Passive income - who doesn't want that? 'Becoming rich' while you sleep is a dream or goal for many people. A passive income is an income for which you don't have to do anything at the moment the money comes in. How much you earn is therefore not linked to how many hours you work.
Non-fungible tokens (NFTs) have been gaining popularity recently. They are in the news a lot and a huge amount of popularity has been generated for them. Besides Dogecoin (DOGE) or Safemoon (SAFEMOON), there is really nothing in the crypto world that has become so popular in such a short time back then.
But can these two wonderful things be linked together? Can you earn a passive income with non-fungible tokens? Yes indeed, you can. But how do you do it? You'll read all about that in this article.
*Note* read here more about 10 NFT’s sold for millions!
What is a non-fungible token (NFT)?
In a previous article, I wrote about what an NFT is. But let me go a bit more in detail before telling you how to make a passive income with NFT’s. A non-fungible token, which is often abbreviated to NFT, is a token that represents something unique. If you know all about this, you can skip ahead.
Fungible means easily replaceable. So a fungible token is not unique, easily replaceable, and identical. So the easiest example of this is a 100 dollar bill. It represents a certain value but is otherwise identical to all other 100 dollar bills. Other examples of things that are fungible are bottles of beer or unlimited sneakers.
Non-fungible means not easily replaceable. A non-fungible token is unique and not replaceable. There is only one of them. An example is an airline ticket. There are multiple airline tickets for the same flight, but only one airline ticket has your code, your name and your seat number. This makes your ticket unique and no one else can get in with your ticket.
Now that we know the difference between fungible and non-fungible, it is also a lot easier to explain the difference between a fungible token and a non-fungible token.
A fungible token is a token that is not unique and easily replaceable. An example of this is Bitcoin (BTC) and Ethereum (ETH). For example, if you sell 1 Bitcoin now and buy back 1 Bitcoin next week, you probably won't have the exact same Bitcoin. However, you won't notice the difference between the two different currencies because they are simply exactly the same.
This is different for a non-fungible token. Non-fungible tokens are unique and irreplaceable. Non-fungible tokens, unlike fungible tokens, use the ERC-721 protocol or the ERC-1155 protocol. Fungible tokens, on the other hand, use the ERC-20 protocol.
The protocol, which non-fungible tokens use, ensures that these tokens become unique and irreplaceable. Put very simplistically, this protocol ensures that each non-fungible token is assigned a unique number, making it obvious that it is unique. Probably the clearest comparison is when a limited-edition sneaker is released, there is a little number on each shoe so you know exactly which one you have.
Because of this unique number, you know exactly which token you have, something you cannot check with a fungible token. With a non-fungible token, you can know if you have exactly the same token when you sell it and buy it back a week later.
Another thing that is unique about a non-fungible token, compared to a fungible token, is that a non-fungible token cannot be chopped into pieces. For example, a Bitcoin can be chopped into thousands of pieces, allowing you to purchase 0.0001 Bitcoin. With non-fungible tokens, this is not possible. You can only buy a whole non-fungible token, and thus not a half or a tenth non-fungible token.
Understanding the NFT Market
Most NFTs are built on the Ethereum network. However, this is not the only platform through which this is possible, it can also be done for example on Flow (FLOW) and the Worldwide Asset Exchange (WAX). For now, we will look at the Ethereum network, as this is generally the most common.
The first step in creating (and thus selling) NFT art is of course creating your piece of art. So it makes sense, for example, that you will create a piece of art and process it in the form of a GIF, JPG, or maybe even an MP3 file. Of course, these are not all possible files, in principle, any file can be made into NFT.
The second step is to choose a network, on which you are going to create and distribute your NFT. As mentioned earlier, we are looking at Ethereum for now, but it is also possible through, for example, the BINANCE Smart Chain, TRON (TRX), Eos (EOS), Polkadot (DOT), and Cosmos (ATOM).
Next, it is important that you choose a platform on which you are going to release your NFT. Examples of platforms where this is possible are OPENSEA or Mintbase. Make a good choice for yourself, because this is a very important step.
After following the indicated steps, within your chosen platform, your NFT is ready for sale. You can still add or modify several things, such as linking royalties to your non-fungible token. This way, you can receive a percentage of the sale amount for each sale after the initial sale. This can be an ideal option!
Benefits for artists in non-fungible tokenization of their art
So NFTs are part of the world of crypto. In most cases, they are built on the Ethereum network. Ethereum is the second-largest cryptocurrency out there, after Bitcoin. On the Ethereum network, you can build completely unique assets, which cannot be replicated. This is done through the blockchain.
When an artist releases his or her art as a non-fungible token, that artist can easily prove that it is his or her artwork. This does not always have to be the case with physical art, but through NFTs it is very easy, as we explained in the above piece.
In addition, it is not possible for anyone to modify, manipulate or defraud the non-fungible token. The blockchain simply makes this impossible. This is due, for example, to the security of the system, but also to its transparency and easy traceability.
Artists can also sell their art as non-fungible tokens. It is especially this part of non-fungible tokens that has gained enormous popularity in recent times. Famous people like Gary Vee and Elon Musk have already released their own NFTs and sold them for a lot of money. The most expensive NFT, by Beeple, was sold for $69 million, converted to euros this is about 57 million euros.
In addition to the money, it brings indirectly, selling art as non-fungible tokens has some other advantages. For example, as an artist, you can add royalties to the NFT. This ensures that you, as an artist, will receive a certain percentage of the proceeds with each subsequent sale. We will go into this in more detail later.
How to earn a passive income with NFTs?
When you own a non-fungible token of, say, a piece of music or a beautiful piece of art, you actually own the ownership rights to this online piece of art. In the case of an image, for example, it doesn't matter that everyone has this image on their phone because none of those people really have the ownership rights like you do.
When you release an NFT you can, as we mentioned earlier, add royalties to it. In short, this way you always keep the right to receive a certain percentage of the net sales amount. In other words, if the non-fungible token is sold again for, say, $10,000 and you have royalties of 5%, you will receive $500 on this sale amount, while you actually no longer own the NFT.
So this is a relatively easy way of passive income because after the sale you literally never have to do anything for it again. This is an advantage because, with many forms of passive income, it is never completely passive. With many forms, you always have to be a little bit involved, but with royalties, this is not the case.
The nice thing about NFTs is that at all times you have a good idea of how much the NFT is worth. Because of this, you know how much income you can probably start expecting at the next sale. The fact that you have such a good picture is a big advantage. Therefore there are also many experts who expect that assets such as real estate, cars, or, for example, gold will also become NFTs.
If this should happen, you will be able to represent the value of these assets well from now on and they can also be sold quickly at any time.
How much passive income can you realistically expect from NFT royalties?
Before you start putting a lot of time into building up a certain passive income, it is important that you have a good idea of what it will potentially bring you.
Of course, with passive income, the expected income is always less predictable than with active income. For example, with the active income you know: my 40 hours per week are equal to $2000. You are then 100% sure that, when you make your hours, you will receive this money. With passive income, this works differently. Your income is not directly related to something you can influence, such as hours.
It is therefore already a bit more unpredictable with passive income, but with NFT's it is even more unpredictable and perhaps more irregular than with other forms of passive income. This is mainly because the market is very new.
The market of crypto as a whole is very new, let alone the market of NFTs. Only for a relatively short time have they been very popular and therefore it is still hard to say how the market will react to certain things.
In addition, your income naturally depends on how often your NFT is resold. If this happens only once, you will receive royalty income only once. So you hope that this happens as often as possible because this means as much income for you as possible.
There are a few things you can do, however, that might increase your chances of getting a lot of income. In the next section, we will discuss some of these things.
Rate of the royalty percentage
The royalty rate level affects your income in 2 ways.
The first way is of course that you receive more money per sale, the higher the royalty percentage you set. So in this respect, it might be smart to set this percentage as high as possible.
However, the lower you set the percentage, the more attractive it is for people to buy the NFT. So with a low royalty rate, the turnover rate could be higher, which means you end up earning more.
It is important that you decide whether you set a lower or a higher percentage per sale.
The appearance of the NFT
Of course, the appearance of the NFT has a certain influence on the number of sales. The more beautiful the NFT, the sooner people will consider investing in it and the more often it will be sold.
Therefore, you will receive more money if your NFT is beautiful.
Conclusion
NFTs are one of the new developments in the crypto world. They are unique tokens that are irreplaceable and they certainly look like an interesting option. You might decide to invest in them, but it is hugely important that you do your research properly first and only then invests!
You can also use NFTs to create passive income. You can do this by adding royalties to it. You can adjust and add various things to it that can start to affect your possible return.
Do you want to know more about NFTs and how you can make money with them? Interested in your own blockchain, crypto, or NFT project? And help to promote? Then you can visit my profile and send me an e-mail.
