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NFTs can be an alternate revenue source for creators. So, what's the downside?

This year has been a whirlwind of financial news that requires explanation. I'm sure most of us rewatched TheBig Short during the Gamestop short squeeze fiasco a few months back, and then there was the cryptocurrency meme DogeCoin, which made some waves. That's tired. What's wired now are non-fungible tokens (NFTs).

Their seemingly-overnight meteoric rise in popularity has confounded many, including myself, begging the question: What are NFTs? Are they a cryptocurrency, a form of digital media, a speculative asset? The answers are no, kind of, and yes.

What Are NFTs?

NFTs are digital assets whose ownership is verified by thousands of computers around the world using blockchain technology. Turning a regular digital asset into an NFT is called "minting," which "tokenizes" the digital asset on the blockchain. NFT's are sold using cryptocurrency, so the buyer and seller need a cryptocurrency wallet to participate in the transaction.

The digital asset itself is no different than non-NFT media, but its verification on the blockchain gives owners of the NFT legitimacy. While some people may buy NFTs because they like the content, many are treating NFTs as speculative assets, which are purchased because they may increase in value and sold for profit. With many NFTs selling as one-offs or in limited quantities, the digital scarcity increases the value of an NFT over time.

Who Owns an NFT?

When an NFT is sold, and the transaction is verified on the blockchain, owners have digital proof of their purchase. That doesn't mean they own the original asset or the copyright for that asset. They just own access to the NFT version of that thing, which is verified and cannot be changed unless sold. The blockchain verifies the transaction, which acts like a digital receipt that validates ownership of the NFT.

NFT ownership can be bought and sold, which is verified each time on the blockchain, but the original creator of the NFT is permanent. Typically, artists receive payment once when they sell their artwork, but selling an NFT is different. Each time an NFT exchanges hands, the original creator of the NFT receives a cut of the profit, which is a royalty payment. With the hope that NFTs appreciate in value over time, creators could make more on royalties than the initial price of the NFT.

Smartphone — Beeple's "Everydays: The First 5000 Days" sold at auction for $69 million. The image of the artwork on the phone looks exactly the same as the real thing, except that the NFT version's ownership and authenticity are verified through the blockchain. Image via mundissima.

With NFTs, creators—whether they be photographers, videographers, or illustrators—have more control over their works. Right now, NFTs are the hot new thing and, while the bubble may burst and cause NFTs to depreciate instead of appreciating in value, savvy creators can get in on the craze and line their crypto-wallets. While one of Beeple's NFTs resold at auction for $69 million, an NFT can be any digital asset or digital representation of a thing. People have sold tweets, NBA highlights, crypto-cats, music, and the list keeps growing. If you create digital assets, there's a chance somebody may want to buy them as NFTs.

The Hidden Cost

With all the excitement surrounding NFTs, not many have talked about what it takes to buy, sell, and mint NFTs. Depending on the platform, you could be charged a fee for either of those three, which pays for the computing power needed to verify purchases and mint NFTs. And, those fees can change from moment to moment, adding a level of volatility. Buyers can end up paying more for the gas fees—the name of transaction fees—than the NFT itself.

Sellers can pay gas fees when minting an NFT, and on OpenSea, sellers can be on the hook for gas fees when the NFT sells. So, it's possible to pay for gas fees twice as a seller, and that doesn't even take into account the fees associated with converting cryptocurrencies. Users have to convert cryptocurrencies since not all NFT marketplaces accept the same ones, which ends up being another fee as it requires the blockchain to verify the conversion.

All this ends up costing a lot of money, especially now as the increased number of users has caused gas prices to skyrocket. While sites like Rarible charge buyers 2.5% for purchasing an NFT, other marketplaces can charge more. The financial cost is obviously a burden for any creator looking to mint and sell NFTs. But more than that, NFTs and cryptocurrency are harming the environment, which is worth considering.

Are NFTs Bad for the Environment?

Cryptocurrency mining farms like this use dozens of mining rigs to solve complex mathematical puzzles. Cryptocurrency is awarded to those who solve the puzzle, which requires lots of computational power and, therefore, electricity. Image via Mark Agnor.

Every time users mint, sell, or buy an NFT, thousands of computers, which form a decentralized blockchain, must verify that transaction. Verifying a transaction on the ledger requires a lot of computing power, which itself requires a lot of energy. That energy has to come from somewhere, and while crypto mining operations run on renewable energy, there are many more who get their energy from non-renewable energy sources, which pollute the environment.

On a broader note about the role technology plays on global warming, it's important to mention the impact of data centers owned by companies like Google, Amazon, and Facebook. These data centers, which hold your Tweets, Facebook posts, and YouTube videos, require thousands of servers. By having accounts and storing data on these platforms, users are partly responsible for the greenhouse gases caused by energy consumptions from these data centers.

While selling NFTs is bad for the environment, so can being on the internet. From an environmental perspective, cryptocurrency mining farms and data centers look identical. NFT creators could purchase carbon offsets to stay carbon neutral, but what's better than fixing something is not breaking it in the first place.

The fact is that Ethereum, the blockchain most often used by NFT marketplaces, and other cryptocurrencies, require too much power to run, and no amount of tree planting is going to undo that. Ethereum is promising an update to their system that would use almost no energy, but that's still off in the future. Those who don't want to compound global warming may want to stay out of the NFT game or wait until a better alternative emerges.

.JPG to NFT

Although it's still too early to tell, NFTs may become a legitimate way for artists and creators to sell their work. With the ability to profit from the future sale of NFTs in perpetuity, NFTs can pay off big time in the long term. But, as great as they may be for creators, NFTs aren't perfect.

The high cost of gas fees, the volatility of cryptocurrencies, and the effect NFTs have on the environment are valid reasons to stay away. It might be best to wait until the volatility and high fees die down, which might open up the doors for more creators to join, who may be put off by the prohibitive costs associated with minting and selling NFTs. Even then, the ethical repercussions of minting and selling NFTs may not sit well with those who care about the environment. Sure there's money to be made on the platform, but if our environment is footing the bill, is it worth it?

I know how I feel about it, but I can't answer that for you, as a creator. If you find value in selling NFTs of your work, that's your decision. Though NFTs may stick around and become a way for us to trade digital collectibles like they're a speculative asset, they could just as well fade into obscurity, which may cause NFTs, as a whole, to depreciate.

Shutterstock doesn't charge exorbitant fees to upload your images or sell licenses of them, and neither of those things harms the environment. Steadily selling image licenses may be a more conservative approach, but it's undoubtedly less of a hassle. Although, if you're adamant about selling NFTs of your work, know what you're getting into. Fortune may favor the bold, but so does tragedy.

NFTs vs. Stock Photography

For photographers or other creators who create stock content, selling NFTs could be an alternate revenue source. On sites like Rarible, Cargo, and OpenSea, illustrations and animations seem to be the most popular forms of NFTs. Photography has yet to make an impact as a viable NFT, but with the hype surrounding NFTs at the moment, it could happen.

Both stock photography and NFTs pay original creators for their content with each transaction, but there are differences. On Shutterstock, for example, photographers receive a commission each time a user purchases a license of an image. However, there's no initial payment when uploading an image. Original creators of NFTs, on the other hand, get paid when selling the digital asset the first time, and they receive a percentage of the profit from each subsequent sale. Either one can be beneficial to photographers, but there are some things to consider.

Crypto Art — *The term crypto art is interchangeable with NFT, or non-fungible tokens. Image via Justlight.*

With NFTs you can earn a big payout from the onset. Instead of selling licenses for an image, you're selling access to a blockchain-authenticated digital asset that the owner has digital proof of. You can sell one NFT of an image or as many as you like. Though, producing too many may dilute the overall price of each NFT.

Creators of NFTs can continue to make money every time it's sold, so long as the royalty is built into the contract. However, the one problem with this is that the owner of the NFT may not sell for a long time, or ever. While the initial payment may be a nice chunk of Ethereum, creators may not see another "cryptocent" for a long time, or maybe ever. But, just as with Shutterstock, the more images, or in this case NFTs, you sell, the more money you'll make.

Although both are ways to make money off photography, selling NFTs may require some technical know-how and an understanding of cryptocurrencies and blockchain technology. Now that you have an idea of what NFTs are, you can choose to start minting NFTs or wait to see if the trend sticks around. Just beware of the gas fees, the impact on the environment, and the volatility of cryptocurrencies, as a whole.

Need more entertaining and intriguing reading material? Check out these articles:

How Money in Images Can Tell Impressive Stories
Identity Unfiltered—The Rise of Design Personalization
Refer Friends and Make Money – New Shutterstock Referral Program is Here
How the Meghan and Harry Interview Changed the Way We Look at Royal Photos
Creative Ways to Make Money at Home as a Videographer

Top image via Iryna_Khomenko.