will show you how to apply a solid process to choosing the next NFT project for you to buy.
In essence, an NFT (Non-Fungible Token) is a digital asset that represents something, usually something digital like a JPEG image, video file or piece of land in a platform like the Sandbox or Decentraland.
Within an NFT collection, each token is different, that's what non-fungible means. When you're looking at potentially buying an NFT, it's good to look at the following characteristics:
Do you like the art of the item you're about to buy? Does it look appealing and do you think there will be other people who also will want to own that piece of art in the future (in other words, does the appearance of the NFT make it likely that there will be demand for it?)
Almost all NFT projects have a community around it. The developers and owners of NFTs frequently gather together on Twitter and Discord and exchange ideas and form a social group you can also be part of once you become a holder of the NFT.
The most valuable NFTs have extremely vibrant communities around it with thought leaders in the NFT space being part of them. Some projects have a community with a specific interest and others don't focus very much on the community. A typical red flag for an NFT community is when it's dominated by 'flippers', NFT collectors who only own the NFT to quickly make a profit on selling it again. Such communities frequently have discussions that are only about 'floor price' and 'wen moon'.
If you choose an NFT where the community is an important part of the value, get to know the community and make sure it fits you well.
Some NFTs have extra benefits besides you being the owner of a piece of art. Depending on what it is, this may also add a lot to the value of the NFT project you might want to choose. This utility can take many forms, here are some examples:
There are very many ways in which NFTs can provide utility and probably even more will be invented over the coming years. Make sure to incorporate this into your decision to buy.
The team who's behind an NFT is also important to evaluate. Does the team identify who they are (this is called being 'doxxed'), or do they stay anonymous? In recent months, many people have unfortunately experienced a 'rug pull', where a team launches an NFT, collects money from many collectors and then disappears and leaves the collectors with almost worthless NFTs.
You should consider it a big red flag if a founding team stays fully anonymous. In that case, it's very easy for them to not be responsible for executing the plans of the project. If they're anonymous it also makes it much harder for you to judge whether the team has the skills and background to make the project into a big success.
Many NFT projects are not "done", and many have interesting plans of changes, collaborations, derivative collections and many more things that can add value to you as a future holder. Looking into whether the roadmap of the project is realistic and attractive is a final important point to judge a NFT project to buy by.
When you identify a candidate NFT project to buy on Opensea or any of the other marketplaces, these 5 point should help you make an initial judgement whether this project is worth your Ether or you should keep looking for a different one.
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