Non-fungible tokens, or NFTs, have taken the art world by storm over the past couple of years. From Beeple's $69 million sale of Everydays: The First 5000 Days to million-dollar Bored Apes, NFTs have helped digital artists monetize their work using some of the most effective behavioral science tricks, like belonging and scarcity.
Let's examine how you can mint and build your own NFT collection, bringing your digital art to the masses.
How to Mint NFTs
Non-fungible tokens are nothing more than an entry on a blockchain. But unlike Bitcoin or other cryptocurrencies, NFTs have properties that make them unique, such as a link pointing to an image. So while anyone can access the image, video, or other art pieces, you can think of the NFT as a receipt proving the holder is the artwork's owner.
From a technical standpoint, most NFTs are ERC-721 tokens on the Ethereum blockchain. The ERC-721 standard defines how the token structure, specifically a `tokenId,` makes them unique. By using the ID, a dapp can associate the token with an output, such as a piece of artwork or even in-game items.
Minting an NFT is when you add the ERC-721 token to the blockchain. While most people use NFT marketplaces to mint NFTs, you can deploy a smart contract and mint your own ERC-721 token using the Remix IDE or other blockchain tools. But, of course, you'll have to pay any associated gas fees to execute the transaction.
Minting on OpenSea
OpenSea is the largest NFT platform in the world. Unlike minting your own NFT, the platform lets you "lazy mint" an NFT to avoid paying gas fees. In essence, you can list your artwork for sale on OpenSea and only pay the gas fees to write it to the blockchain after a sale. That way, the buyer pays all the gas fees, and you can sell artwork for free!
Here's how to do it:
- Set up a crypto wallet like MetaMask and connect it to the OpenSea platform.
- Create a collection by clicking on your profile icon, going to My Collections, and then clicking Create a Collection.
- Add an item to the collection by clicking on the three-dot menu and selecting Add Item.
- Fill out all of the fields and click Create.
OpenSea takes a 2.5% cut of the sale price.
Minting on Rarible
Rarible is the second most popular NFT platform. Like OpenSea, there's an option to lazy-mint NFTs for free without paying gas fees. The platform is also community-owned, setting it apart from the for-profit nature of OpenSea. Rarible also charges a slightly lower fee than OpenSea but has a potentially lesser base of potential buyers.
Here's how to mint an NFT:
- Set up a crypto wallet like MetaMask and connect it to the Rarible platform.
- Click Create to create an NFT and fill out all the information.
- Click Create Item and sign free authorizations in your wallet.
Rarible takes a 2% cut of the sale price, including 1% from the buyer's side and 1% from the seller's side.
For other NFT platforms, see our article on the 14 Best NFT Marketplaces for 2022.
Create Your NFT Artwork
The possibilities are endless when it comes to creating artwork. NFTs simply provide a medium to prove the provenance and encode a link to an external URL (e.g., an image hosted on OpenSea or a poem written in a text file on IPFS).
Oftentimes, artists start with the materials and mediums they’re comfortable with and then apply new technologies as necessary. For example, a photographer may start with a collection of photos and then use Dall-E to modify them in unique ways.
You might find inspiration by looking at other artwork or considering what your target audience might want. Some creators focus on programmatically generating images, while other artwork involves world-building or other mediums.
Finally, you should also keep in mind that many third-party NFT platforms have some restrictions. For instance, OpenSea only hosts JPG, PNG, GIF, SVG, MP4, WEBM, MP3, WAV, OGG, GLB, and GLTF file types with a 100 megabyte size limit.
How to Price and Sell Your Artwork
The NFT market has grown to process $10+ million worth of sales daily, making it challenging for artists to stand out in a crowded market. Fortunately, there are several tried-and-true steps that you can take to maximize your chances of success.
Some of the best strategies include:
- Find a Compelling Concept – Avoid launching NFTs that mimic other famous collections. There are already hundreds of different types of "bored" animals. Find a unique and compelling, novel concept to bring in interested buyers.
- Choose the Right Platform – OpenSea is the largest NFT marketplace in the world, exposing your NFT to the most significant potential audience. However, it also has a mass-market reputation, so Rarible or Super rare might be better options in some cases.
- Select the Right Price Point – Beeple may have sold his artwork for millions, but not everyone has the same notoriety. The right price for your artwork might depend on everything from your popularity to the difficulty of creating the piece.
- Build a Community – NFTs are more than a digital version of wall art – they've evolved into niche communities. For instance, Bored Apes provide holders with access to special events. Think about ways to build your community to entice buyers.
- Sell, Sell, Sell – Artists can no longer generate sales simply by launching an NFT. Success often requires extensive marketing efforts to reach out to potential buyers.
How Do NFT Taxes Work?
The IRS treats non-fungible tokens like any other cryptocurrency. In particular, the agency recently noted that "if a particular asset has the characteristics of a digital asset, it will be treated as such for federal income tax purposes." However, you must also pay tax on any crypto transactions involved with the NFT, like selling ETH to pay gas fees.
The good news is that digital asset treatment is more favorable than so-called "collectibles" like fine wine. While the IRS taxes all collectibles at a flat 28% tax, digital assets are considered property and taxable at capital gains tax rates. So, if you hold an NFT for longer than one year, you will typically only pay a 15% tax rate, and you can deduct any fees.
Crypto tax software, like ZenLedger, makes it easy to track your capital gains and losses. You don't have to worry about aggregating transactions across wallets and exchanges or calculating your transaction and gas fees. Instead, the platform automatically computes these figures and even populates the IRS forms you’ll need to file each year!
The Bottom Line
Non-fungible tokens, or NFTs, have become extremely popular in the art community over the past few years. In addition to eye-watering sale prices, it has become easier for anyone to create their own NFT collections thanks to NFT marketplaces like OpenSea and Rarible. The challenge is setting yourself apart from the competition.
If you trade crypto assets, ZenLedger can help you aggregate transactions across wallets and exchanges, compute your capital gain or loss, and auto-fill the forms you need to file each year. You can even identify tax loss harvesting opportunities to offset capital gains or up to $3,000 in ordinary income each year!