From paying gas fees to royalties on creating NFTs – we look at some of the hidden costs you must consider before trading NFTs.
Over the past year, non-fungible tokens (NFTs) have tremendously grown in popularity. People have made millions by trading NFT memes, artwork, music and much more. Even though numerous people have profited from these tokens, there are still some who have suffered great losses. That’s because, when it comes to trading NFTs, there is more to it than meets the eye. For instance, a Senior Content Strategist at digital storytelling platform Kapwing, Robert Martin, lost over US$200 in gas fees while trading NFTs. He feels that gas fees could be risky for new users. “There needs to be a lot more education out there. It seems like most of the resources are catered to people who are already involved in the crypto world,” he expounds.
NFT trading goes beyond just the price of the token you want to buy. Here, we take a look at the hidden costs involved in buying and selling NFTs.
Gas fees are the fixed fees involved in buying NFTs. The Founder and CEO of global B2B Software-as-a-Service (SaaS) company NFTically, Toshendra Sharma, explained, “Apart from the value of the collectibles, there are transaction fees. Whenever you do a transaction through blockchain, there is a blockchain transaction fee called a gas fee. It is a fixed fee, which does not depend on the value of the transaction.” Essentially, it refers to the amount you pay miners for the computing energy they require to validate blockchain transactions. It is an additional charge in Bitcoin or Ether required to transfer the main cost.
The gas fee fluctuates depending on the demand and supply of the cryptocurrency. If demand is high, the gas fee might even exceed the cost of the NFT.
To get started on trading NFTs, you need to set up a cryptocurrency wallet. There, you will need to convert your currency, say USD, into a cryptocurrency, say Ether. You might also want to convert from one cryptocurrency to another, if required. To do so, your wallet will demand a conversion fee, which can amount to upwards of 1.50% of the transaction amount.
Creating, selling and reselling NFTs
Just as buying can be an expensive affair, creating an NFT can be so, too. In Ethereum, a creator may be required to pay anywhere between US$100 and US$500 to create the smart contract (an agreement between the buyer and the seller). The cost may be lower on other blockchains, but it is one to be considered regardless. Additionally, when selling an NFT, creators might need to pay a part of their earnings, say 5 percent, to the marketplace.
Many people buy NFTs to later sell them for a profit. However, reselling NFTs is not so straightforward. Sellers are required to pay a royalty, typically 10 to 30 percent of the amount earned, to the marketplace they sell it on.
When you sell an NFT, you earn cryptocurrency that you might want to shift to your bank from the crypto wallet. For that, you will need to convert the crypto into fiat currency (government-issued currency) through the crypto exchange or a peer-to-peer platform. That, again, won’t be free of cost, as you will need to pay blockchain fees. The co-Founder of exchange software company HollaEx, Adrian Pollard, adds, “Blockchain fees, which typically occur when withdrawing money from exchanges, have increased dramatically due to the demand. U.S. dollar Tether (USDT) usage is now mostly on the Ethereum blockchain, but, at the same time, many of the other coins are using the same blockchain, which increases the competition between transactions.”
Although trading NFTs can be lucrative, make sure to watch out for the hidden fees that can put a dent into your wallet. So, if you want to board the NFT bandwagon, make sure you have the funds to see you through all the costs involved.
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