Authored by: @hetty-rowan

One of the ways to a passive income!

There are several ways to earn passive income. And earn passive income… that's what everyone wants, right? Money that flows in, even when you do nothing for it. Ideal. You can drink milk from a coconut with your butt bare and in the meantime your income is simply supplemented.

Today we're going to take a look at how to do that using one of the ways that are incredibly popular within the cryptocurrency world. Today we are going to look at how you can also earn passive income with NFTs.

For people who do not yet know what NFTs are… a short explanation.

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 1 dollar bill. It does show a certain value, but is otherwise identical to all other 1 dollar bills. 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 cannot be replaced. 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.

Bitcoin is not unique

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 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.

Non-fungible tokens are unique and irreplaceable.

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, ensures that these tokens become 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 clearest 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. For example, with a non-fungible token, 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.

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 therefore selling) NFT art is of course making your piece of art. So it makes sense that you would create and process a work of art in the form of a GIF, JPG or maybe even MP3 file, for example. These are of course not the only 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).

Next, choose a platform on which you will 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. In this way, with every sale after the initial sale, you can receive a percentage of the sale amount. This can be an ideal option!

Benefits for artists to non-fungible tokenize their art

NFTs are therefore 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 does not always have to be the case with physical art, but via NFTs it is very easy, as we have already explained above.

No manipulation possible

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. Artists can also sell their art as a non-fungible token. 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, from Beeple, was sold for 69 million dollars.

Besides the money that this directly generates, 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.

How do you earn passive income with NFTs?

Property rights

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. For example, in the case of an image, it doesn't matter that everyone has this image on their phone, because none of those people really have the property rights like you do.

When you publish an NFT you can, as we mentioned earlier, add royalties to it. In short, in 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.

So this is 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 you still have to work a bit with it, but with royalties this is not the case.

Expectations for the future

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 insight in the value is a great advantage. The expectations are therefore that assets such as real estate, cars or, for example, gold will also become NFTs. Do you think so too? And will that be a good thing, or do you have your doubts about that?

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?

How much passive income can you realistically expect from the royalties from NFTs? Before you put a lot of time into 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, for example: if I would work 40 hours per week and that would be equal to $2000. I would then be 100% sure that when I made my hours, I would receive this money. This is different with passive income. The 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 also more erratic than with other forms of passive income.

This is mainly because the market is very new.

NFTs are very new

The crypto market as a whole is very new, let alone the NFT market. They have only been 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 on. 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 do a number of things that could potentially increase the chance of a lot of income.

Now we'll go into some of these things.

• Amount of the royalty percentage The level 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.

But don't get discouraged if you're not an artist yourself, because there are many things you can think of to create your own NFT. Memes work well, the ancient tile wisdom works well, and there are many more things to think of. So feel free to unleash your creativity!

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 could decide to invest in it, but it is extremely important that you do your research first and then invest!

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