Non-fungible tokens are becoming very popular these days. The reason is simple: they allow us to create new ways to interact with our favorite games, apps, and websites. For example, you can now purchase virtual pets from CryptoKitties. There are several ways to earn passive income through NFTs. Some examples include selling them at auction sites, creating game assets, and even trading them. So, what are NFTs, and how can you earn passive income from them?
What Are NFTs?
Non-fungible tokens (NFTs) are a unique and one-of-a-kind way to acquire digital assets such as music, art, literature, and even tweets.
This unique nature of NFTs makes them incredibly valuable. However, they do not store the digital item that they represent. Instead, they point to the file’s location somewhere on the internet.
NFTs came about from the ERC-721 standard, which has now evolved to the ECR-11555, simplifying the distribution and trading process. It eliminates the need for multiple contracts and provides a more secure and cost-effective way to exchange and distribute these tokens.
Earn by Staking NFTs
One of the easiest ways to earn passive income is by staking NFTs. Staking is a way of earning rewards for holding certain cryptocurrencies. Notably, this type of transaction is primarily used in Proof-of-Stake(PoS) protocols like Cardano, Avalanche, and Algorand.
This same concept can also apply to NFTs. Holders can stake NFTs by locking them on a platform or protocol; in return, they receive staking rewards and other benefits. While maintaining ownership, holders can earn income from their collections.
The unique nature of NFTs makes them an ideal investment for HODLing. However, there are still drawbacks that come with staking NFTs. Buying, selling, and minting NFTs can be time-consuming and require high transaction fees, especially on Ethereum.
Earn by Renting Out NFTs
One of the latest trends in gaming is renting out NFTs used in games as tools, creatures, or skins to players. With these additional features, players can enhance their experience and collect additional income through play-to-earn. Then, in exchange for renting their NFTs, the landlords receive a cut of the cryptocurrency they earn.
Since the price of NFTs has increased, many gamers can no longer afford to own them. For example, to play Axie Infinity, one of the most popular games, players need at least three NFTs. These NFTs range from $25 to $600 for the complete set. Only those who meet this bar can create a team to battle other teams and earn cryptocurrency.
This strategy is very easy to implement, as it only requires entering the duration of the rental agreement and the cost. It’s also a great way for new gamers to earn money without spending much money. According to experts, the popularity of NFTs will soon become a major factor in the gaming industry.
One of the main disadvantages of this strategy is that it only works for one type of blockchain game. If the game loses popularity, there will be no renters for your NFT. Hence, it might help to have multiple types of NFTs. These will allow you to feature them in various games.
NFT Royalties
To better understand the concept of NFT royalties, the creator receives a percentage of the sales price each time a new NFT creation is sold through a marketplace. These payments are perpetual, and they are executed automatically. You can choose the percentage you want to receive, and most marketplaces allow you to do so. NFT royalties enable creators to earn a passive income even after they have sold their creations.
With this, artists can earn a share of the proceeds from selling the non-fungible tokens(NFTs) they created. For instance, if the royalty on a digital artwork is set at 10%, the creator will receive a ten percent portion of the total sale price when a new owner purchases the artwork.
Even better, there are no intermediaries needed to process transactions between NFTs. However, note that royalties are not always given out automatically. They have to be written into the smart contract terms ensuring that the entire process is automatically performed.
This method of passive earning is beneficial for all types of digital content, such as physical items and gaming accessories. As their NFT popularity grows, they can get more returns on their work.
Due to the immense benefits that NFT offers, a lot of content creators and digital artists are rushing to join its platform. Different marketplaces offer different royalty systems; hence you should choose one that best suits your needs.
Providing Liquidity
The liquidity of an NFT essentially means the ease with which it can get converted to cash within the network. Due to the increased NFTs in the blockchain industry and their popularity, it has become easier to contribute liquidity and get NFTs in exchange. In turn, this can establish your position in a liquidity pool.
For example, when you provide liquidity to a blockchain-based exchange such as Uniswap V3, you will be issued LP-NFT tokens. These are ERC721 tokens that capture the amount of money you have locked in the exchange’s liquidity pool, the tokens’ symbols, the token pair you deposited, and the pool’s address. You can then quickly sell these NFTs to liquidate your position on liquidity pools.
Yield Farming
NFTs, DeFi, and yield farming finally meet. NFT yield farming is one of the latest trends in the cryptocurrency market. NFT farming involves staking an NFT or tokens to receive NFT as a reward. Unlike traditional yield farming, your returns come in the form of NFTs as opposed to token rewards.
Currently, NFT farming is mainly used in blockchain games. Players can earn tokens or stake in-game items to receive tokens and vice versa. For example, Axie Infinity, an Ethereum-powered game, allows players to earn SLP tokens which they can mint to receive NFTs in the form of Axies. Other dApps with similar opportunities are SuperFarm and Mobox.
However, note that there are still many NFT farming opportunities in their early stages of development. In addition, farmers also face the possibility of dApp’s smart contract’s code vulnerability, which could lead to a loss of funds.
Final Thoughts
The Non-fungible token market has grown significantly over the past year. In 2021, the total amount spent on purchasing NFTs exceeded $12.6 billion, up from $162.4 million when the year began. Although the media has been focused on the trading aspect of NFTs, it’s not the only way that you can earn money with NFTs.
Another method of earning is passive income, which is a type of investment that involves making your money work for you. As explained above, instead of selling an NFT for a quick profit, your NFT can earn you passive income over a long period of time effortlessly.
FAQs
What does NFT mean in full?
The NFT acronym stands for a non-fungible token; when used in full context, it means tokens that cannot be traded directly for other assets. These tokens may include collectibles such as diamonds, art, furniture, or unique digital items like video game skins or virtual currency. Collectible NFTs are often referred to as “real world” cryptocurrencies due to their scarcity and ownership rights.
Is NFT a type of cryptocurrency?
No, NFT is NOT a type of cryptocurrency. Cryptocurrencies are digital currencies that verify transactions using cryptography (e.g., Bitcoin), while Smart Contracts are self-executing programs running on top of blockchains. Smart contracts enable decentralized applications to be built upon blockchain technology. NFTs run on Ethereum and interact directly with other tokens, creating unique assets.
Should I invest in NFTs?
Investing in non-fungible tokens is a great way for anyone who enjoys blockchain technology to earn passive income from crypto assets. NFTs represent digital collectibles that cannot be duplicated like CryptoKitties. Unlike other cryptocurrencies, NFTs are tradable, just like real-world items such as artwork, cars, etc., and they have a physical representation, i.e., the ERC721 standard.
How can I buy an NFT?
There are two ways to purchase an NFT, through a market exchange where buyers and sellers agree upon a price on a specific date, or via crowdfunding platforms such as Kickstarter or Indiegogo, which allow artists to raise money from customers for the production of goods. A third way to create valuable tokens is through initial coin offerings, where entrepreneurs sell their coins directly to interested parties. The value of these coins can be affected by factors outside the control of the company issuing them. However, some companies like Ethereum use smart contracts to verify transactions.
Sourced from crypto.news.
Written by Wayne Jones on 2022-08-15 03:00:00.
