I Bought My First NFT...
In this video, I buy my first NFT… and second and third and fourth… to see if flipping them might be a good way to make some money online.
Back in March, I made this video about NFTs where I went into detail as to what exactly they are, and I also showed the behind-the-scenes of making this NFT. Now, I wasn’t sure if this was just a fad that would have it’s 15 minutes of fame and then die out, so I never purchased any NFTs myself, but I did collaborate on two more projects with Jonathan Nash.
Then, last week, our first NFT collab sold on the secondary market for 15 Ethereum, or about $51,000, which is pretty wild. NFTs are more popular than ever, so I thought it might time to take a closer look.
The Dark Side of NFTs
We can discuss the merit of digital collectables and spending thousands of dollars on jpeg all day long– and if you don’t really get it – that’s fine. It is a strange concept and can be hard to wrap your head around, and the quality of NFTs out there definitely varies greatly, so when you see pixel art sell for over 10 million dollars, it raises some eyebrows. But you could also look at the traditional art world and wonder what makes this painting worth over 80 million.
Sure, they’re not exactly the same thing, but that is part of what makes NFTs so interesting to me. You never really know when a cryptoart project is going to take off and become the next CryptoPunks or Bored Apes or whatever.
But let’s talk about some of the issues with NFTs – most notably, the environmental impact.
This is a hotly debated topic as artists and onlookers alike have made estimates to the energy consumption and carbon footprint used to mint an NFT. And it’s a lot. An awful lot. The reason is most NFTs run on the Ethereum blockchain, which along with Bitcoin, process transactions using a Proof-of-Work protocol which uses a lot of energy by design. Ethereum has been saying for quite some time they will make the switch over to a proof-of-stake protocol. According to one researcher “That would essentially mean that Ethereum’s electricity consumption will literally over a day or overnight drop to almost zero,” – so if you’re optimistic about crypto art like I am – this is probably the direction you want to see these currencies take. Now miners are going to continue to mine Ethereum whether NFTs exist or not
– it reminds me of the argument about buying a plane ticket: that plane is going to fly whether I’m on it or not, but an increase in demand will incentivize miners to mine even more, so it’s a bit of a slippery slope.
There are some alternative marketplaces for NFTs that use cleaner cryptocurrencies, but they just aren’t as popular at the moment. I think that NFT artists can have a huge influence in pushing for greener solutions – whether that’s Ethereum moving over to proof-of-stake or using cleaner cryptocurrencies, so my hope is that the industry moves in that direction. If you want to learn more about the environmental impact, see these links here and here.
In addition to the environmental argument, since you are using crypto, the price of these coins fluctuates a lot. For instance, between May and June of this year, Ethereum went from a high of $4,384 down to almost $1800. Right now, in September of 2021, Ethereum is hovering around $3100 – so in this video if I give the USD equivalent of Ethereum, I’m using $3,100 as my base price for 1 Ethereum.
NFTs are also used for money laundering. Here’s an example from journalist Isiah McCall. “If you have $1 million in illegal money, you would spend $1 million on your own NFT. You can do this yourself or use a trusted third-party account. Then, you resell the trash for nothing and bank the profits.” So that’s not great for the industry, either – but let’s be honest – all sorts of shady things happen in the traditional art investing world as well.
And lastly, there are a lot of fees when it comes to NFTs. You pay to mint your artwork, you pay to list your artwork, you pay to transfer money to your wallet – basically any time you transact on the Ethereum network, you have to pay a fee. This can all fluctuate based on the demand… so you can likely save money by making transactions during non-peak times.
Identifying a Winner
First off, I am without a doubt not an expert at NFTs. I’ve only really gotten into it over the past week, so I’ll do my best to convey what I’ve learned, but if this intrigues you, don’t just take my word for it. Find people with more knowledge and experience than I have and keep on learning.
Second, this is a very speculative space. That means don’t spend your rent money on NFTs. I’m only using crypto that I made from working on other NFTs, so if I lost my entire investment, I would be okay.
Now, with NFTs, you have a few different aspects to consider.
You have individual pieces… like this one, for example. It’s a 1 of 1 – only one person can own it. You also have editions – multiple owners can own their own edition of the same artwork. And you have generative art – oftentimes these are avatars like cryptopunks for instance – and they are algorithmically generated at random when minted. A lot of times, there will be a collection of 10,000 unique pieces and the most valuable ones tend to be the ones with the rarest traits.
With the individual pieces, you have to really find an artist you believe has a lot of potential. Unless you have a big bankroll, you’ll likely be priced out of ones that are already established in the NFT world. So I find that a little trickier to start with.
I’ve mostly been looking at larger scale generative projects as a good way to get my feet wet.
So what should you look for when trying to find cryptoart that will be valuable?
The first and most obvious is the artist. Is the person behind the art well-known in the crypto art world? Do they have a large following? Do you like the style of art? These are considerations you need to keep in mind.
Second, is there an active community supporting the project? Just about every NFT project has a website and a community on Discord. Check out the Discord community here. You have to kind of suss out what seems like a project with some genuine enthusiasm behind it and what is just an unoriginal cash grab.
Third, are you going to take a risk on buying an NFT right when it launches, or do you want to buy one on the secondary market after its been launched. Buying it at launch is more risky because it’s unproven. You don’t know how collectors will react to the pieces. You don’t know what the demand will be like. You can often mint something on launch for less than .1 Ethereum, but it’s entirely possible it ends up being virtually worthless if the launch is a flop.
If you’re buying on the secondary market, you want a project that still has a dedicated community that’s active on Discord and still passionate about the collection. You want to see interest maintaining and even increasing by activity of sales on the secondary market. On OpenSea, you can click on Stats, and search a collection by activity to see if activity is increasing or decreasing over time and which pieces have been recently sold and for how much.
Fourth, some NFTs have utility behind them. The utility is what you can actually use the NFT for other than sitting in your online collection. Some have a game behind them where you can use your NFT to compete. Others may have a physical component to them – it could be concert tickets or a pair of shoes or a print.
Buying One
The first one I decided to buy was something called a Woodie. This is an avatar project with 10,000 creatures created by the artist collective UltraDao. I came across this collection from a friend of mine who is active in the NFT world, so I took a quick look and saw they were selling passports to the public the next day. These passports can then be traded in for one of these creatures one week later.
The passports cost .08 Ethereum to mint, and I purchased ten for a total of .8 Ethereum plus about $18 in fees for a total of $2,451.33.
This launch actually sold out later that day, which was a great sign that it had some hype around it.
The Next Buy
Next, my friend told me about Deadfellaz, which is a project that already launched, but was doing well. Since I’m buying off the secondary market, I’m looking for something that combines rarity of traits with the overall look – all without breaking the bank. Super ugly ones just won’t re-sell for as much, so you have to keep overall desirability in mind.
I used the site Rarity.Tools to help me look. This site adds up the attributes and gives it a score based off how rare it is. For example, the most rare Deadfella has a Rarity Score of 1352.08. But that’s listed for 100 ETH and uh yeah, no thanks.
Instead, I sorted by price, low to high. I ended up snagging this guy. His rarity score is 86.02, which is maybe slightly above average. I paid .6 Ethereum for him and made him at home next to my passports. For some reason, I found this really fun. Yes, I paid over $1800 for a jpeg, but it doesn’t really feel like it. To me, it feels like collecting anything else.
The Third Buy
The next NFTs I minted was definitely a spur of the moment thing. I didn’t really do any research – I just saw the launch on Rarity Tools and decided to mint a few. These were .04 ETH each, and I decided to get three. My rarest one was this one with a purple-ish background and a score of 98. I don’t know if these will see much demand on the secondary market, but I will hold them for awhile and see what happens.
Woodies Launch
Over the following week, hype and FOMO continued to grow and these passports started selling on the secondary market for higher and higher. Six days later, they were selling for .48 ETH each, which is a 6x return. I could sell all 10 passports for about a $12,000 profit, which is absolutely nuts. But I did hold until the next day when I could trade the passports in for the actual characters. I ended up trading 5 of the 10 passports in and here are the characters I got.
On OpenSea, you can toggle open the properties for your characters to see what traits that have and how rare they are compared to the rest of the collection. None of these 5 turned out to be that rare, but that’s okay. I saw other people in the community with rare Woodies sell theirs for 5-10 ETH which is a great sign.
The reason why I’m continuing to hold 5 passports is because they will hold raffles with passport holders to win what they call “core characters” – essentially incredibly rare characters that would be worth a lot. So instead of taking the quick profit, I’m going to continue to hold and see what happens.
Deadfellaz Sale
I realized I was doing a lot of buying and wanted to see if I could sell something, so I listed my lil’ Deadfella for sale. My friend then texted me saying that the floor on Deadfellaz was going up – which means the price you can buy a Deadfella for is getting more and more expensive, which is exactly what you want to see as a collector or flipper… and I thought about delisting my Deadfella and holding it for awhile longer, but you have to pay a fee to delist it because it gets recorded on the blockchain, and I just didn’t want to do that.
So that netted me about $1,000 in profit, which is not bad for my first flip.
Over on OpenSea, we can see people are buying Deadfellaz every few minutes today, which is great to see and gives me confidence in owning a piece of this collection.
My Final Buy
Jonathan Nash, who I collaborated with on previous NFTs did a drop today with 40 editions of this animation. I tried buying it for .5 ETH at launch… and I thought I snagged one… but the transaction failed. And here’s something I didn’t realize would happen: I still had to pay a transaction fee of $12.65… for nothing. Kind of frustrating and really emphasizes the fee-heavy infrastructure of NFTs. A handful of people decided to quickly flip this NFT, so I bought it on the secondary market for 1.4 ETH. I think once the quick flippers all sell, the floor will go up on these editions and it should be a profitable flip if I decide to sell.
Final Numbers
Alright, let’s tally up how much money I put into these NFTs.
I spent .8 ETH on 10 Woodie Passports. So far, I’ve redeemed 5 of them. I spent .6 ETH on Deadfellaz. I spent .9849 ETH on another Deadfellaz. I spent .12 ETH on Angry Boars. I spent 1.4 ETH on a Jonathan Nash animation.
Now, I did sell the first Deadfella for .95 ETH, so let’s subtract that.
But now, here’s the kicker. As I mentioned earlier, any time you transact on the blockchain, there’s fees involved. When I need to move money from my main crypto account to my crypto wallet so I can make purchases on OpenSea, I have to pay a fee.
Here are all of the fees I’ve accumulated over one week. And all of that adds up to a little less than ¼ of an ETH which is roughly $653. Compare that to trading stocks or buying and selling on eBay and uhh yeah, that’s a crazy amount of fees.
So all-in-all, I have 3.17 ETH invested into NFTs, which is about $9,814.
Wow. I really didn’t intend on spending that much, but I do feel like the NFTs I bought are holding their value and will continue to go up. Except for the Angry Boars. Those could go either way.
I could also sell off all of my Woodie passports tomorrow and come close to breaking even, but I think it’s in my best interest to continue holding.
Final Thoughts
To me, it’s obvious that digital art is going to play a huge role in the future, and I find the entire NFT space really fascinating. As you can see with all of the fees I accumulated and all of the other issues with NFTs like the environmental impact, I think changes need to be made for crypto art to really become more commonplace. I had a lot of fun diving into this world and the sub-communities within it and am glad it’s opening doors for many artists to be able to monetize their work.
I’ll probably do an update after I end up selling some of these bad boys – but leave me a comment below the video and let me know which of all these is your favorite.
That’s all for this one, if you would consider subscribing if you haven’t already and hit that thumbs up button on this video, that’d really help this channel out.