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1 Concept 💡
In the past 8 weeks, I’ve gone fairly deep in NFT-land (if you don’t know what a NFT is, check out edition #2). I made my first NFT purchase in early August and now own 15 (check out my fledgling collection)! The question I’m most often asked by readers is about NFTs: should I buy them, are they a good investment, and which ones should I even buy? So I thought it’d be useful this week to share the lessons I’ve learned in playbook form - I hope they will de-mystify the NFT landscape and help get you started.
This playbook is written for NFT beginners and assumes you already own ETH. Use my thoughts/advice as initial lamp posts to help you get started: double-down on what works for you and don’t be afraid to drop the ones that aren’t.
Rule #0: Always DYOR
As you enter this space, people will constantly be hyping (or “shilling”) NFTs on to you, promising that this project is gonna be the next big one. It’s your responsibility to “do your own research” (DYOR) and understand that NFTs, like any investment, carry risk. Treat this playbook similarly - nothing below should be taken as investment advice.
Rule #1: Getting Setup
Wallets: To own NFTs, you will need a non-custodial digital wallet, which is a fancy way of saying that a wallet that you own the security, not a custodian. Having a digital wallet on Coinbase or CashApp is a custodial wallet because they handle the security for you. My favorite non-custodial ETH wallet is Rainbow (Metamask is the OG and works well too). When you create a wallet, you will be presented with a seed phrase (list of 12-16 random words) - knowing these words will allow you to recover your wallet if its ever lost but also enables anyone who gets access to these words to have full access to your wallet. DO NOT store these words in your email or somewhere other people have access to. I recommend writing them down on a piece of paper and storing it somewhere safe at home.
Discord: Just about every community for NFT projects lives on Discord. If you don’t have Discord yet, download it and create an account today.
OpenSea: OpenSea is the most popular marketplace for NFTs (think of it like the eBay for NFTs). Once you have a wallet, you can directly log-in to OpenSea - it’s your identity. No log-ins required!
Rule #2: Always Be Cautious
Because you’re dealing with non-custodial wallets in a blockchain environment where transactions are irreversible (no returns!), caution is CRITICAL. Never share your seed phrase with anyone, don’t respond to random DMs on Discord promising giveaways, and always double-check the price before buying anything. Rainbow has a great article on how to avoid scams.
Rule #3: Know the Terms
It’s important to know the basic terms of NFTs before you get started. I’ve listed a few of them below, but to keep learning, join the HAX Discord server where we drop a new crypto concept of the day. Another good resource is Zeneca_33’s Discord server which is also a great way to learn more about NFTs and specific projects.
Minting - the initial creation of a NFT.
Secondary - buying/selling of NFTs post-initial minting on marketplaces like OpenSea
Floor Price - the cheapest available NFT in a collection
Rule #4: Don’t start too small
IMO you need to allocate at least 0.5E (~$1700 USD at time of writing) that you’re completely OK losing if you’re serious about learning the space. Having a decent-sized bankroll will give you buffer to wait + see how projects develop, interact with communities and make mistakes - instead of FOMO buying and panic selling. Starting with anything less is like playing at a poker table with the smallest stack. Sure, its possible you could YOLO your way to 2-5X, but it’s much more likely you’ll lose it all (esp due to gas - more on this in Rule #11)
Rule #5: Learning NFTs = investing in yourself
I firmly believe NFTs as a technology are here to stay and everything from tickets to credentials to real estate will one day live on the blockchain - art is just the first use case that’s gone mainstream. View learning and playing around with NFTs as an investment in your future self that will give you a leg up down the road.
Rule #6: NFTs need to be experienced
There’s an old saying that “ownership is a helluva drug” and NFTs embody that. It’s difficult to explain how it feels to own a NFT until you actually own one. It’s a weird, empowering feeling where you can’t stop looking at the NFT you own while simultaneously feeling silly it matters to you that much. The best way to experience it is to get started ASAP - I recommend checking out free or cheap (<0.01E) NFTs on OpenSea (here’s a list of all buyable NFTs sorted low→high) and buying one that clicks with you. Note: while the NFT might be free/cheap to buy, you do have to pay for gas (check out rule #11)
Rule #7: Identify your collector vibe
It’s important to identify what kind of collector vibe you are today:
Dabbler - you want to dip your toes in the water and play, but don’t care about making $$
Flipper - you love garage sales/Storage Wars/etc and get a thrill out of building your stack with continuous buying and selling of transactions. You’re willing to spend the time learning about various projects and following influencers.
Flexin’ - it’s important for you to make your social taste and status known
Investor - You’re looking to making great long-term returns and want to hold your investments for years.
Curator - You see your NFT collection kinda as your personal museum and are more focused on taste than $$.
There is no right answer and don’t feel pressure to pigeon-hole yourself - in fact, I’ve noticed a natural progression from dabbler → flipper/flexor → investor → curator as you spend more time in the space. For example, I began as a flipper and made 0.1E flipping my first NFT purchase - but I found the process so anxiety-inducing. I quickly morphed into an investor as most of my recent purchases are long-term bets on projects/communities I think will become bigger in the future. And now, I’m beginning to slowly move more into a curator with my most recent purchase below (gm = popular crypto/NFT slang for good morning)
Rule #8: You’re investing, not spending, your ETH
This one took a long time for me to get b/c I used to view buying NFTs as spending your ETH. IMO the right way to look at it is that any good ETH bag should have a mix of ETH and NFTs - when you buy NFTs, it’s an investment of your ETH and really an investment in the potential of the network. Sure, you could let your ETH sit and hope for it to gain USD (fiat) value, but buying NFTs means you’re electing to invest it to gain more value, whether financially relative to ETH or otherwise.
Rule #9: NFTs are a time-suck
We touched upon this in rule #7, but unless your vibe is a ‘dabbler’, learning/investing the space takes a real time commitment. I’m talking at least 5-7 hours a week. If you don’t have that, that’s totally fine - but please know that going in. It will save you energy and $$. If you can spend the time, dive deep to understand the genres (p4p, generative art, gaming, etc), join Discords, and follow influencers. It’s fun!
Rule #10: Buy NFTs you like
If your vibe is a flipper, you can mostly ignore this one - but otherwise, buy NFTs you actually want to show off to family/friends or in projects that impress you vs. FOMO-ing in. The problem with FOMO is that you’re much more prone to panic sell if the price doesn’t move the way you want right away. I’ve seen too many people mint or buy NFTs at 2E for example, and try to sell them for 1.25E two days later. Don’t be that person. Plus with the amount of new projects launched every day, there’s no need to FOMO - just get the next one.
Rule #11: Gas is expensive
At the moment, making a transaction on ETH is expensive (Rainbow has a good read on why). I’m talking like anywhere from $75-$150 fee (aka known as “gas”) for the network to process a transaction. It’s part of the reason you need a sizable stack to start, or you’ll end up losing all your money on transaction fees. This should get better as upgrades to Ethereum are deployed (early 2022), but until then, I try to make my transactions in the late night EST or weekends (it’s where I’ve seen gas lowest). I use this Chrome extension as a way to quickly peek at gas prices
Opinion #1: There’s a sizable correction still to come
Despite the slowdown over the past 4-6 weeks, I believe we’re still very much in a NFT bull or hype cycle and that 98+% of projects created today will be worthless 2-3 years from now. Beyond that, experience has generally taught me that the crazy rise in prices means there’s pain ahead - if Bitcoin/Ethereum can correct by 80+%, so too can NFTs. I also want to see how the potentially rising price of ETH plays into NFT price - for example, if NFT X is worth 4E and ETH doubles in USD price tomorrow, will that ETH still be worth 4E, will it be worth 2E, or something else? I’m interested to see if investors are willing to keep their NFTs or will a higher demand for ETH cause them to sell.
In any event, understanding where we are in the market cycle allows you to take a step back, not get too caught up, and use this time to learn the space + make mistakes. The best time to typically buy anything is when no one is talking about them. FYI, one way to keep touch with the general health for the market is to look at floor prices for the biggest projects.
Opinion #2: Look for Community and Uniqueness
Ok, so how do you know which new projects have the best chance of success? It’s the projects that 1) have vibrant, healthy communities, and 2) are unique in their approach. On (1), joining the project’s Discord server will allow you to gauge the health of the community as a litmus test. If it’s a ghost town, lots of in-fighting or constant conversations about price, it’s probably a bad sign. If people are friendly, engagement is high, and the culture is one of building vs. flipping, that’s probably a good thing. On (2), by now, just about every variation of animal/avatar combo has been tried. Find projects that are unique in their approach - to me, this means the NFT either appeals to a new audience that hasn’t been NFT-pilled yet or has utility and actually allows you to do something. It’s hard to predict the first, so I’m personally focused on the second: these NFTs could allow you to play a game, earn $$, or something else - vs. just holding to hope to sell at a later price. Two projects that exemplify this (disclaimer: I own both) are Wanderers and YoloDice.
Opinion #3: Invest in Blue Chips (Eventually)
Blue-chip projects are generally agreed to be best-in class NFT projects and have the highest chance of staying power. They are also the most expensive. I’m talking CrytoPunks, ArtBlocks Curated, Bored Ape Yacht Club, and others. I believe all of these will be wonderful long-term investments, but I’m personally waiting to see how the market behaves over the next 2-3 months before making any splashy moves.
Opinion #4: Generative Art is Here to Stay
We talked about this in our edition on generative art - I believe investing in generative art, especially ArtBlocks Curated, will prove to be a great long-term investment. While prices seem insane now, the demand to own these will exponentially increase in the next 2-3 years as more and more people get onboarded onto crypto, so I’m betting price will eventually reflect that new demand. However, as stated above, I want to see how the market behaves over the next several weeks first. In full transparency, I’m on the lookout to buy a couple ArtBlocks Curated pieces (2-10E range) and hold for years.
Opinion #5: Photography and Gaming will be the next big things
We’ve had a p4p (profile pic) spree followed by a generative art one. I think photography and gaming NFTs will be the next genres to explode. Be on the look-out for these.
Opinion #6: SOL-based NFTs are here to stay
This playbook has mostly focused on ETH-based NFTs, but Solana (SOL) powered NFTs have also been flourishing. I’ve generally found the ETH communities friendlier and less price obsessed than the SOL ones, but SOL-based NFT projects can be fun and have effectively zero gas price. To get started, get a Phantom Wallet and head on over to sites like Alpha Art. Similarly to ETH, I think any good SOL bag will have a mix of owning SOL tokens and SOL-based NFTs.
Opinion #7: We’re still so early
As much hype as we’ve heard about NFTs, probably less than 2% of the world’s population owns them and it’s mostly limited to art. We’re still very much in the innovator phase of the adoption curve with this technology so get ahead of the game.
Side note: My goal is to reach 500 subscribers by the end of October! Thanks for all the shares last week - I’d appreciate it if you could share with atleast 1 other person who might like this!
2 Things On Our Mind 🤔
1. Really interesting way to think about NFTs as a more evolved sense of identity. I can’t say I fully agree, but it’s definitely a trend you will see more and more of.
2. Super long thread, but SO worth it on how crypto + NFTs can own the future and change the world — for the better.
Until next week, always be learning