Not Only for Crypto Geeks: 4 Ways to Make Money With NFTs (Non-Fungible Tokens)
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If you don’t know what NFTs are, you may be missing out big times. They are currently hyped but the underlying idea has enormous potential and is here to stay. In this article I explain what NFTs (non-fungible tokens) are and I especially focus on four ways to make money with NFTs.
What’s so Cool About NFTs?
Recently there was a lot of hype around NFTs. Christie's sold an NFT by digital artist Beeple for $69m. Jack Dorsey sold his very first tweet for $2.9 million as an NFT. The NBA and the UFC are betting big times on extra revenue channels using NFTs. At the end of 2019, Nike patented their blockchain based CryptoKicks NFTs.
But what exactly is an NFT?
NFT stands for “non-fungible token.” This is a bit of a funny word -- especially for English non-native speakers. Basically “fungible” means exchangeable. Money (dollar bills) is a perfect example of a fungible item. A commodity like corn is fungible, or shares of a company are fungible.
On the other hand, examples for non-fungible items include a used car, a house, a diamond, a domain name, or a Twitter handle. It is unique and it cannot simply be exchanged. Art like a Picasso painting is also non-fungible. For real-world objects, it’s very easy to see if they are fungible or non-fungible. In the digital world, however, everything is based on a representation of a certain sequence of bits (ie, 0s and 1s). Such a sequence can represent a digital object like an image. This image can easily be copied. It is technically not straightforward to protect from copying a bit sequence. We need special technical constructs to make digital objects fungible like digital currency. The cryptocurrency bitcoin for example is fungible.
NFTs achieve the next step: make digital artifacts non-fungible.
NFTs are used to represent a digital artifact with a unique and secure token. This token guarantees the authenticity of the digital artifact. If someone buys a digital drawing as an NFT, s/he is guaranteed the uniqueness and ownership of that art piece. It’s exactly like when you’d buy this Picasso painting. The token is encoded and securely stored on the blockchain. Here is a blockchain for dummies article if you want to know more.
I stop here with details about NFT as this should give you enough info to understand the basics. This is not an article about how NFT works technically but how we can make money from NFTs.
So, NFTs are technically cool, because they take blockchain technology and cryptocurrency and apply it to an area that is not just for geeks but has mainstream potential. The opportunities are huge. I mentioned art before but NFTs can be used for a lot more and very diverse application areas: gaming, fashion, banking, insurances, sports, travel, collectibles… you name it -- anything where the uniqueness of an object needs to be guaranteed.
Apart from these different sectors, I like a lot about NFTs is that they make art a lot more accessible -- as a consumer and as a producer. In other words, NFTs allow the democratization of art. Everybody can become an artist, publish and trade art on open platforms. With a bit of creativity, there are many ways to make money from that. I will show you four ways next.
4 Ways to Make Money With NFTs
With a bit of creativity, you will see plenty of different ways of making money with NTFs. The ecosystem around NFTs including technologies, platforms, and different players is already huge and it’s growing.
Generally, I recommend two things.
First, think a bit outside of the box and don’t do what everybody else is doing. The quote “during a gold rush, sell shovels” comes to mind. During the California Gold Rush in the middle of the 19th century, the people who got really rich were those who delivered supplementary but necessary services to the gold diggers like tools or shelter.
Second, make sure you don’t put all your eggs in one basket. Portfolio diversification is the fancy way of calling this. I recommend putting only a small part of your money into NFTs (or cryptos in a broader sense) and invest other parts into other instruments like real estate, stock, ETFs, pension plans, angel investing, or alternative investments like solar energy or wine. Even within the field of NFTs, there are various ways to diversify. Below are some.
1. Trading NFTs
The most obvious way of making money with NFTs is trading. That means you create an account on one of many NFT marketplaces like OpenSea, Rarible, SuperRare, Nifty Gateway, KnownOrigin, Foundation, Mintable, Zora, or Mintbase. There are also niche marketplaces for special purposes like Decentraland that allow trading real estate virtually. Some brands create their own NFT marketplaces like the NBA and the UFC.
Once you are a member of a marketplace you can browse, buy and sell NFTs. The same principles as trading physical art objects or trading stock apply. You basically buy something where you are convinced about the value of the underlying asset and you speculate that the value will grow over time. Later you sell it and the difference is your profit.
Before you start investing in NFTs, I recommend getting a fairly good understanding of the dynamics in the domain. There are lots of new technologies evolving every day, and the payment process using cryptocurrency takes getting used to. Watch the space and read a lot. Before you make your first investment do your due diligence and research the seller and the NFT object. And start small.
2. Investing in NFT Enabling Technology
The NFT domain is booming and rapidly growing. With that comes a lot of opportunities for new inventions and innovations regarding technology as well as business models. There is a lot of demand for new tools and to make NFT easier accessible for the general public.
A great way to leverage this to make money from it is to look for relevant crypto technologies that seem to have key features relevant to NFT. Buy the corresponding coins and then hope that it gains in value. Currently, the most commonly used crypto technology for NFTs is the Ethereum network with the corresponding Ether (ETH) currency. But there are more on the horizon like Cardano (ADA, already the third-biggest cryptocurrency), Polkadot (DOT), Kusama (KSM), Flow, Tezos (XTZ), or Cosmos (ATOM). You can buy these coins on crypto exchanges. There are already many and some may be shady. I’d choose one that has been existing for longer with high trading volumes.
My favorite exchange is Kraken because it is easy to use, fast, and offers all the coins that I mentioned earlier. Kraken also offers staking, which is a great way to earn crypto rewards while they are just sitting around in your account. Staking is similar to interest that you earn in your bank account. If you choose to stack a certain cryptocurrency like DOT, that means that you lock away a certain amount for the DOT network. The network then uses this amount to mint more coins and grow the network. For this locking, you earn rewards. Interestingly, your locked amount can be unlocked quite quickly (should you need it). It typically takes a couple of minutes, maybe an hour max. The yearly reward for DOT, for example, is currently 12%. Not bad for doing nothing. Certainly better than the interest rate on your bank account and a great way to generate passive income.
Another way to invest in NFT enabling technology is to invest in the companies that build or offer the technologies. Dapper Labs, the company that created the CryptoKitties, for instance, raised $305 million in funding at a valuation of $2.6 billion. OpenSea raised a funding round of $23 million. Angel investing is a possibility to fund and support startups especially in earlier stages, help them grow, and then exist hopefully with a considerable return. Or none at all, 90% of all startups fail.
You can angel invest by directly approaching a company, join a platform like AngelList, an incubator like ycombinator, or one of many startup crowdfunding platforms (like Seedrs, Wefunder, Crowcube, or StartupXplore).
Or you build your own thing, which I cover next.
3. Contributing to Valuable Assets
Rather than “just” investing in NFT enabling technologies or innovations, you could actually go ahead and create one yourself. This is very much in line with the gold rush analogy from earlier. Those who provide assets like tools are the ones who really get rich at a much lower risk. If you take a detailed look into a rather young field like NFT, you will sooner or later uncover shortcomings or sweet spots, which are not addressed by solutions, yet. If you can come up with solutions that solve a customer’s pain and they are willing to pay for it, voilà: You got yourself a new income stream.
Building and selling your own product can be a very effective building block to financial freedom. This is generally true and not only for NFTs. Two useful caveats to consider are that first, you don’t actually have to build the tool yourself. It’s probably more efficient to pay someone to do that (eg from freelance platforms like Fiverr or Upwork). You better stick with what you are good at (like creating new ideas).
Second, direct selling of a product is not the only way to generate an income stream. There are tons of business models available and you should pick the most suitable for the context. The icing on the cake is when you automate as many processes as possible to generate passive income.
Coming back to tools for NFTs: I see a lot of potential in making NFTs easier to understand and use. It already starts with its name (a three later abbreviation of a technical term). The NFT domain still uses a lot of technical jargon that is mostly totally unnecessary. Ideally, this complexity and the underlying technologies should be abstracted away to improve the user experience and increase acceptance. You need to understand and configure a lot of terms and concepts before you can make your first ETH transfer.
4. Creating Your Own NFTs
Finally, the most fun way to make money with NFTs (for me at least): creating your own NFT.
You can tokenize literally any object. Your creativity is your limit. For me, the most exciting way is to create and (try to) sell my own art pieces. In the next section, I describe the six steps to follow to create and publish your own NFT art. I will then also introduce the art pieces that I produced and my thinking behind them.
6 Steps to Creating Your Own NFT Art
Here are the typical steps necessary to create, publish, promote, and sell your NFT Art.
Step 1: Have an Idea
You obviously start with generating an idea first. This idea should cover two requirements. First, ideally, it’s something that you are passionate about. For me, this is woodwork (among others). Being passionate about the idea makes it a lot easier and more fun to complete the process and ending up with a sell-able NFT.
Second, the realization of your idea should be digitizable in some way, or at least you need to find a way to relate it to a non-fungible token.
Other than that your creativity is the limit. Your art can be music, paintings, photos, stories, poems, videos, acrobatic moves, cooking, dancing, jokes, tweets, weird combinations … whatever you can think of and enjoy.
Step 2: Bring the Idea to Life
The next step is to realize your idea: write, paint, compose, shoot a photo or video, brew beer, groom your beard, design a tattoo, craft woodwork (like in my case)… Whatever it is, bring it to life. This is actually the really fun part.
Step 3: Mint the NFT
Minting is the process of creating a non-fungible token and associate it with your art piece. This is also referred to as a smart contract. The nature of the minting process depends on the blockchain that you choose to use. This is an important decision because it is probably very difficult or impossible to transfer an NFT from one blockchain to another. The blockchain currently most commonly used by NFT marketplaces is Ethereum. Others include Polkadot, Flow, Tezos, Cardano, Bitcoin Cash, Binance Smart Chain, EOS, Tron, WAX, or Cosmos.
Depending on the marketplace the minting process can be more or less complicated. Most popular marketplaces offer a fairly simple way to mint your NFT. On the OpenSea blog, you can find a very simple step-by-step guide. Alternatively, you can also write your own software code to create a smart contract.
Step 4: Publish the NFT Art
Unless you are building your own NFT marketplace or you publish on a very specific niche marketplace, minting (step 3) and publishing NFT art (step 4) are typically very closely related.
After you have minted your NFT for a marketplace it usually just requires a couple of more steps to publish it. These steps include adding data to your NFT like name, description, customizable metadata, details about the artist, and potentially some unlockable items, which the buyer gets access to after the purchase. This can help to increase attractiveness of your NFT. Probably the most important part is the price of your NFT and your commission if your art piece is later resold. More about this in the next step.
Step 5: Sell and Re-Sell Your NFTs
Now it’s all ready and it’s time to start selling your NFT. Different marketplaces have different ways to sell NFTs. Typically you can choose between either a fixed price or an auction where you’d set a minimum price and customers can then bid for it (ebay style). For both you can also set a time duration, or in case of the fixed price you can leave it available until it’s purchased. On some marketplaces you can create bundles that include various NFTs.
I also recommend to set a commission rate that will earn you money whenever a buyer decides to resell your NFT. You will always remain the sole creator of the art (guaranteed by the NFT) and after a re-sale will be rewarded. Typical commission rates are somewhere between 2% and 10%.
Step 6: Promote It
NFT promotion is the key to increase awareness and sales probability of your art. Currently there is very little info available about this topic. In my follow-up article How to Sell NFT Art I cover NFT promotion in detail. Subscribe to my newsletter so you don't miss any of my articles.
In short, it’s about creating a brand and then communicating your brand message via specific techniques and channels. Techniques include search engine optimized content marketing, guest posts, building communities, hosting (virtual) exhibitions, or working with influencers.
Channels include all your well-known social media platforms like Facebook, Twitter, Instagram, YouTube or Pinterest. Other formats could be chats and forums like Telegram, Quora, Reddit, or Discord. You could also leverage specific niche platforms like BitCoinTalk, Hackernoon, Howtotoken or Cryptopanic. I recently discovered cent.co a platform for creative income, which seems highly suited and I got some good traffic from.
My Own Art: Augmented Virtuality
I ventured into art as well and followed the above steps to create my own NFT art. It’s my own type which I am very passionate and excited about. I mix real-world physical objects with virtual elements to tell a story. All my art involves hand-crafted artifacts.
I call this Augmented Virtuality.
So far I have created several art pieces including “With a Happy Ending” and “The Vicious Viking.”
With a Happy Ending
“With a Happy Ending” shows a heart moves from the top left into the middle. On its way, it falls together and heals. Like so often, stay positive and things turn out with a happy ending.
I hand carved the bigger heart in the middle made from basswood. I colored it red and added a magnet on the back. The photo is taken with the heart sitting on the fridge. The other three hearts are digital replicas that I modified with the crack.
This piece also includes an unlockabe item. If you buy this NFT, I will share more info on why exactly I have chosen the dimensions of the canvas and the story that's behind the sale price.
The Vicious Viking
My Vicious Viking is holding an ax that I hand carved from basswood. I then sanded and colored it and added the wrapping onto the handle. The viking is digitally created and added to the ax. I mixed in the background which is a representation of a physical canvas.
NFTs: Just Another Fad?
NFTs are definitely rising in popularity. Many critics are talking about another bubble that’s about to burst soon. I agree, it may currently be a bit overhyped and it’s crazy what people are willing to pay for certain NFTs.
However, I do believe in the game changing nature of the underlying idea of NFTs. It brings the proof of unambiguous ownership from the physical into the virtual world. This will have many beneficial consequences in many different areas like gaming, fashion, banking, insurances, sports, travel, collectibles and many more. I believe it is the first application of cryptocurrency that will not only remain among geeks but actually be accepted by the general pubic.
Specifically for art, I am convinced it will lead to a democratization of art. It will make art accessible to everyone on the producing and consuming side. It is easier than ever for everyone to be an artist and publish any crazy idea and make sure your intellectual property is guaranteed. As a buyer or collector the entry barrier is massively lowered.
Finally, for investors this opens up a huge playing field that allows to make money with NFTs. Like I outlined in this article, this includes trading NFTs, investing in NFT enabling technology, contributing to valuable assets, or creating and selling your own NFTs. This can contribute significantly to the (financial) freedom part of the happiness equation (the other part is health).
If you want to look into this in more detail, head over to OpenSea and start trading or selling your NFTs.
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I am affiliated with Kraken and OpenSea. If you use my affiliate links, I may get a commission. You help me a lot producing more content like this.
I am not a financial advisor. I present my view on things that work well for me. I am not taking any responsibility for your decisions. Always do your own due diligence before you invest.