What Creators Need To Know About NFTs
Creators — from musicians to visual artists — are finding that NFT art marketplaces may be where the future of art sales is headed
May 23 2022
Non-fungible tokens (NFTs) have surged in popularity and are opening doors for new artistic movements. Artists are discovering that NFT marketplaces give them a more direct line to their customer base — while allowing them to receive a higher percentage of the sale of their works. NFTs also allow artists to get a percentage of secondary sales if they choose to do so, and help prove and track the ownership of their works through transparent, blockchain-based transactions.
For creatives looking to engage with non-fungible tokens (NFTs), the first step is to understand what an NFT actually is from a functional perspective. In order to break down what defines an NFT and how they compare to other tokens on the blockchain, we’ll begin by reviewing some key blockchain terminology.
In the blockchain ecosystem, the terms “digital asset,” “cryptocurrency,” and “crypto token” are often used interchangeably, but they bear some key distinctions. “Digital asset” is an umbrella term that includes both cryptocurrencies and crypto tokens. Cryptocurrencies are the native assets — or coins — of specific blockchain protocols, whereas tokens are built on top of existing blockchain networks. There are several widely used token standards for creating crypto tokens, the majority of which have been built on top of Ethereum.
The most widely used token standard is ERC-20, which allows for the creation of tokens that can interoperate within Ethereum’s ecosystem of decentralized apps (dApps). ERC-20 tokens are fungible, which means that every token of the same kind is identical and interchangeable. Another token standard — the NFT standard ERC-721 — was designed to enable non-fungible tokens that are individually unique and cannot be interchanged with other tokens. Each NFT’s uniqueness can be proven by its unique label created via specialized cryptographic code, and no token can be swapped directly for another.
How To Create an NFT
Now that we’ve clarified what defines an NFT from a technology standpoint, we can discuss how to go about creating one. Thus far, NFTs have been applied to digital art, collectibles, gaming, and music — and the medium is developing by the day. Although seemingly complex, minting an NFT is a rather straightforward process thanks to the plethora of online NFT marketplaces that facilitate easy creation. You don’t really have to know all that much about cryptocurrency or the blockchain space in order to mint an NFT — but the more you know, the better.
A significant number of NFT marketplaces have arisen to facilitate the creation, sale, and transfer of NFTs, and many platforms have grown in response to the popularity surrounding the new medium. Some of these marketplaces include OpenSea, Rarible, KnownOrigin, and Nifty Gateway, each with unique value propositions and easy-to-follow instructions to mint NFTs on their respective platforms.
Keep in mind that not all of these platforms are open to the public; some require an application process to vet potential artists and curate the offerings on their platforms. These screening processes are especially common with the higher-end, fine art NFT marketplaces.
Another important consideration is what platform you mint your NFT on. Ethereum remains the most popular platform on which to create NFTs, however other blockchain protocols are increasingly gaining popularity as well. The most accessible Ethereum NFT marketplaces include platforms like OpenSea and Rarible, which allow anyone to create NFTs.
For those unfamiliar with cryptocurrency transaction fees, it’s important to know that minting an NFT comes with a nominal cost for creating a new token on a network. In the case of Ethereum-based NFTs, creators can expect to pay a fee — known as “gas” — denominated in ether (ETH) for performing functions on the Ethereum blockchain.
How To Sell an NFT
The next important step is, of course, selling the NFT you’ve created. There are a few different ways to release an NFT for sale: one-of-one auction, limited release, and open release. During the NFT creation process, you can decide to create a singular, one-of-one NFT to be released via auction; have a limited sale of a predetermined amount of NFTs released at a fixed price; or, have an open release where an unlimited amount of NFTs can be minted but only for a predetermined period.
The type of release you choose should be appropriately suited to your goals. Rare one-of-one auctions can be quite lucrative, but it is often difficult to get bids without an established following. Conversely, limited and open releases allow creators to sell multiple NFTs of a particular digital work that are still limited in availability.
Many NFT marketplaces pay artists far more equitably than is standard in the legacy art industry — and make provisions for the original artist to be paid royalties on all subsequent sales of an artwork. Typically, an artist may collect only 50% of an artwork’s sale price with the other half going to the hosting gallery, but NFT marketplaces often allow artists to retain 80% or more of the initial sale price. As for royalties, with NFTs it is common for artists to be entitled to 10% or more of all secondary sales for their lifetime. Depending on the venue, artists can even determine the percentage of subsequent sales they would like to receive — commonly ranging from 5% to 20%.
Further, as contractual agreements for NFTs are cryptographically secured and guaranteed by autonomous smart contracts on the blockchain, funds are automatically disbursed when mutually agreed upon conditions coded into the smart contracts are met. NFT standards automatically authenticate and track the provenance and value of an NFT as it changes hands — a process which, prior to blockchain, was laborious, slow, and prone to error.
Things To Consider Before Creating an NFT
As a creator, you’ll want to make sure that you have all the rights required to produce and mint the NFT you’re creating. For visual artists, this might entail making sure that you’re not infringing on any copyright laws. For musical artists specifically, this entails ensuring that you have the required recording and publishing rights to your own music before minting an NFT.
For purely independent artists who make music on their own, this should be a simple process. But for artists who have record deals or other contracts, minting an NFT of your music may require licensing the music from the appropriate parties.
Crypto NFTs: The Dawn of a New Creative Era?
Cryptoart is inherently abstract and intangible. This new medium gives artists a chance to experiment with new styles and forms of art, and collaborate with other artists in ways previously unexplored. Thanks to NFT standards, NFTs are essentially programmable art pieces that open a whole new world of artistic possibilities.
NFTs represent an opportunity for artists to be paid equitably for their work — and generate passive income long into the future with built-in royalties on each subsequent transfer or sale. NFTs enable a nascent and burgeoning digital art form, one that is ripe for experimentation and innovation.
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