What things to look in a NFT exchange before buying or selling an NFT?
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- Updated On:24-Mar-2022
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Short Answer
NFT exchanges represent the middlemen which connect a buyer of an NFT to the seller. There are some key points that you should consider while selecting a good NFT exchange. They are, Knowing about the Transaction and Platform Fees, Ensuring adequate liquidity and volume, provision of authentication and verification of sellers and buyers, as well as additional features to its users.
Detailed Answer
Are you wondering what things to consider in an exchange before purchasing & selling an NFT? Let's see to it.
Now that you know, what are Non Fungible Tokens and how to purchase them, the next question arises, How to select an NFT exchange?
In the rapidly expanding universe of metaverse and cryptocurrencies, it is difficult to find a good NFT to buy and own. There are dozens of websites that facilitate the buying and selling of these NFTs. Hence, before you make your first purchase or add new artwork to your portfolio, let's look at some of the points which you should bear in mind before selecting an NFT exchange.
What to consider before purchasing NFTs?
In order to purchase an NFT, you will require an exchange that connects the buyers and sellers to transact their NFT. This exchange also acts as an escrow of your cryptocurrencies until your NFT is being bought or sold. Therefore, it is essential to find a good and trustworthy exchange that will ensure your transaction goes through without any trouble.
Some of the points that you should note before you select an exchange are as follows.
1. Transaction and Exchange Fees
Whenever you buy or sell an NFT through an exchange, the platform charges a minor percentage on the overall transaction as a ‘transaction fee.’ This fee ranges from 1% to all the way up to 8-10% in some cases. Most platforms charge this fee on the selling of NFTs but there are some who also charge a service fee on the purchase of any NFT. Although these fees are nominal and would not make much of a difference on the total price, still it is important to know the extra overheads in a transaction.
2.Total Platform Participants & Liquidity
NFTs are not as liquid as other cryptocurrencies and digital investments like stocks or bonds. This means it is not easy to sell your NFT as there aren’t many buyers and sellers of the NFT. Therefore, it is important to check the total volume of transactions and the total number of users of a platform before you purchase anything from it. 'Liquidity' is extremely important because if you want to sell your NFT for any given reason, without sufficient liquidity it will be extremely difficult for you to get a reasonable price for your asset within a limited time frame. The higher the number of users and volume, the better chances of liquidity you will get.
3. Verified sellers and Users
Right now any individual can create their own artwork and mint them as NFTs. Such new entrants in the markets are in large numbers. For this reason, look out for those platforms which screen sellers and provide a verified badge with a 'Blue Tick' according to some standards. This will help you to filter out the NFTs based on the genuine sellers and purchase them accordingly. A project of a verified seller will more likely be trustable when compared to an unverified seller. However, just a verified account does not mean the project is worth investing in, but it will assist you to make a decision regarding the creator of the NFT.
4. Additional features of the platform
Apart from the other services a platform provides, as a user, you should look for platforms that offer some additional value to their users. Some of the features to look for are, Market Statistics such as total buyers and sellers in a particular NFT, Price change percentage, daily activity log of traders, total volume in a particular project, NFT ranking, and much more. These additional data will help buyers, and sellers pick good projects and segregate them from the remaining mediocre projects. It will also portray a picture on which are the top NFTs that are in demand and which are not.
Bottom Line
These were some of the major points which you would look at before purchasing or selling an NFT on a particular exchange. The NFT space is currently scaling quickly, and with that many other exchanges will emerge. Hence utilize these parameters and select the ideal platform for yourself.
Also remember the value of an NFT is determined by its underlying project, scarcity, and the demand for it in the marketplace. Therefore, once you have selected an exchange, you should conduct thorough research and analysis before you actually invest your money in any project.
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Discussion (0)
NFTs are digital assets that derive their value from the total supply, scarcity, ownership history, and usability. Some of the most expensive NFTs include 'The Merge' which was sold for a whopping $91.8 million. However, NFTs in common are extremely risky investments hence you should only allocate a small percentage of your overall portfolio towards them.
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