8 Factors to Consider Before Buying NFTs in 2024

29% of adults in the US are interested in purchasing NFTs but making an investment requires making correct decisions and having sufficient knowledge of market dynamics. In this article, we will explore factors that you should be aware of before buying NFTs. 

Blockchain

Choosing the correct blockchain is an important decision because blockchains differ in terms of: 

• Security
• Transaction speed
• Transaction cost 
• Volume of NFT trading

Transferring NFTs across different blockchains is not easy. Solutions such as NFT bridges that utilize oracles in smart contracts have been developed to facilitate cross-chain interoperability. However, bridges can be complicated and risky to use.

In order to understand more about NFT blockchains, read our Top 3 NFT Blockchains article. 

Marketplace

Marketplaces are where NFTs get traded and listed. OpenSea is the largest NFT marketplace but there are other marketplaces. Factors that you should consider before choosing an NFT marketplace are: 

• Commission fees
• Supported blockchains
• Supported cryptocurrencies
• Types of NFTs traded

To learn more about marketplaces, read our NFT Marketplace article.

Choosing the NFT 

Rarity 

Rarity is a concept that determines how rare the characteristics of an NFT are. This is important in collectibles and gaming NFTs because for collectibles, it is the characteristics that make them special in a collection. In gaming, they can have different game-altering effects. Rarity can have an effect on the appeal and the price of an NFT. 

Services such as Rarity Sniper and Rarity Tools offer rarity ranking of NFTs.

Seller 

Check the seller’s previous transactions, how much their NFTs have been sold, and what has been their price performance. If you are buying from the artist directly, check their previous works and collections. If an account or a collection has been verified, that is a good sign that they have been audited before. However, not all accounts have verification badges but it does not mean they are inauthentic, it just means that you should do more due diligence before transacting with them. 

Utility 

NFTs can offer both digital and real-world utilities such as discounts, VIP tickets, community access, etc. It is worth checking if an NFT offers any utilities. For example, buyers of Time’s magazine NFT were granted unlimited access to Time’s website, and Time’s in-person events.

Risks 

Fraud 

There are many instances of fraud happening in the NFT market. Frauds use different techniques such as :

• Rug pull
• Phishing 
• Pump & dump

Be aware that if an opportunity sounds too good to be true, it probably is. 

Illiquidity 

NFTs like arts and collectibles are illiquid investments. There can be a significant time gap between the time an NFT is listed for sale and the time it is actually sold (if it is sold). Research from Cointelegraph has shown that many of the NFTs in some of the major collections have not been sold even once. 

Figure 1. Sale count per token

Volatility 

NFTs prices are volatile. NFTs are denominated in cryptocurrencies, usually in Ether, and cryptocurrencies are subject to significant price swings. Prices of NFTs also change based on demand. There are numerous instances of NFTs which have dropped in value significantly. For example :

• NFTs issued by American rapper ASAP Rocky have dropped in price. One of the NFTs was originally issued at $2,000 but it was last sold for $407.
• Elion Musk’s wife, Grims, issued an NFT for $7,500 but it was last sold for only $50.
• Jack Dorsey, one of the Twitter founders, sold his first tweet as an NFT for $2.9 million but when the buyer tried reselling it, the offer went up to only $6,800.

Further reading 

• Bitcoin Smart Contracts: Challenges & Solutions 
• 6 factors to consider before minting NFTs