Published on July 8, 2022
How to Buy NFTs on the Ethereum Blockchain
Step-by-step guide for using an Ethereum crypto wallet to buy & sell NFTs on marketplaces like OpenSea and LooksRare.
8 min read
When it comes to blockchain, it is easy to get lost in the woods. The new world of digital assets, collectibles, and non-fungible tokens is dense with detail and complexity.
Unlike cryptocurrency, which retains and builds value based on utility, most NFTs in the current digital art marketplace hold value based on the desirability of the digital art or community they foster. It can be daunting to figure out where to begin, so follow along here to increase your literacy on all things NFT, Ethereum, and blockchain.
The Ethereum Blockchain & Tokens
The NFT economy runs on the back of blockchain technology, and Ethereum is one of the most popular blockchain platforms. The native coin of Ethereum is ETH or ether (ETH is commonly referred to as Ethereum as well, though it is important to understand there is a difference between ETH, the coin, and Ethereum, the blockchain network). The Ethereum network also supports a wide variety of tokens for exchange. This flexibility and adaptability are important aspects of its success so far.
Non-Fungible Tokens vs. Fungible Token
Non-fungible tokens(NFTs) are some of the most popular digital assets on Ethereum. However, cryptocurrency exchange on Ethereum involves both NFTs and fungible tokens.
Fungible assets, in both crypto and our own macro economy, are non-unique. Examples include fiat currency in the physical world and bitcoin in the digital world.
On the other hand, non-fungible tokens are unique and indivisible. Examples would include a home in the physical world, or NFT real estate in the digital realm. Non-fungible tokens cannot be directly exchanged and must be exchanged for fungible assets first to become fully liquid.
Different tokens have different underlying standards of ownership. On Ethereum, these are known as its Ethereum Request for Comments, or ERC.
When a token is created, it must operate on the principles of the smart contracts that dictate how it will be exchanged. Therefore, the Ethereum blockchain needs standards and rules for how these assets operate and how they can be traded.
ERC-20 was developed to regulate how fungible tokens could be exchanged on Ethereum. Examples of ERC-20 tokens include USDC, Chainlink (LINK), and Binance Coin (BNB)—now on its own chain.
However, NFTs primarily operate on the ERC-721 standard, as it allows for the verifiable transfer of NFTs between different accounts and tracks the supply of non-fungible tokens across the Ethereum network.
Recently, a newer token standard is emerging in ERC-1155. While ERC-721 limits traders to a single transaction for every NFT they want to buy or sell, ERC-1155 allows for secure, larger batch exchanges. Along with other features that increase flexibility and utility, ERC-1155 may become the more dominant standard in the future.
Purchasing ETH and other Tokens
To purchase tokens and coins, an investor must create an account on a crypto exchange such as Coinbase, Binance, Crypto.com, or many others. However, you don't want to store your tokens on the exchange. That's where cryptocurrency wallets come in.
Ethereum Crypto Wallets
With the fundamentals of the Ethereum blockchain and tokens now more fully understood, finding the best digital wallet for your needs is next.
Digital wallets can either be "hot"—connected to the internet—or "cold"—offline.
Cold wallets are hardware devices made by companies such as Ledger or Trezor, that are kept offline and only connected when a user wants to access purchased digital assets and store them safely offline. However, the trade-off comes in flexibility and ease of use.
Hot wallets are software-based and can easily be connected to major crypto exchanges and NFT marketplaces.
Some hot wallets are custodial, meaning they are operated by the centralized companies or exchanges that created them. However, the integral keys that keep your wallet safe are also owned by the larger corporate entity. For this reason, some investors prefer the security offered by non-custodial wallets, where keys are generated and stored only by the user.
There is a crypto-related saying, "not your keys, not your coins." Many people in Web3 prefer to keep their digital assets in non-custodial wallets—preferably cold wallets.
Examples of custodial wallets include Binance and Blockchain.com, while some of the most popular non-custodial wallets are Metamask wallet, Coinbase wallet, and cold wallets like Ledger.
Understanding crypto wallet fundamentals is essential for keeping your digital assets and NFTs safe.
Once you have purchased tokens to utilize on the Ethereum blockchain and have them securely in your chosen hot wallet like Metamask, it's time to find your desired NFT marketplace.
Some of the most popular marketplaces include OpenSea, LooksRare, Rarible, Coinbase NFT, Nifty Gateway, and SuperRare. These marketplaces feature NFT collections from a plethora of artists and creators. NFTs are sold via both auctions and instant purchases and can range in price from astronomical to nearly free.
Once you do your own research and decide to buy an NFT, connect your unique wallet address to the marketplace you're using. Now you will be able to exchange your ETH for the artwork, music, game items, or other digital assets offered by marketplaces. Most marketplaces offer a “Buy Now“ option, but that is always at the seller‘s discretion. Make sure to examine their price history (some, like OpenSea, list this below the item information, or you can utilize an external analytics page like icy.tools) to make sure the purchase makes sense. Also, if buying from a larger collection or project, make sure that you are purchasing your NFT from the verified collection. Unfortunately, it's common for scammers to create copycat collections of popular projects. Always take your time and double-check any blockchain transaction you're making. Most mistakes happen, and most digital assets are lost, when someone is rushing through the transaction process. Don't let FOMO get you!
As long as your wallet is linked to the marketplace of your choice and your NFT remains in that wallet, you can easily list it for sale under your marketplace profile. Set your desired price, along with the duration of time you'd like to list it for. Many marketplaces also have other options, like selling items as an auction—make sure you are comfortable with the process before listing. Most marketplaces will take a small fee on top of any creator fees paid back to the NFT's original creator. The rest will be deposited into your wallet.
Verifying Your NFT Purchases & Sales
It's always wise to verify any purchase or sale of NFTs. You can do this on Etherscan, where Ethereum blockchain transactions are transparently logged. You can input your wallet address or individual transaction hash to verify the transaction's success and ensure tokens were securely transferred to the correct parties. There is also usually a direct link to the Etherscan transaction in your crypto wallet if you click on the "Activity" tab.
To reimburse the Ethereum miners who help ensure transaction security across the network, a certain amount of ETH is charged for every exchange made. This is known as gas, or gas fees. Think of gas like a necessary tax on ETH transactions. While they are inconvenient, they help keep the network secure. They are variable in price, influenced by the amount of activity on the Ethereum blockchain. Keep an eye out for periods where gas is exceptionally high; it will make your transactions much more expensive.
How to Choose the Best NFTs & Projects
With ETH in your wallet, and your eye on the NFT marketplaces, it is finally time to purchase your first NFT. But…where to start?
There are a countless variety of NFT collections and projects across OpenSea, LooksRare, and the rest, so it's important to do your research. NFTs are still quite speculative, but there are leading indicators for choosing successful NFT projects that can be studied.
Projects with doxxed founders like NFT Worlds can often be more stable than projects with anonymous teams. Clear utility value also helps, found in narrative universes like CryptoPunks, Doodles, and Bored Ape Yacht Club—or GameFi projects like Axie Infinity, which are already strong innovators in their respective fields. There are also more mainstream projects like NBA Top Shots that appeal to sports fans. Many collectors also like to focus on 1/1 pieces(one-of-a-kind digital artworks) from artists like Beeple, Pop Wonder, and XCopy.
Wherever your instincts lead you, make sure to do your research and join communities on Discord, Twitter, and other social media to get your finger on the pulse. NFTs are an emerging market in every sense, but a smart investor has all the tools necessary to set themselves up for success in any market conditions.
Sample chart for Bored Ape Yacht Club available to icy.tools Premium users:
The Future of NFTs
NFTs are a new and exciting way to own digital assets. In just a short time frame, the Ethereum blockchain network has rapidly improved to enable ever-changing possibilities with NFTs. While most use cases today involve digital art and gaming assets, the space continually evolves as more real-world assets come on-chain. As a result, it isn't farfetched to see assets like home ownership, car ownership, intellectual property rights, club access, and more, become tokenized in the near future! By becoming privy to the NFT ecosystem today, you can familiarize yourself with the tools and tech involved, and set yourself up for the exciting Web3 future yet to unfold.