The NFT industry is the fastest growing industry in the world. In 2021, NFTs generated over $40 billion dollars in trading volume, was the most searched word on Google, and was crowned the Collins Dictionary’s word of the year. With this explosion of interest, more and more creators are now looking towards NFTs as a new avenue for monetizing their work.
This article is the first of a series dedicated to creators called Creators’ 101. This series will guide you in this emerging industry, and tackle the many questions you may have about NFTs as a creator. To start with, here’s everything you need to know when getting started with NFTs:
1. What Is An NFT?
NFT stands for Non-Fungible Token.
Non-Fungible means that the token is unique and cannot be exchanged for another token. Because these tokens are unique, they can be used to represent unique digital assets like a digital artwork.
A simple analogy would be a unique serial number. When you buy an iPhone, for example, every phone comes with a unique serial number that is used to identify the authenticity of the phone, and is registered to the phone’s holder. Similarly, when you buy an NFT artwork, the artwork comes with a non-fungible token that is used to identify that artwork, and is tied to the artwork’s holder.
However, an NFT is much more than a record of authenticity and ownership.
Imagine if your phone’s serial number was actually a computer program that could receive payments, update it’s ownership information, and distribute royalties, among other functions. This is what your NFT can do.
In this way, NFTs make the process of trading digital assets much easier. They protect the financial interests of creators and add programmable functionality to digital assets. Because NFTs are stored on the blockchain, they’re also highly secure and traceable.
This is just an overview of what NFTs are and how they work, but there’s much more to it. To learn more, read our NFT Basics series: https://editorial.mintable.com/category/guides/nft-basics/
Or you can head to our Sellers’ University site for some tutorials:
Why are NFTs important?
What are NFTs
2. What Can Be Made Into An NFT?
Literally anything that can be stored as a digital file can be made into an NFT – art, music, videos, documents, you name it. However, when you’re minting on an NFT marketplace, there will be certain file format requirements for your NFT.
On Mintable, the main file attached to your NFT (preview file) can be any image file, mp4, .mov or .GLB. You’ll notice that all of these file formats are visual formats, and most marketplaces will have a similar requirement because NFTs need to be visually displayed to make attractive listings. However, your NFT can also include bonus downloadable files, which can be any file format.
So, if you’re minting a song, you should use an mp4 with video or cover art so that it looks good on marketplaces. Then, you could include the high-fidelity audio files as downloadable files instead. By doing this, you’re making sure your NFT stands out on the market while also providing your buyers with the best quality of work.
Being able to include downloadable files with your NFT also means that you could include more than one type of asset in a single NFT. Your main file could be an image, while your downloadable file could be text, audio, or something else. For example, some creators mint their digital artwork, and include an accompanying piece of poetry in the downloadable file. Others use it to include secret messages or behind-the-scenes videos.
There are few limits to what you can include in an NFT, so don’t be afraid to experiment and get creative! Because of smart contract capabilities, there are many interactive applications for NFTs too, such as concert tickets, vaccine passports, and membership cards.
Learn about the file formats you can use for NFTs
Read about unlockable content / downloadable files for NFTs.
Find out more about various applications of NFTs
3. What are the Benefits of NFTs?
Hype alone doesn’t build a $40 billion industry. NFTs offer many real benefits for creators and collectors alike, enriching the creator economy and offering buyers better avenues for engagement and participation. Here are the benefits of NFTs:
Benefits of NFTs for Creators
- Access a global market with no barriers or gatekeepers. It doesn’t matter where in the world you are. As long as you have internet access, you can sell your NFTs to anyone in the world without having to rely on galleries.
- Earn more money through NFTs. Because NFTs provide verifiable authenticity and scarcity, NFT digital art can sell for more money than regular digital art. Creators can also make money throughout the lifetime of their work with built-in resale royalties. For collaborative works, royalties can even be automatically split and paid out by a smart contract.
- Track your buyers to provide more utility and avenues for engagement. NFT ownership can be publicly tracked on the blockchain. This allows creators to easily see who their NFT holders are, and use this information to refine their marketing techniques, or create a membership system by giving their buyers additional content and benefits.
- Add more interaction and functionality to your work. You can provide multiple different files with one NFT purchase through downloadable files and unlockable content. You can also create interactive works that can be used on metaverse platforms or decentralized games!
- NFTs cannot be forged. Each NFT is unique, and has a unique address on the blockchain and token ID. This makes it very easy to verify if an NFT artwork is authentic, or if it’s a copycat.
Benefits of NFTs for Collectors
- Your NFT purchase directly supports artists. When you purchase an NFT, all the money goes to the artist, instead of middlemen like galleries. If you’re buying on the secondary market, royalties are paid out to the original artist too.
- Some NFTs act as memberships, with on-going value added. Because ownership can be easily tracked through the blockchain, some creators will continue to dish out benefits for holders over time. Buying an artist’s first NFT could entitle you to free content in the future, or access to merchandise and even events.
- NFTs are forever, and guaranteed to be authentic. Because they are stored on the blockchain, they cannot be changed or damaged. Feel secure knowing your investment is safe, forever (this is only true for NFTs with decentralized metadata storage). You can also easily verify the authenticity of the NFT on the blockchain.
- You can make money re-selling NFTs. Some NFTs can greatly appreciate in value over time, and flipping NFTs is a viable way to generate some extra income. NFTs are not a particularly liquid asset, but there’s a lot of money to be made if you know how to pick winners.
- NFTs are your access pass to digital members’ clubs. Communities form around NFT project – some projects even have community as their main focus, creating new ways for people to connect in the digital age. Each NFT community is different. Find your vibe, find your tribe, and enjoy community benefits like exclusive digital spaces, networking opportunities, games, merchandise, and even IRL events and meetups.
Read our article, The Real Benefits of NFT Ownership for more.
4. NFT Gas Fees and Starting Costs
NFT Gas Fees
Minting an NFT requires “gas fees”, which is the price users pay for the computing energy used to process transactions on the blockchain.
How much it costs to mint an NFT depends on your choice of blockchain. Minting can be very cheap – or even free – on some blockchains, but the largest NFT market is on the Ethereum network, which can have pretty expensive gas fees – up to a couple of hundred dollars sometimes!
Having access to the huge market on Ethereum is valuable for new NFT creators because it gives them the widest exposure. However, if you can’t afford the gas fees, you have a few options:
1. Use a different blockchain, where fees are extremely low. The tradeoff is that you get less exposure.
2. Use gasless minting features on such as Mintable’s Gasless Minting, or OpenSea’s Lazy Minting. This way you can stay on Ethereum without having to pay gas fees. The tradeoff here is that you can’t set royalties for your work.
NFT Marketplace Fees
Most marketplaces will charge a fee for facilitating the sale of your NFT. Mintable and OpenSea charge 2.5 percent, while some other marketplaces like Foundation can charge up to 15%. Before you choose a marketplace, make sure you know all the fees and costs associated with using that marketplace.
5. Blockchains and NFT Marketplaces
There are many blockchains that support NFTs, and there are multiple NFT marketplaces on each blockchain.
The leading blockchain for NFTs is Ethereum because it has the most buyers, the average Ethereum NFT sells for more money than NFTs on other networks, and it is the most secure. However, the Ethereum network has issues with scalability and high gas fees which can be a barrier to entry for some creators.
Other blockchains like Solana and Tezos have lower fees, but creators don’t get as much exposure because the markets on these networks are smaller. They are also much newer than Ethereum, and are less secure.
Similarly, each NFT marketplace has different benefits. They all differ in the fees charged, and the amount of marketing support they provide to creators. Before you start selling your NFT, read up on the benefits of each blockchain and NFT marketplace so you know exactly what you’re getting into, and what kind of support you can expect.
Read this article for a comparison between Ethereum and Solana, the leading blockchain networks that support NFTs.
5. Legal – Copyrights and Tax
Copyrights are crucial for protecting an artist’s intellectual property. It is what guarantees security for the the artist, by making sure that only the author has the power to distribute, monetize, and make derivatives of their work.
NFTs are protected under the same copyright laws that protect all other creative works. Buying an NFT does not entitle you to the copyright of that work, unless the NFT creator choses to transfer the copyright to you.
For more information, read our article on NFT copyrights here.
Before you get started selling NFTs, make sure you understand what taxes, if any, you will need to pay. In the USA, profits from NFT sales are considered income and will be taxed at your ordinary income tax rate, about 10% – 37%. NFT profits are also subject to self-employment taxes, at a rate of 15.3%. When trading NFTs, either for cryptocurrency or another NFT, you will also be subject to capital gains tax.
Here’s a useful guide on NFT taxes by TaxBit.
NFT tax regulations vary from country to country, so do your own research before spending any of your NFT profits!
Get Started Creating NFTs
Now that you know all the things to consider before getting started on your NFT journey, you can begin creating and selling NFTs! The next guide in this series will cover the best practices in NFT creation and marketing.