Non-fungible tokens, or NFTs, are a relatively new type of digital asset that represent digital ownership of an asset, commonly an image or video. While anyone can view the NFT, it’s only owned and controlled by a single digital wallet owner. NFTs are closely tied to the cryptocurrency ecosystem and may be stored in a shared wallet with Ethereum or other compatible currencies.
If you have a friend or family member excited or curious about NFTs, giving one away as a gift could be a fun choice for their birthday, the holidays, or any other time of the year. Keep reading to learn more about how NFTs work and how you can gift one to someone else.
How To Get NFTs
NFTs are digital assets that are sold using cryptocurrencies and their ownership is verified on a blockchain. They are called non-fungible because, unlike cryptocurrencies, they cannot be used as a medium of exchange. That also means that while they can be bought and sold on market places, they cannot be traded like stocks or cryptocurrencies. NFTs can be anything—computer generated avatars, sports highlights, or collectibles like art.
To gift an NFT, you have to first get the NFT into your own digital wallet. Next, you’ll need to buy cryptocurrency to make an NFT purchase. The most popular currency for NFTs is Ethereum. Once you own Ethereum and it’s in your wallet, you can connect to a marketplace like OpenSea or Rarible to purchase the NFT. You could also purchase NFTs offered as collectibles by specific brands, such as the NBA or Taco Bell.
NFTs can either have a fixed selling price, or you need to bid for it in an auction (think eBay). In an auction, typically all bids are visible and some platforms may require valid bids to be higher than previous bids placed. The owner of the NFT would then make the sale to the highest bidder.
If you are new to cryptocurrency and NFTs and only want to send an NFT as a gift, the easiest way to start is with a digital wallet like MetaMask, which is free and works as a browser plug-in or mobile app.
Who To Give NFTs To
Only someone with a compatible digital wallet can receive an NFT. That restriction makes gifting NFTs to children who are minors tricky, as most exchanges, brokerages, and wallet apps will not let you create an account for a child below 18 years of age.
Before gifting an NFT, consider the responsibility of ownership that comes with the item. You should generally only give NFTs to an individual who understands what they are getting ownership of, how to access it, and how to keep it safe.
NFTs are popular with technology enthusiasts, cryptocurrency users, and investors. If you know someone who loves getting involved in the newest technologies or is already into cryptocurrency, they may truly appreciate getting an NFT as a gift.
When choosing an NFT, you could consider purchasing a budget-friendly NFT or consider gifting partial ownership in a valuable one. Platforms such as Fractional allow for fractional ownership in rare and expensive NFTs.
The value of the NFT depends on the demand for it. Certain artwork or gaming avatars have sold for millions of dollars, but not every NFT may appreciate in value or command a liquid market.
How To Gift NFTs
Giving an NFT is very similar to giving someone cryptocurrency. To get started, you’ll need the NFT, a cryptocurrency balance to pay transaction fees, and the recipient’s public wallet address.
Get the Recipient’s Public Wallet Address
Start by getting the recipient’s public wallet address and confirming the details. If an NFT is sent to the wrong address or an incompatible address, it may be lost forever. Wallet addresses are shared as either a string of alphanumeric text or a QR code.
Open Your Cryptocurrency Wallet That Holds the NFT
Next, log into your cryptocurrency wallet that holds the NFT you want to give. Make sure to keep your wallet information private and secure, as anyone with the wallet’s password or private keys can access any currency and NFTs you own.
Prepare the NFT Sending Transaction
Once logged into your wallet, navigate to the NFT and choose the option to send the asset to another wallet.
Enter the recipient’s wallet address in the correct box. Your wallet software should confirm for you that the wallet is compatible. If it isn’t, don’t send the transaction. For example, if you’re sending an Ethereum-based NFT, you can only send it to an Ethereum wallet. You can’t send to a Bitcoin or other wallet directly.
Depending on the wallet and network, you may have an option to pay higher fees for a faster transaction or lower fees for a slower transaction.
When you go through a transaction, the gas price is an offer or a bid to the network to hasten the transaction. If you offer too-little gas, your transaction may remain pending and not get verified for a long time.
Double Check the Details and Send
Because there’s no reverse option for blockchain transactions, double-check that your transaction details are correct. Maybe even triple-check to be safe.
Once you’re certain everything is accurate, click the button to send the NFT. This broadcasts the transaction to the network of computers supporting the blockchain for confirmation.
Verify Receipt on the Blockchain
Because blockchain transactions are public, you can view the transfer while it’s in progress and confirm that the NFT has landed in the correct wallet when the transaction completes. You can do this using a free blockchain explorer, such as Etherscan.
Depending on the wallet you have, the recipient may not get a pop-up or notification that the NFT landed in their wallet. You can do the fun part of letting them know they have a brand new NFT.
What To Watch Out For: Rules, Regulations & Reminders
In most cases, there are no special rules or laws around NFTs. But they're relatively new so there may be a lot of uncertainties associated with them. Plus, there are a few nuances you need to consider prior to gifting an NFT.
There are potential tax implications that you may want to be aware of. First, cryptocurrencies work like money but are treated similarly to a stock investment for capital gains tax purposes. If you used cryptocurrency to buy and send the NFT, those could be taxable events.
Gifting NFTs could also be subject to gift tax, but for 2021, any such gift shouldn’t require any taxes unless it’s worth more than $15,000 per individual receiving the gift. The combined exclusion for spouses is $30,000.
If the NFT appreciates considerably over time, the recipient of your gift could be on the hook to pay taxes if and when they decide to sell it. Capital gains on NFTs could be tricky, as rare NFTs may be treated as collectibles, which are taxed at a higher, long-term capital gains rate of 28%.
Transaction Costs to Consider
Transaction fees may add a significant cost to your gift-giving experience. Depending on network congestion, network fees may cost hundreds of dollars when sending an NFT.
These fees are in addition to the cost of the NFT itself, and you may have to pay network fees twice, too: once when you buy it yourself and again when sending. Network fees are paid to the miners who support the blockchain, not the NFT marketplace or seller.
Creative Gift Presentation Ideas
Because you can’t put an NFT in a box and gift wrap it, you may want to come up with other fun or creative ways to present the NFT to the lucky recipient. Here are a couple of fun ideas to choose from:
- Gift with a hardware wallet: If the recipient doesn’t have one, you can load the NFT into a hardware wallet and give them the wallet and NFT all at once. Ledger wallets are relatively low-cost among cryptocurrency hardware wallets and come with NFT support.
- Print a copy to physically deliver: You can print a page showing the NFT along with instructions to access it or a note requesting their wallet address.
Benefits of Gifting NFTs
If you own an NFT that’s gone way up in value, gifting the NFT could save you on taxes compared to selling it and keeping the cash yourself. But mostly, giving an NFT is about engaging with your friend or relative in a fun way using an exciting, new technology. Happy gifting!