Passive income – who doesn’t want that? ‘Getting rich while sleeping’ is a dream or a goal for many people. A passive income is an income for which you do not have to do anything 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 in recent times. They are in the news a lot and have gained a lot of popularity. Besides Dogecoin (DOGE) or Safemoon (SAFEMOON), there is really nothing in the crypto world that has become so popular in such a short time.
But can these two beautiful things be linked together? Can you earn passive income with non-fungible tokens? Yes, you can. But how do you do that? You can read about that in this article.
What is a non-fungible token (NFT)?
A non-fungible token, often abbreviated to NFT, is a token that represents something unique.
Fungible means easily replaceable. A fungible token is therefore not unique, easily replaceable, and identical. The easiest example of this is a dollar note. It does show a certain value but is otherwise identical to all other 1-dollar notes. Other examples of things that are fungible include bottled beer or unlimited sneakers.
Non-fungible, therefore, means not easily replaceable. A non-fungible token is therefore unique and not replaceable. There is only one of them. For example, you can think of a plane ticket. There are several airline tickets for the same flight, but only 1 ticket contains your code, your name, and your seat number. This makes your ticket unique and no one else can enter 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 is easily replaceable. An example of this is Bitcoin (BTC) and Ethereum (ETH). For example, if you sell 1 Bitcoin now and buy 1 Bitcoin back next week, you probably don’t have the exact same Bitcoin. However, you don’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. Unlike fungible tokens, non-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, makes these tokens unique and irreplaceable. Very simplified, this protocol ensures that each non-fungible token is assigned a unique number, making it clear that it is unique. The most obvious comparison is probably when a limited-edition sneaker is released with a 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, for example, you can know whether 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. This is not possible with non-fungible tokens. You can only buy a whole non-fungible token, and therefore not a half or a tenth non-fungible token.
Would you like to know more about what NFTs are and how they work exactly? Then click here.
How do you create a non-fungible token?
Most NFTs are built on the Ethereum network. However, this is not the only platform through which this is possible, it is also possible, for example, on Flow (FLOW) and the Worldwide Asset Exchange (WAX). For now, let’s take a look at the Ethereum network, as this is generally the most common.
The first step in making (and thus selling) NFT art is of course creating your piece of art. So it makes sense that you would, for example, create and process a work of art in the form of a GIF, JPG, or maybe even an MP3 file. These are of course not all possible files, in principle every file can be made into NFT.
The second step is to choose a network on which to create and distribute your NFT. As mentioned before, we are looking at Ethereum for now, but it is also possible via, for example, the Binance Smart Chain, TRON (TRX), Eos (EOS), Polkadot (DOT), and Cosmos (ATOM).
Then it is important that you have a platform you will choose where to release your NFT. Examples of platforms on which this is possible are, for example, OpenSea or Mintbase. Make a good choice for yourself, because it is quite an important step.
After following the indicated steps, within your chosen platform, your NFT is ready for sale. You can add or adjust various things, such as linking royalties to your non-fungible token. This way you can receive a percentage of the sale amount with every sale after the initial sale. This can be an ideal option!
Do you want to know more about how to make and sell a non-fungible token and everything that comes with it? Then click here.
Benefits for artists in non-fungible tokenization of their art NFTs
are thus 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 that cannot be counterfeited. This is done via the blockchain.
When an artist releases his or her art as a non-fungible token, this artist can easily prove that it is his or her work of art. This doesn’t always have to be the case with physical art, but it’s very easy via NFTs, as we explained in the section above.
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 the transparency and easy traceability.
their art as a non-fungible token sell. 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, Beeple, was sold for 69 million dollars.
In addition to the money that this directly yields, the sale of art as non-fungible tokens has a few other advantages. For example, as an artist, you can add royalties to the NFT. This ensures that you as an artist receive a certain percentage of the proceeds with each subsequent sale. We’ll go into this a little more deeply later on.
How do you earn passive income with NFTs?
When you own a non-fungible token of, for example, a piece of music or a beautiful work of art, you actually own the property rights of 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 property rights as you do.
When you publish an NFT, you can add royalties to it, as we mentioned earlier. In short, this way you always retain the right to receive a certain percentage of the next sale amount. In other words, when the non-fungible token is resold for, for example, $10,000 and you have royalties of 5%, you will receive $500 on this sale amount, while you were no longer the owner of the NFT.
This is therefore a relatively easy way of passive income because you literally never have to do anything for it after the sale. This is an advantage because with many forms of passive income it is never completely passive. With many forms of passive income, you still have to work a bit with it, but with royalties, this is not the case.
The nice thing about NFTs is that you always have a good idea of how much the NFT is worth. This way you know how much income you can probably expect from the next sale. That you have such a good picture is a great advantage. There are therefore also many experts who expect that assets such as real estate, cars, or, for example, gold will also become NFTs.
Should this happen, you can now properly display the value of these assets and they can also be sold quickly and at any time.
How much passive income can you realistically expect from the royalties from NFTs?
Before you spend a lot of time building up a certain passive income, it is important that you have a good idea of what it may yield you.
With passive income, the expected income is of course always less predictable than with active income. With active income you know this is fixed, for example my 40 hours per week are equal to $2000. You are 100% sure that when you make your hours, you will receive this money. This is different with passive income. Your income is not directly related to something you can influence yourself, such as hours.
So it is a bit more unpredictable with passive income anyway, but with NFTs, it is even more unpredictable and perhaps more erratic than with other forms of passive income. This is mainly because the market is very new.
The crypto market as a whole is very new, let alone the NFT market. They have only become very popular for a relatively short time, which makes it difficult to say how the market will react to certain things.
In addition, your income naturally depends on how often your NFT is sold. If this only happens once, you will only receive royalty income once. So you hope that this happens as often as possible because this means as much income as possible for you.
You can do a number of things that could increase the chance of a lot of income. In the next section, we’ll go into some of these things.
Amount of the royalty percentage
The amount of the royalty percentage affects your income in 2 ways.
The first way, of course, is that you receive more money per sale, the higher the royalty percentage you set. In that regard, 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. With a low royalty percentage, the turnover rate could therefore be higher, so that you ultimately earn more.
It is important that you make a good decision about this for yourself.
The appearance of the NFT
Of course, the appearance of the NFT has some 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.
This means you receive more money when your NFT is good.
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 could decide to invest in it, but it is extremely important that you do your research first and then invest!
You can also create passive income with the help of NFTs. You can do this by adding royalties to it. You can adjust and add various things to it that can influence your possible return.