This is the second article in a series. Please read Part I if you missed it. Part I discussed NFTs and introduced some basic concepts around blockchain and cryptocurrency. Part II will explore getting setup with a crypto-wallet to hold your cryptocurrency and NFT art. Before we can really do anything other than look around the NFT marketplaces we need some cryptocurrency. This is a major hurdle to getting started because it takes about two weeks to get your cryptocurrency. The first thing you must do is open an account with a cryptocurrency exchange, choose a cryptocurrency wallet to connect with the NFT marketplaces, and fund your account. This process can be quite daunting to the beginner because it is a reiterative circular process; like the chicken or egg question. You have to get to the end of the process (choosing your NFT marketplaces) before you know if your first decision (buying cryptocurrency) was a good one. With this article, I hope to save you from going down the rabbit hole.
Which Cryptocurrency Exchange Should I Use?
There are three cryptocurrency exchanges that are frequently cited. Coinbase, FTX.US, and Binance.us are all highly rated. FTX.US seems to edge out Coinbase as the leader with low fees. I decided to open my account at FTX.US because of low fees and compatibility with the Phantom wallet (more on Phantom later). Once you open an account, you’ll be required to verify your identity and then link it to a bank account. After the bank is linked, you’ll be able to transfer funds to your cryptocurrency account. There are several methods for transferring funds including ACH, wire transfer, credit/debit cards, and PayPal. Each method has its benefits and drawbacks. The major drawbacks are the cost to make a transfer and the timeline to receive the funds.
I went to FTX.US to open an account for trading cryptocurrencies. You’ll need to go through an identity verification process typical for any bank or online financial service. Be prepared to upload photo IDs (passport or State Driver License plus a selfie picture). After your identity is verified, you will be able to link your financial institution and transfer funds. ACH bank transfer is the easiest and cheapest (free) way to fund your FTX account but it is also the slowest. FTX says it takes 15 days before your funds are available to withdraw. Using a credit card is faster (7 days) but you’re likely to get hit with a variety of bank charges. Wire transfer seems to be the fastest way to get funds and it may be free depending on your banking relationship.
Since I am concerned about security and hacking, I wanted to put a buffer between the cyber world and my bank accounts. I chose to link a bank account which carries only a small amount of cash so that a hacker would have a very small prize should my account be breached. I set up an ACH transfer from Wells Fargo to FTX.US and initiated a transfer of USD. The funds were visible in my FTX account almost immediately and available for conversion to cryptocurrencies but the funds were not available for withdrawal (funding my wallet) for 15 days.
Which Cryptocurrency Wallet Should I Use?
A cryptocurrency wallet is what it sounds like. Its an app that securely holds your cryptocurrency, NFTs, and other digital assets. The app floats around the internet in your browser so you can connect it to websites where you want to do your business (ie, buy/sell NFTs). Funding your wallet the first time is tedious. Before I selected my crypto-wallet, I had to decide where I was going to sell/shop for NFTs and which cryptocurrencies I needed for the desired NFT marketplaces. There are numerous wallets to consider, each with a variety of capabilities that extend well beyond buying and selling NFTs. After a lot of time researching the NFT marketplace, I tried to set up an account to test them out but I was blocked until I could link a funded cryptocurrency wallet. Ultimately, I chose the Phantom wallet because (i) it was an easy browser extension that handled ETH and SOL, the two top crypto currencies for NFTs, and (ii) it was supported by the NFT marketplaces I was interested in.
My Phantom wallet installed easily as a Firefox browser extension. It can be connected on any compatible site using a hotkey sequence ALT-SHIFT-P and unlocked with a password. Phantom is a “hot wallet” which means the funds are available online. For additional security, excess funds as well as your NFTs can be stored offline using a “cold wallet”. I purchased the Ledger Nano X which is a state-of-the-art cold wallet that integrates with numerous hot wallets, including the Phantom wallet.
Security is a major consideration for cryptocurrency wallets. The wallets I examined used a “recovery phrase” or “seed phrase” to secure access to the wallet. Seed phrases are typically twelve (12) words that are used in an algorithm to generate a private key for secure transactions. When a wallet is initialized, the owner must store the seed phrase someplace (like a safe deposit box) where it can be accessed in the future should there be a problem with the wallet. If the owner lost the seed phrase, everything stored in the wallet would be unrecoverable. THERE IS NO PASSWORD RESET FUNCTION FOR THE SEED PHRASE OR PRIVATE KEY. The seed phrase can be used to access everything in a wallet via a different hardware device or browser.
What Cryptocurrencies Do I Need to Buy and Sell NFTs?
When a NFT is created (“minted”), it is forever locked into the selected blockchain so it is important to consider the marketplace as well as the cost per transactions before minting a NFT. ETH is king and SOL is the crowned prince of cryptocurrency for NFTs! By far, the Ethereum blockchain has the largest NFT marketplaces but the transaction costs (“gas fees”) are very high. SOL, the cryptocurrency of the Solana blockchain is the rising star with very fast transaction processing and virtually free transaction costs but few developed NFT marketplaces.
The steep gas fees on Ethereum are causing people to migrate onto other blockchains such as Solana; but Solana is still in its infancy. Solana is infinitely scalable and very fast with virtually free transaction costs ($0.00025/transaction on 2/25/2022). For comparison, transactions on Ethereum cost between $32 – $108 per transaction. There have been complaints that gas fees on Ethereum can cost more than the underlying transaction value and those costs have pushed the prices up. Solana marketplaces, in general, have lower costs (and prices) than Ethereum marketplaces. I expect Solana marketplaces to overtake Ethereum marketplaces in the near future as Ethereum struggles to get its gas fees competitive.
Where Can I Buy and Sell NFT Art?
The biggest and most widely known NFT marketplace is OpenSea. Anyone entering into the NFT marketplace should consider OpenSea if only because of its size. The main drawback about OpenSea is that it runs on the high-cost Ethereum blockchain. I discovered numerous marketplaces trading on Solana but many are in their infancy and lack the sophistication of the larger marketplaces. Most that I explored had poor search capabilities and their art was limited to the comic book style drawings like manga and anime and pixelated icon art like CryptoPunks. After investigating The 13 Best Solana NFT Marketplaces, I was disappointed to discover only Solsea had an abundance of “camera-based art”. Solsea appears to be the Solana competitor to OpenSea.
As I mentioned at the top of this article, you need to have a good idea of which NFT marketplaces you plan to use before you buy cryptocurrency and fund your wallet so I’m going to close this article with this quick synopsis of NFT marketplaces. My next article (Part III) will delve more deeply into the NFT marketplaces; until then consider my top two marketplaces OpenSea and Solsea then do a little research yourself.