Want to try to make money? Maybe it’s time to create or buy or sell NFTs. Many entrepreneurs in the Philadelphia area are doing this. But before you jump in, there are a few things you should know.
An NFT, which stands for non-fungible token, is a one-of-a-kind digital asset that can be made from just about anything that can be scanned, copied or photographed and then loaded onto a computer. When your digital asset — such as a photo or video — has its own NFT, you’re telling the world that it’s unique and can be bought and sold like any piece of art; an artwork can be copied but there’s only one original. A token is stored on the blockchain, a digital ledger on which every transaction must be verified by multiple sources.
Thanks to the blockchain, an enormous market of digital art has suddenly materialized over just the last few years. How enormous? The market is now at $40 billion, according to new research, and it’s expected to double in size in just the next few years.
NFTs are now being sold by celebrities such as Snoop Dogg, Ellen DeGeneres and Eminem. But more important, digital art marketplaces such as OpenSea (which was recently valued at $13 billion) and Foundation have created massive opportunities for countless entrepreneurs looking to sell their digital art to customers that just a few years ago would never have even existed.
“NFTs give the opportunity for smaller-scale artists to sell their work for thousands of dollars, even going up into the millions, and it’s gaining traction and popularity with collectors,” said Aaron Ricketts, a Philadelphia-based visual artist who has been using sales of his NFT art to fund his projects in photography and film.
Ricketts isn’t the only Philadelphia-based artist earning money from NFTs. Chris Hytha, a recent graduate of Drexel University, has been using his photography and architectural degree to create unique photos of Philadelphia rowhouses and other buildings in the area that are selling for thousands.
And Josh Pellegrini supplemented the money he makes from his production studio by becoming a collector of digital art, with which he claims to have made “30 times” his money since starting and has used the proceeds of his NFT sales to pay off his student loans.
NFTs are creating a new generation of entrepreneurs and it’s all very enticing. But know that the world of digital art comes with enormous risks. Last weekend’s hack of OpenSea, in which digital artwork pieces were stolen at a loss to their owners, underscores the security issues facing the young industry.
Buying and selling NFTs requires digital currencies such as bitcoin and ethereum, which can be very volatile. There’s a lot of hype and misleading information that can lead to a bad investment.
So what does a digital artist or entrepreneur need to know before jumping in?
For starters, it’s important to be patient and immerse yourself in the industry before you start spending money. Pellegrini spent countless hours on Twitter Spaces and Discord, listening in on conversations and getting to know the players. He followed the social media accounts of people who were active in the business, watched what they were doing, and asked a lot of questions.
He also shared ideas in person with other artists at the popular PHL Shooters photography group that he runs. “People have all these ideas, but the reality is you’ve got to get into the community first and see what’s going on,” Pellegrini said. “If you’re not in the community, I don’t know how you would really make it”
Next, you should get familiar with the major marketplaces and how they work. Such sites as OpenSea and Foundation (where both Pellegrini and Ricketts sells their photography, animation and video pieces) will allow you to set up your own account, connect your digital wallet or purchase digital currencies, upload your artwork, and complete the process of getting a unique token assigned to it on the blockchain. You’ll be able to store your artwork and then track royalties on the sale of your product, which Hytha says can be very important.
“The secondary market might be just as huge for an artist,” said Hytha. “I’ve been really pleased with the secondary royalties. Ten percent of my secondary sales goes back to me, so that’s becoming a significant passive income source.”
Finally, you should decide whether you want to make your money by selling digital art, or trading cryptocurrencies … or both. A single unit of ether now costs about $2,700; one bitcoin goes for about $38,000. But ether was worth about $4,600 as recently as November, and bitcoin was worth about $68,000 at the same time.
So brace yourself for the Wild West. I recommend converting your digital currencies immediately to dollars when you make a sale. Hytha says he’s been responsible enough to cash out what he owes in taxes. But whatever he’s able to leave in cryptocurrency, he does — without betting the farm.
“I’m just excited about it,” he said. “And, hey, if it goes to zero, this is all fun. I want to be in there for, for when Ether goes to 10 or 20 thousand by the end of 2030 or something!”
Finally — and this is coming from me, an accountant — please be careful about your taxes. There’s a growing movement toward more regulation over digital currencies and assets, but right now the rules are sparse. The major platforms aren’t required to send out tax reporting documents like most financial services firms do when you buy or sell a stock. Which means that if you’re transacting in this stuff you have to pay close attention to gains — or losses — and properly calculate any potential taxes you owed.
And remember, it’s not just the artwork transactions but any potential profits made from the ups and downs of the cryptocurrencies you’re using. Keep good records and document your transactions.
There’s a great future for digital art and for the entrepreneurs who recognize their value. But just as important is that the growing world of NFTs has also created a new way for artists to express themselves … and make money.
“The beauty of NFTs is that it gives power back to the artists,” Ricketts said. “It’s given us greater financial and narrative control over our work.”
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.