A tweet converted to an NFT sold for $2.9 million. A pixelated piece of digital art sold for $24 million. An NFT acting as a countdown clock sold for $52.7 million. With absurd sums of money like these seemingly flying around with ease, it’s easy to see why so many people are being tempted into the NFT space.
While trading NFTs can obviously be lucrative, however, there’s inherent risk involved. You hope to buy an NFT at a relatively low price and sell it for a profit – all the while knowing that you might fail and incur financial losses.
But what about creating your own NFTs?
If you’re able to create and sell NFTs that people are interested in, you could stand to make gigantic profits and even generate passive income – with minimal upfront investment and no risk of financial loss after creation.
In this article, we’ll take a look at 5 things you should consider when deciding whether or not NFTs are viable for your business. For some context, though, let’s briefly discuss what NFTs are, how they’re created, and how you might make money with your own NFTs.
How to Make Money with NFTs
NFTs (non-fungible tokens) can be understood as digital assets that can be bought and sold using blockchain technology. In most cases, NFTs act as records of ownership for either digital or physical property. To facilitate understanding of what NFTs are and how they’re used, we’ll cover three of the most common use cases of NFTs today.
NFT Use Cases
- Art. Let’s say you’re a digital artist. You sell high resolution renderings online. Unfortunately, anyone with any sort of a device can simply share that file with anyone else. NFTs provide value in cases like this by proving ownership of specific art pieces. So rather than just selling your high resolution renderings to interested buyers, you sell your renderings along with NFTs that prove ownership of them. In this way, owning the NFT is like owning the original Mona Lisa while anyone with the rendering alone has a mere print of it.
- Sports Collectibles. Believe it or not, you can own a “moment” of sports history. A highlight clip of LeBron James dunking like Kobe Bryant famously sold for $387,600. While anyone can watch the same highlight clip on YouTube as many times as they want for free, its NFT holds value (and lots of it) by acting as ownership of that moment.
- Real Estate. While the value of Art and Sports Collectible NFTs appear to be highly speculative, there are some fascinating uses for NFTs that show real utility, as well; real estate is one such use case. Any real world property can have a digital asset created for it that proves ownership. As a result, selling that ownership becomes as simple as selling any other cryptocurrency. This has a whole host of benefits, including cutting out middlemen and fractional ownership.
How Creating NFTs Generates Profits
While the method in which profit can be won in trading NFTs is fairly straightforward and obvious (buy low, sell high), the profit to be gained from creating NFTs requires a few extra steps. Again, though, it comes without large financial risk. Generating profits from creating your own NFTs comes through two main channels:
Let’s continue with practicality for simple understanding. To demonstrate these two profit-making channels, let’s take a hypothetical digital artist named Eric.
- Selling Your NFTs. Eric makes collections of artwork that illustrate his travels around the world. After traveling to Bangkok, Thailand, he created a series of six images that depict the city and its people. Eric creates NFTs for each art piece and places them on an NFT marketplace. Eric makes profit from each NFT he sells on the marketplace
- Passive Income with Royalties. When Eric created his NFTs, one of the options he had was to add royalties. Eric added a 5% royalty to each piece. This means that any time his NFT is bought and sold, he earns a 5% royalty from the price it is sold at.
Example: One of Eric’s pieces depicts Wat Arun, a famous temple in Bangkok. He listed the NFT for this piece on the marketplace at $10,000. Pete bought it, giving Eric a profit of $10,000 (minus fees).
Over time, Eric gained notoriety as an artist and the value of his art appreciated. Pete listed the Wat Arun piece on the marketplace for $20,000 and sold it to Dan. Even though Eric, the original artist, was not involved in the sale, he earned a royalty of $1,000 (5% of $20,000).
Going forward, Eric will continue making royalties every time that NFT is resold.
Should Your Business Create NFTs?
Now that we’ve established a solid base of understanding of NFTs and how they generate profits, we can move into the 5 things you should consider if you’re contemplating creating NFTs for your own business.
1. Upfront Cost
While there’s no risk of losing money while getting nothing in return – like you might if you make a bad trade – creating and selling NFTs can involve upfront costs.
The three types of costs that you may incur in the process of creating and selling NFTs are gas fees, listing fees, and account fees. The amount of these fees is dependent on your “minting process” and the platforms you decide to use.
At this point, it must be explained that it is entirely possible to avoid upfront costs altogether by utilizing a process called lazy minting. While paid minting requires NFT creators to pay upfront costs to mint their NFTs, lazy minting delays all fees until after sales are made – and deducts fees from the sale price.
2. Your Value Offering
While there is clearly enormous interest in NFTs, it must still be understood that you need to offer some form of value for people to be interested in your particular NFTs. This may seem obvious, but it’s easy for many people to overlook this idea – especially when they see some of the NFTs that go for sky-high sale prices.
You might look at CryptoPunks, for example, which are extremely simple collectible digital illustrations, and think, “I can make that!” We need to understand, however, that creating value in this manner isn’t as simple as making things and putting them on the market. CryptoPunks managed to generate hype and a sense of scarcity, which drive consumption.
So if you’re considering creating NFTs, you need to ask yourself, “What is the value of owning my NFT?” In some cases, especially when NFTs represent ownership of physical assets, value offering is obvious. In other cases, it can be more about hype, marketing, and speculation. Especially if your value offering falls into the latter category, you’ll want to carefully assess Consideration #3…
3. Potential Consumer Base
As you would when selling any good or service, you need to ask yourself, “Who will want to buy my NFTs?” Does your business already have a substantial following? If so, you may be in an excellent position to create and sell NFTs. If not, it might be wiser to hold off on creating NFTs until you attract more attention first.
Like we mentioned in Consideration #2, potential consumer base is critical in many cases for NFTs. The value of many NFTs comes from scarcity and perceived interest which are often highly dependent on large consumer bases
4. Platform for Minting
If you do end up deciding to go ahead and create NFTs for your business, you’ll need to choose a platform on which to create them. There are a number of different platforms on which NTFs can be created today, and more keep popping up, especially as interest in the space grows. Some of the most widely used platforms for creating NFTs today are:
All of these platforms are perfectly viable for creating NFTs. Ultimately, your choice will depend on your preferences in things like features, user interface, and fees involved.
5. Novelty, Fun, and Forward Thinking!
OK, so this consideration is actually a few things combined – but they’re related in some ways and quite important.
One important advantage of creating NFTs for your business is the advantage of taking a step forward in innovation. In the history of technology and business, we’ve seen over and over that businesses that fail to adopt new technology get left behind while those that embrace it thrive.
So even if you consider upfront costs, your value offering, and your audience and come away thinking that your NFTs might not necessarily be attractive to the marketplace, you might decide that there’s significant value in entering the NFT space, anyway. This is where novelty and fun come in, too.
While many people may still not fully understand NFTs, they are generating huge buzz. Even if your NFTs don’t sell, it may still be a talking point for people looking at your business!