Anybody who’s paying attention to the news knows that NFTs are everywhere in 2022. Celebrities have paid a lot of money to buy them and if you’re someone who sells digital art, you might be wondering what NFTs are and whether you should be creating and selling them.
With that in mind, here are 9 things you should know about NFTs, including what they are, how they can be used, and the benefits and risks of selling them.
#1: NFTs Are Non-Fungible Tokens
The first thing that you should know is that an NFT is a non-fungible token. Fungibility is a property that indicates that two things of the same type have the same value. For example, one dollar bill is worth the same as any other dollar bill; therefore, dollars are fungible.
By contrast, each NFT is unique. One piece of digital artwork cannot be swapped for another in a like-kind exchange, and each has a value that’s determined by its popularity and how much people are willing to pay for it.
#2: NFTs Are Minted on a Blockchain
NFTs have a lot in common with cryptocurrencies such as Bitcoin and Ether. Cryptocurrency coins may also be referred to as tokens and they are created in the same way that an NFT is created, by adding data to a blockchain. A blockchain is a database that may also be referred to as a decentralized ledger.
Once data is added to a blockchain, it can only be changed by consensus, which makes it less vulnerable to hacking or theft than other databases.
#3: NFTs Can Be Used to Sell Products
NFTs can be used for many purposes but one of the most common is to sell digital artwork. They can even be used to sell an ownership stake in a physical piece of artwork. An example is the digitization and sale of NFTs of paintings by Vincent Van Gogh, Monet, da Vinci, and Kandinsky by the Hermitage Museum in Russia.
Anybody who creates digital artwork can create an NFT of the art and sell it online to earn money. Digital artists such as Beeple and Grimes have earned millions selling NFTs of artwork and videos. One of the appealing things about NFTs is that they provide a tamper-proof record of any transaction involving your art.
#4: NFTs Allow Artists to Earn Royalties
Another key characteristic of NFTs is that they allow artists to earn royalties on their work on an ongoing basis. If someone buys an NFT of music or digital art and resells it, the artist earns part of the profit. As an artist, you can set the royalty percentage during the minting process of the NFT itself.
While sources contain different percentages, most of the estimates are that the average NFT royalty is between 5% and 10%. That means you will get a percentage of the sale any time the NFT you created is sold on a marketplace. Any NFT sale after the original could be a source of passive income for you.
#5: NFTs Are Bought and Sold on Marketplaces
If you decide to sell artwork as NFTs, the first step will be to create an account on an NFT marketplace. The marketplace I recommend for beginners is OpenSea. According to experts, it’s the best marketplace to buy and sell digital art and the best NFT marketplace for beginners.
To sell digital art on any marketplace, you will need to create an account, get a crypto wallet, and put cryptocurrency in your wallet to pay the marketplace fees—and to receive payment from anybody who purchases the NFTs you create.
#6: NFTs Are Stored in Crypto Wallets
You already know that NFTs have a lot in common with digital currencies such as Ether and Bitcoin. These currencies are tokens and an NFT is a token. As such, both must be stored in a secure crypto wallet.
Crypto wallets can be hot or cold. A hot wallet is linked to the web and therefore more vulnerable to hacking than a cold wallet, which is never connected to the web. A cold wallet may be a software wallet. To be cold, the wallet must be stored on a device that is never connected to the web. It may also be a hardware wallet, which is a device like a thumb drive, or a paper wallet, which consists of encrypted strings of characters and QR codes. I strongly suggest using a cold wallet for your security.
#7: NFTs Can Be Sold or Auctioned
When you sell an NFT, you have the option to sell it for a fixed price or to auction it the way you would a product listed on eBay. An auction may allow you to earn more than you would if you sold the item at a fixed price but that’s not always the case.
The NFT sales that get the most attention tend to be auctions where a buyer pays tens of thousands—or even millions—for digital artwork. You probably will not earn huge amounts as a new NFT artist, but you might. The primary determining factor of an NFT’s value is the demand for it.
#8: Selling Art as NFTs Doesn’t Prevent People from Copying It
A lot of the buzz around NFTs has to do with the security of the blockchain and the ease with which artists can track ownership of their art. However, people can still copy artwork in the way they can any digital asset online. The NFT confers legal ownership but can’t prevent others from trying to steal the art that’s encoded in the NFT.
You should also know that NFTs can be stolen if a crypto wallet is hacked. In 2022, actor Seth Green learned this lesson the hard way when he fell victim to a phishing scam and lost several NFTs, including one that was destined to be featured in a web series. The theft meant that he lost the NFT itself and the rights to the artwork.
#9: Creating NFTs Uses a Lot of Power
One of the biggest criticisms of NFTs and cryptocurrency is that minting a single token uses a lot of energy—about the same amount it would take to power an average family home for a day and a half. It’s important to be aware of the environmental impact.
Some of the biggest companies in blockchain technology are working to find energy-efficient ways to mint NFTs. The Solana blockchain has been in the news because it allows for the minting of NFTs far more quickly, and with less energy usage, than the Ethereum blockchain.
Conclusion
Selling digital artwork as NFTs can be profitable and allow you to earn royalties each time your artwork is resold. The most important cautions to keep in mind are the environmental impact and the necessity of using a secure, cold wallet to store your NFTs and digital currency to prevent theft.
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