9 Essential Questions to Ask Before Investing in an NFT Marketplace

The burgeoning world of Non-Fungible Tokens (NFTs) has captured the imagination of innovators, investors, and technologists alike. The unprecedented intersection of art, technology, and finance in the NFT marketplaces poses new opportunities and challenges. Before diving headfirst into this digital assets space, it's vital to equip oneself with a robust understanding and due diligence plan.

• What is the underlying blockchain protocol?

  Predominantly, Ethereum is the de facto standard for NFTs due to its advanced smart contract capabilities and innovating first with the ERC721 and ERC1155 standards for NFTs. However, other blockchains like Binance Smart Chain, Flow, Tezos, and many more offer different advantages like lower transaction costs and faster transaction times. The choice of blockchain affects the accessibility, cost, and potential liquidity of the NFT.

• How well-curated is the marketplace?

  Given the deluge of NFT art, a well-curated marketplace ensures quality, novelty, and often value. It separates wheat from the chaff, providing a more rewarding experience. Platforms like SuperRare have distinguished themselves through strict curatorship, enabling higher quality content.

• What are the transaction costs?

  Transaction costs or "gas fees" on Ethereum can sometimes surprise new users due to their variance with network congestion. Other blockchains often offer lower transaction fees but might compromise on network security or decentralization. Therefore, it is essential to understand the cost dynamics of the underlying blockchain.

• How liquid is the marketplace?

  Liquidity refers to the ease with which an asset can be bought or sold without impacting the asset's price. High liquidity in a marketplace implies a healthy trading volume, indicating increased interest and potential for price appreciation of NFTs.

• Is there a proof of authenticity?

  Given the digital nature of NFTs, the provenance of the asset becomes crucial. Blockchain's immutable nature offers a robust mechanism for establishing and tracking provenance. Some NFT platforms have integrated with traditional authentication methods like "signed certificates of authenticity" to further reassure buyers.

• How does the platform protect copyright?

  The advent of NFTs has reignited the debate around digital rights and copyright. Several platforms have introduced innovative solutions to address these issues. For instance, Mintable has a "gas-less minting" feature that allows creators to mint NFTs at no upfront cost and gives creators the option to enforce copyrights.

• What functionalities does the platform offer?

  Different platforms offer various functionalities such as the ability to mint single or multiple editions of an NFT, unlockable content, layered NFTs, royalties on secondary sales, etc. While these features may not directly impact the NFT's value, they create a more enriching user experience.

• Is there a community around the platform?

  Marketplaces with a vibrant community often indicate a healthy and reliable platform. Active participation contributes to price discovery and the establishment of a market for new creators.

• What is the platform's vision?

  Perhaps, the most subjective yet significant factor to consider is the platform's vision. Given the nascent stage of NFTs, the vision of the platform could potentially shape the direction of this space.

In conclusion, investing in NFTs entails understanding the intricacies of the marketplace and the principles that underpin the digital asset class. These questions serve as a starting point, but like any investment, due diligence is key. What is evident, however, is that NFTs represent a paradigm shift in the digital economy. The novel fusion of blockchain technology, art, and culture has redefined concepts of ownership, uniqueness, and value in the digital world. In the words of William Gibson, "The future is already here – it's just not evenly distributed". NFTs might be the vehicle that further distributes this future.