NFTs have become a buzzword of late, particularly in the creative and gaming communities. Eyes opened when Beeple's artwork, Everydays: The First 5000 Days, sold for $69 million at Christie's Online Auction. This grabbed the attention of many other digital artists and creators, who can now see new opportunities for monetizing their work.
In reality, NFTs have been around since 2017, although their early usage was mostly gaming related. Arguably the first successful use of NFTs to have widespread acceptance was the game CryptoKitties. Players could buy a unique CryptoKitty, each with a different combination of genes. You would pay for your CryptoKitty in the Ethereum cryptocurrency, and they would remain your virtual pet until you chose to reenter the marketplace and sell your pet to a new owner.
Since then, the use of NFTs has spread, with creators seeing them as a way to authenticate their digital masterpieces. They are even popular for things that can scarcely be thought of as masterpieces. An NYC film director recently digitized the sound of a fart and converted it into an NFT. It sold for $85.
Here is our guide for any creator thinking about exploring the world of NFTs, and potentially minting their own.
NFT Guide for Creators - How to Mint and More:
Key Concepts Behind NFTs
NFTs are non-fungible tokens. This means that each NFT is inherently different from others, although you can choose to make identical NFTs if you wish.
All the data relating to a particular NFT is recorded on a blockchain. A blockchain is a specially structured database kept on different servers and devices around the world. A certain quantity of data is stored in a block. When you have more data than a block can contain, you start another block. All the data blocks relating to a single NFT are linked (chained) together into a blockchain. Each time somebody adds something to a blockchain, the transaction is timestamped, verified, and encoded. Once you enter information into the blockchain, you can't remove or alter it. You can only add a new entry, in a new block if needed. The whole process is independent of governments and established institutions.
Initially, most transactions added to blockchains were financial. Bitcoins are probably the best-known example of this. However, over time people found other uses for blockchain databases. Bitcoins are fungible, i.e., one Bitcoin is the same as another Bitcoin. But that is not an inherent requirement of the blockchain system, and people began to see the advantages of storing non-fungible (i.e., unique) information in the blockchain system. As a result, NFTs were born.
Although Bitcoin was the original financial blockchain standard, there are competitors. Arguably the second most prominent type of blockchain is Ethereum. This is an open source blockchain that allows people to build decentralized applications. While Ethereum, like Bitcoin, has a virtual currency (the Ether – ETH), it has broader uses. One of these is to store data relating to NFTs on the Ethereum blockchain.
Ethereum doesn't have a monopoly on NFTs, however. Proponents of other blockchain standards have noticed the Ethereum marketplace's success, and some have now created competing NFT standards with platforms and marketplaces to service them.
What Gives an NFT Value?
One of the main reasons for NFTs having value is their uniqueness. A creator can decide how many copies of an NFT they will permit when they mint it. Even then, each minting is different. Just as only the first printing of a physical book can count as a First Edition, only the first minting of an NFT counts as a Digital First Edition.
And in many cases, there will only ever be a single copy of an NFT, a genuinely unique item. Just as there is only one real Mona Lisa, but thousands of reproductions in books, postcards, and websites, you can only have one original work of digital art, even if people make screenshots and digital copies.
Because each NFT is unique (or at least limited to a set number minted at one time), each has a different value. In the Ethereum world, ETH1 will always equal ETH1. Yet, a particular NFT won't always have the same value. It will change depending on its perceived scarcity and how much demand there is for it. As we saw earlier, an audio recording of a fart recently sold for $85, yet another NFT, Beeple's digital artwork, went for $69 million. These are very different values, reflecting their comparative scarcity and level of interest in the "creations."
Why Are NFTs So Good For Creators?
This undated handout image obtained March 10, 2021, courtesy of Christie's shows a digital art collage by Beeple, for sale in New York. - Six months ago he had not sold any work -- but on March 11, 2021, one of his creations could exceed 13.2 million USD at auction. The American artist Beeple is at the vanguard of an exploding virtual market, feverishly fuelled by digital collectors. The numbers, naturally, make him smile. Yet at 39, Beeple -- whose real name is Mike Winkelmann -- is keeping his feet on the ground, even though he admits it's all "a little head spinning." Beeple, from Charleston, South Carolina, is the artist behind the first ever 100 percent virtual piece sold at Christie's auction house: his "Everdays: The First 5,000 Days," a collage of digital images, is expected to be sold Thursday. (Photo by Handout / CHRISTIE'S AUCTION HOUSE / AFP) / RESTRICTED TO EDITORIAL USE - MANDATORY CREDIT "AFP PHOTO /CHRISTIE'S AUCTION HOUSE/HANDOUT " - NO MARKETING - NO ADVERTISING CAMPAIGNS - DISTRIBUTED AS A SERVICE TO CLIENTS / TO GO WITH AFP STORY BY THOMAS URBAIN, "Beeple, artist at the leading edge of a delirious digital market" (Photo by HANDOUT/CHRISTIE'S AUCTION HOUSE/AFP via Getty Images)[/caption]
One of the most significant advantages of NFTs from a creator's point of view is that they cut out the middlemen. If you are a musician, for instance, who uploads your songs to Spotify, you only receive a portion of the money that Spotify pays. For example, Spotify pays approximately $4,000 for one million plays. However, most artists work with a record company and other intermediaries who take their cut before you see any money. You will be lucky if you clear $800 for those million plays. These same intermediaries own the copyright to your song and so will receive most of the residuals over future years. Spotify also chooses how they present your songs on their platform.
If you create an NFT of your song, you can sell it directly to one of your best fans. He or she will know that they have the original, verified, and authenticated in the NFT coding. You, as the creator, keep all the funds paid, except the NFT marketplace's cut (typically about 15%).
It also means that creators can continue to earn a share of any profits each time somebody sells the NFT. For example, at some future time, that fan may decide to sell the NFT of your song at a profit. You will get to keep a percentage of that resale, as creators hold the residual rights forever. Creators don't have to give up their copyright when they sell NFTs.
For example, as mentioned above, Beeple recently sold a digital artwork for $69 million. The piece is a collage of 5000 images created by Beeple over as many days. This was the first sale of the combined artwork, so Beeple got to keep most of that money (less any commission paid to Christie's for orchestrating the deal.) The purchaser was Vignesh Sundaresan, aka MetaKovan. Sundaresan now has an artwork he can display how he wishes. However, Beeple retains the copyright. Indeed, Beeple can still sell any of the 5,000 individual images that combine to make the complete artwork separately, as each of them is its own NFT. While Sundaresan can in the future sell the combined artwork, he has no legal right to sell the 5,000 components.
Who Would Pay for an NFT?
You can compare NFTs to any other original or first editions. If you are somebody prepared to buy the first edition of a traditional book, you may well be interested in an NFT version of an eBook. Sure, you can simply go onto Amazon and buy a copy of the eBook like anyone else. But it's not an original. An NFT version would always be the actual first edition (assuming there is no printed edition preceding it), and proof of ownership is recorded permanently in the blockchain.
In an era where most music is streamed, NFT first editions provide a new way of collecting new music. You can easily prove that you have one of the original releases.
Probably the first of the mainstream crafts to take NFTs on board is the world of digital art. While there was initially some concern about how the buyer could display their purchase, all it needs is an appropriately sized screen. And digital artists have realized that there is much potential for creating art that changes depending on specific triggers. For instance, Rutger van der Tas has created a painting that changes its look depending on whether it's night or day.
Another buyer of NFTs is the proverbial "superfan." Often their motivation behind buying an NFT is merely to support their favorite creator. They will usually be willing to pay money to have some interaction with someone they admire online.
In some cases, investors buy NFTs from unknown creators as a gamble hoping that the artist will become famous in the future, and they can then make a fortune from selling the HFT at a profit.
The other type of person who buys NFT is the collector. They recognize that NFT collectibles provide a clear path for authentication. For example, NBA Topshot markets its digital cards to NBA Fans. They can buy different combinations of basketball cards, building a collection in the way they want. These digital cards come at varying levels of rarity.
If you want to create NFTs, you will have to determine who your audience of potential buyers is likely to be. Then, once you have minted your NFT, you will have to target your marketing to those potential buyers rather than spreading it across a wide audience of people unlikely to have any interest in your NFT.
Creating an NFT
The process of creating an NFT is called minting. The exact steps you will take will depend on the marketplace/platform you choose to use, but the typical process is as follows.
1. Select Your Content
Obviously, you need to decide what content you want to convert into an NFT. If it isn't already digital, you will need to convert it to an appropriate file type. Most digital art tends to be stored as a PNG or GIF file; a book would typically be in PDF format. One platform, Async Art, takes a different approach to its art. It sells programmable art split into "Layers." The final artwork, "The Master," consists of multiple Layers. The artist could "program" the Layers to change depending on specific triggers, and this will, of course, also alter the appearance of the Master. Buyers can purchase the Master or just individual Layers.
2. Decide How Many NFTs You Want to Create
Although we generally talk about NFTs being unique, there are situations where you might want multiple identical copies. For example, if you sell a collectible, you might want to offer different versions, some more exclusive than others. For example, the NBA Topshot cards come at four rarity levels: Common, Rare, Legendary, and Ultimate. Sure, every Top Shot has a unique edition number and size, but there are multiple copies of each card within an edition (although there will only be one copy of some Ultimate cards.) In this case, you need to decide how many identical copies of a particular NFT you will permit and include that within the relevant blockchain. This number now becomes fixed.
3. Choose Your NFT Platform/Marketplace
You will want to choose an NFT marketplace to create and sell your NFTs. There are now quite a few marketplaces, and although the majority are still backed by Ethereum, not all are. Some marketplaces operate using other blockchain standards.
Many marketplaces are self-service platforms, including OpenSea and Rarible. Anybody can create an NFT here. Other marketplaces are more selective about which creators use their site. For example, you can't just create digital art and expect to sell it on Async Art. You first need to apply to be an artist on their platform. Other closed platforms include Foundation, Zora, SuperRare, and Nifty Gateway.
It is probably best to create your first NFT on an open platform, even if you are waiting for a closed platform to accept your application.
4. Set up a Crypto Wallet
You will need to set up an account on a crypto site and create a secure wallet. You use your secure online wallet to store your crypto assets, and it is essential you use one that is secure. You have several choices for this, but a typical crypto wallet is MetaMask. MetaMask gives you a key vault, secure login, token wallet, and token exchange to manage your digital assets. You will use it whenever you need to connect to blockchain-based applications.
Obviously, you will need to ensure that you have set up a crypto wallet that matches the cryptocurrency used by the marketplace you intend to use. For example, if you want to mint your NFT on marketplaces like OpenSea, Rarible, Foundation, and SuperRare you need to have a digital wallet that will store Ether, the cryptocurrency of Ethereum.
Experts recommend that you download your crypto wallet app to both your phone and computer, so you have easy access to it to help with your minting and check your NFT sales receipts. Remember, people pay for their NFT purchases with cryptocurrency, so you need to have a way to receive cryptocurrency and convert it into traditional money when you want it.
You will need to link your crypto wallet to your account on the platform you intend to use. Also, you have to link your bank account to your crypto wallet account so that you can transfer traditional funds in and out of your crypto wallet.
5. Pay from Your Crypto Wallet
This stage may come at a different step in the process, depending on your chosen platform/marketplace's policies. At the moment, it costs approximately $70 to $100 to mint an NFT, although you may strike it lucky and find a lower price. You will need sufficient cryptocurrency in your wallet to allow for this.
Much of this cost is called a "gas fee." You are effectively paying for the energy required to set up your blockchain.
6. Follow Your Platform's Instructions of How to Mint Your NFT
Each platform operates slightly differently. Therefore, you will need to follow specific instructions on the site to begin the minting process. They will ask you to upload your digital asset. Depending on your marketplace, you might also set a starting price for your NFT. You will generally set a higher price for genuinely unique items than ones where you agreed to make multiple copies. Some platforms will also ask you to set a royalty percentage, i.e., the amount you will receive when future buyers on-sell the NFT.
7. Promote Your NFT
As with all things online, you will need to actively promote your freshly minted NFT. You can do much of this on your website and social accounts. Share the link to your NFT on its marketplace across all your social networks multiple times. You want to reach the widest audience of relevant people as possible. You could even consider approaching an influencer whose audience matches your target buyers to help your promotional activities.
Risks of Creating or Owning an NFT
Like most other collectibles, there is no guarantee as to the value of NFTs. Prices can go up and down. For instance, just because a particular piece of digital art is sold for a certain price today doesn't guarantee that it will increase or even reach the same price in the future. The value of NFTs can be volatile, just like the price of Bitcoin, Ethereum, and other cryptocurrencies.
Another concern with the entire crypto market is its effect on the environment. Blockchains use a considerable amount of energy. Indeed, the computing technology running Ethereum reportedly uses vast quantities of electricity. Many of these occur in places like Washington State, Texas, Iran, and Inner Mongolia, with racks of computers churning through the mathematical calculations needed to mine new blockchains. The systems require air-conditioned, warehouse-sized spaces with rows of high-powered computers converting energy into wealth. Indeed, Ethereum mining reportedly consumes about 26.5 terawatt-hours of electricity a year, almost as much as that used by Ireland.
Legal Ramifications of Creating NFTs (US Law)
In most situations, creators of NFTs keep the copyright when they sell their NFT. This is similar to most other creator works. If you sell the first edition of a book, the purchasers don't buy the copyright. It remains with the author or publishing company. Likewise, if you buy a traditional painting, the artist gets to keep the copyright, not the buyer.
Some marketplaces have modified the rules, however. If you read the fine print of the NBA TopShots site, you will find that the purchaser of a card is not permitted to "advertise, market or sell any third-party product or service," presumably due to the rights negotiated with the NBA to use their players' likenesses.
At EulerBeats, creators have the exclusive right to commercialize their work, while purchasers of prints receive the right to use, copy and display the original NFT for their own personal, non-commercial use.
Most marketplaces require creators to sign an agreement giving the platform the right to use, reproduce, modify, publish, display, and distribute their content worldwide, non-exclusive, and royalty-free. In most cases, this merely enables the platform to display, market, and sell the work rather than any genuine attempt to take ownership.
Of course, creators have to ensure that they don't violate any intellectual properties when making the original content. If it would be illegal in any other form, it will probably be unlawful as an NFT. You can't, for instance, use characters and likenesses in your work that is somebody else's intellectual property.
However, in the USA, at least, the rules of "fair use" apply. You can use some copyrighted material within your content for commentary, criticism, news reporting, teaching, research, and/or parody. Beeple, for instance, has used the likeness of Homer Simpson in his work to symbolize the role of that character in popular culture.