Imagine sitting on the beach somewhere being totally blissful with a fresh ocean breeze across your face and the feeling of sand between your toes.
It’s been a while since I’ve been to the beach, but I did not want to leave the last time I visited. Maybe you’re sitting in one of those stretched-out chairs with a huge umbrella over you while you scroll through the cyberpunk NFTs that you bought a few days ago.
You know those pixelated jpegs have humans with very slight cosmetic alterations, and you’re just checking in to see the passive income that they’re earning.
In fact, maybe they’re the reason you’re at the beach in the first place.
Welcome to Shavuna, the number one site for crypto education. Here we explain topics of the cryptocurrency world using analogies, stories, and examples so that you can easily understand them.
In this blog post, I will explain how you can make long-term passive income by simply owning NFTs in the future. Also, how blockchains could completely prevent the GME short-selling issues and why you should read other posts on this website if you want more content similar to this educational article.
Let’s dig in
What are NFTs?
First of all, what is an NFTs?
Now, we actually have an entire NFT article that breaks down what they are and how they will eventually replace card titles and house deeds on the blockchain one day.
But I’ll give you a quick summary here.
So NFT stands for Non Fungible Token, which is basically a fancy way of saying that it’s a unique token that cannot be duplicated and is special in some way.
Most of the NFTs you probably know about are simply digital art NFTs where you think that the token is just a piece of art; it’s not.
The token id is paired with an image URL on a third-party website like Opensea, where they say that the token represents the image. However, there’s truly technically no image data on the actual blockchain.
The token id is simply a pointer saying I represent that image over there, and then the actual image file is uploaded to a server that could easily change the image if they wanted to.
The thing is, NFTs can be so much more than just art. For example, I said it could be house deeds, car titles, or even domain names like shavuna.crypto This is an NFT. It’s a token that I hold that is unique, and there’s no other token out there like it.
Now that we’ve kind of brushed you up on what NFTs are let’s explain how they can be used to earn passive income.
How to Earn Passive Income using NFTs
If you’re new to this website, we absolutely love using examples, and in this example, we’re going to be using a monetized website, which means that Google ads are on this site. Advertisers pay Google, who then takes a cut and then gives the site owner the rest.
Let’s say the site owner made an NFT of each post on this website, he could sell them individually, and then he could also promise that whoever owned them would get 20% of the revenue from that specific post’s ad income during the past month.
For example, if the post got around twenty thousand views and earned one hundred dollars, then whoever held the NFT would be given twenty dollars worth of USDC coin for that month, which would continue forever.
If the post made five thousand dollars in the course of a few years, twenty percent of that would be paid out to the holder. In this example, the twenty percent is arbitrary. We could make it a hundred percent or two percent, but the idea is the same.
This allows our audience to invest in their project and also be able to earn a reward if their posts do well. They are basically allowing you to have skin in the game for their success.
Not only that, but these NFTs could quickly become somewhat of a gamble where users could pay more and more for each NFT, expecting a certain post to pop off one day due to the algorithm.
There are many problems which I’ll talk about later in this article.
Nevertheless, this is the core idea of a passive income in NFT. It is a digital representation of a physical asset that actually adds value and earns somehow.
I remember youtube creators like Graham Steffen and others were once in their growing stages, and I was thinking, man, if they were stocks, I’d definitely invest in them.
They just need a little support, and I know they’ll be big one day. Needless to say, they got big anyways, but NFTs like this would allow them to benefit in the short term and investors like me to benefit in the long term.
Speaking of that model, this is exactly what music artists will soon be using them for.
The next example of a passive income NFT is real, and it will be music artists. I recently heard of this artist Blau who set up an NFT drop of 333 total tokens. All of these tokens combined represent 50% ownership in the streaming royalty rights of a song called Worst Case.
What this means for you is that 50% of all the money he earns from Spotify by playing that song he’s giving to the NFT holders.
Also, each token had unique artwork tied to it, so they are all different. To put this into perspective of how much the artist made. There are currently 257 items on Opensea, which is an NFT marketplace, and the floor price, which means the lowest possible trading price is two Ethereum.
Two hundred fifty-seven items times two Ethereum times an average price of four thousand dollars per each equals over two million dollars for half of his streaming royalties.
Now, I will say this doesn’t mean he earned all of that, though. He only got the proceeds from initially selling them.
These artists can implement one trick to add a transaction fee to each NFT that gets rerouted back to the artist’s wallet.
For example, Blau could add a five percent trading fee so that if a hundred thousand dollars of his NFTs got traded this month, five thousand dollars of it would be deposited straight into his wallet simply for the NFT being traded.
To summarize, the NFT holders will be earning passive income, but the artist will also earn passive income for their works, and don’t forget about the other 50% of the royalties that Blau gets to keep for himself.
I personally think this technology will revolutionize the way artists are created and promoted. However, I would love to know your thoughts, so leave a comment down below.
Real estate is another excellent example.
What if an entire apartment complex was turned into 100 000 NFTs where each NFT holder earned a percentage of the complex’s profits.
This way, you wouldn’t need to have 100 million dollars to invest in these high-return buildings but could join for fractions of that.
Now, I don’t know if this will ever happen, but it is fun to think about the endless possibilities of NFT technology.
Even more so, what if the apartment complex started its DAO where NFT holders could vote on changes like whether to allow smoking or not or who to accept to rent to, or even which janitor to hire.
Stuff like this is actually already being done, but that’s more about how DAOs work than passive income NFTs.
Moving on, let’s talk about the problems of this.
One of the main problems of this idea is who’s going to make the payment? Because it certainly won’t be the blockchain making the payment, someone has to take all of that physically earned money, deposit it onto the blockchain, and then send it to a bunch of different wallet addresses.
If you know anything about the Ethereum network right now, it could quickly eat up fees if they’re not careful. It seems that this is the biggest problem stopping passive income NFTs from becoming the next ample financial opportunity, and I don’t see why companies in the future or even DAOs wouldn’t sell shares of their company as an NFT one day.
In fact, while I’m on this topic, this would solve a big problem around the GameStop naked short selling issues.
If the NFTs are on the blockchain, we could actually see who owned every single share issued, where they were, how often they were moving, and who really does have diamond hands.
I’ve been doing a lot of thinking about this topic and have recently learned a ton that I want to share with you.
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I want to thank you for reading. I hope you enjoyed it. I hope that you’ve learned something, and most of all, I hope to see you in our next blog post.