In the first half of 2021, NFTs generated a whopping $2.5 billion sales and it’s no surprise considering digital artists such as Beeple jumped on the bandwagon, selling an NFT of his work for a massive $69 million.
With the popularity of NFTs – and for that matter, the opportunities associated with NFT trading – showing no signs of decreasing, more and more people are looking to get involved. But, due to the complexity and newness of NFTs, many have no clue where to start.
Brad Wilson, CEO of NuPay Technologies, talks to Finance Monthly to offer a complete guide for those looking to get started with NFT trading.
Step One – Educate Yourself Completely on What NFTs are
The media hype around NFTs has got most of us excited – the thought of being able to bring in additional revenue following two years of economic uncertainty is music to our ears. But you shouldn’t let the attractiveness of NFTs cloud your vision. You need to commit time and energy to understand exactly what NFTs are or there’s little chance of success.
What are NFTs? NFTs are basically digital collectables that have been transformed into verifiable assets so that they can be traded on the blockchain. They are tokens that people use to represent ownership of unique items and often involve intellectual property rights, though it’s important to note that this isn’t always the case.
They are called non-fungible tokens because they represent things that have unique properties and therefore are not interchangeable for other items. For example, some of the most popular NFTs right now are:
- Digital Artwork/Music
- Items in online games shops
- Domain names
- Celebrity tweets
- Domain names
Whilst they can be used for almost anything with a unique property, they are most popular amongst those in the creative and entertainment sectors.
Don’t worry if you’re not operating in those sectors though, it doesn’t mean NFT trading won’t work for you.
Step Two – Identify What Type of NFT Trading is for You
NFTs have a huge gambit. The possibilities are endless and the NFT marketplace is adaptable to so many different mediums and contents of life – there really is no real limit.
That being said, it’s not for everyone. Before you even begin ‘giving it a go’, you need to identify whether you can and want to commit to it, and in what way.
There are three main types of NFT trading you can be involved with:
Buying and Selling NFTs
This is realistically one of the simplest and easiest ways to get started with NFT trading. It requires little time from your end as you are trading already developed digital assets rather than developing your own.
A point worth noting here is that you’ll need to be familiar with how cryptocurrency works. NFTs are purchased via specialised marketplaces online using funds from your digital wallet – there are a few marketplaces out there that allow flat purchases or credit cards, but they are few and far between. This means you’ll need to not only create a digital wallet that supports NFTs, but you’ll also need to be prepared to fill it with cryptocurrency ahead of your purchases.
You can buy and sell NFTs online via specialist marketplaces or apps. There’s a new platform coming soon, PRISM, which is also a great marketplace for artists to trade and they accept cash – credit cards are on the horizon too.
Remember, all transactions are recorded on the blockchain and only once the sale is verified will the NFT appear in your wallet.
Purchasing NFTs as an investment
Though purchasing NFTs without the intention to sell isn’t necessarily a direct form of trading, it’s still an option for building up a digital asset portfolio – and one which might be more suitable for those who want to dip their toes into the market before going full steam ahead.
Although no one knows what value an NFT will have over a period of time, there are a few research methods available to the investor which can help decide which NFT to buy. Community is a big factor for some. You may want to consider whether the community is organic and whether they care about the project.
Another consideration is who created the NFT. Is it an anonymous individual or organisation? Is it a reputable brand or a famous artist? Do the developers have transparent and realistic plans for the project? Conducting due diligence is crucial to avoid scams and rugpulls.
A few other things to consider when purchasing NFTs with no intention to immediately sell are:
- Is it a 1/1 piece of art by a world-famous artist?
- Are you buying the rights and royalties to a famous musician’s song?
- Are you buying virtual land which enables passive income streams?
- Is it one edition out of a million NFTs distributed free by a globally recognised brand?
- Does the NFT come with exclusive perks such as entry to private events or access to future NFT sales?
Creating and Selling NFTs
Creating and selling NFTs isn’t one to approach lightly. Yes, it can be very profitable, but it doesn’t come without understanding the market and knowing exactly what to expect.
You’ve heard the saying “if you fail to plan, you plan to fail” right? Well, it’s even more true in the world of NFT trading. The first place to start with planning is documenting the type of NFTs you are able to and want to create and sell. From here, you’ll be able to identify what capacity you have to create them and how many, on average, you can create and sell each month.
Next, goal setting. Everyone loves goals and science has proven they are effective in helping us stay motivated. Just remember, it’s likely that if you’re a sole creator, you’ll need to be involved in the creative process, delivery and bookkeeping, so you’ll need to keep your goals to a manageable standard.
Lastly, research your audience and which NFTs are selling well at the moment. Just like with any business, having an audience and market research to hand will aid your business’ development.
Choosing the right software for NFTs
Depending on your goals, it could be worth investing in some software. If you do plan on creating more ‘classic’ style art, for example, looking into software that allows for photoshopping, animations, and graphic design could benefit you. However, if you are looking at working in the metaverse or creating video game assets you would be better off looking at different software. Many current software providers are expanding their services to include the NFT space, for example, Adobe, who are launching new NFT functions within photoshop.
If this is something you are unsure about, there are learning platforms everywhere. Taking a Masterclass, or simply watching some YouTube videos can help you disseminate what will work best, and it will also help you broaden your knowledge.
In terms of trading NFTs, you shouldn’t need any pieces of software to successfully do this. The same goes for creation of NFTs – you don’t need additional software to be successful.
Step Three – Understand Your Tax Responsibilities
When it comes to tax responsibilities surrounding NFTs, many fail to understand exactly what they need to declare. As a result, taxes are largely unrecorded. Though in the US, officials are slowly working towards keeping track of all of this, it’s still heavily reliant on the individual person to keep close records on their dealings.
The bottom line is, digital currency is still money that you possess. And as NFTs use cryptocurrencies and are recorded via the blockchain, they are reportable transactions that need to be declared.
The best way to get a grip of the situation is to manage the record-keeping and organisation of trading from the very start. You have to be organised and you have to have a plan in place to keep track of your incoming funds and outgoing funds. It’s critical to note all the income you’re generating, costs that you’re incurring – from minting fees to listings to logistics – and also wider development costs that you may have internally.
NFT tax payments are part of a new landscape. The good thing is that NFT marketplaces are taking steps to assist, offering solutions that support tax filing and providing information on what’s required for tax filing. You see, NFT marketplaces are trying to be as compliant as possible with government regulations, contrary to popular belief.
Be Prepared for Challenges
It’s vital when first starting out that you manage your expectations and prepare yourself for the challenges ahead.
About the Author
Brad Wilson is the Founder and CEO of NuPay Technologies. With over 30 years of investments experience and the FinTech landscape, he is now driving professionals to pave the way in the blockchain industry. He has grown Climb Investment’s portfolio year after year, and NPC has become one of the largest card processing companies in the state of Ohio under his leadership. Now at the helm of NuPay Technologies, Brad has enlisted a spectacular team of like-minded, driven professionals to deep dive into the world of blockchain technology and NFTs!