beginingCryptocurrenciesNFTsHow to Make NFTs: Mining, Trading and Monetization for Beginners

    How to Make NFTs: Mining, Trading and Monetization for Beginners

    About 3 weeks ago we wrote article for NFT Finance, which saw a lukewarm response in terms of readership and engagement. Therefore, we began to investigate why. As we discussed the many possible causes, it suddenly hit us like a bolt of lightning.

    While we have been dealing with the world of cryptocurrencies, DeFi, NFTs, DAOs and what not for quite some time now, crypto is still a new field for the vast majority, even more so when it comes to NFTs. Therefore, a post in a new segment within NFT, which itself could be considered a sub-category of crypto, would have a very nuanced and niche audience.

    Surveys on the total number of cryptocurrency owners suggest a figure somewhere in between ~220 million to ~800 million souls all over the world. The total number of NFT owners is a small percentage compared to this. However, it is debatable what the actual figure is.

    Number of unique wallets trading NFTs

    Number of unique wallets trading NFTs (Source: Statista )

    Report of the Financial Times says the number is just 3,60,000. In an article Forbes says the world's largest NFT marketplace, OpenSea, has 1.8 million active users. Even if we take into account users in other markets (since OpenSea itself does not support all chains), the total number of NFT owners will still be minimal in the crypto universe.

    Likewise, the total market capitalization of NFTs, their daily trading volumes, etc. are also much smaller than the overall size and activity of the cryptocurrency market. But that may not be the case for long.

    Twitter recently started its first NFT integration that allows users to link their wallets and set their own tokens as profile pictures. This is the first major functional integration from a major platform – blockchain-linked verifiable ownership of pfp art.

    NFT-related Twitter profiles now have a hexagon shape. Clicking on them will reveal the NFT details.

    NFT-related Twitter profiles now have a hexagon shape. Clicking on them will reveal the NFT details.

    Most other newsworthy integrations so far have been related to the launch of brand collections, some of which come with useful (like TIMEPieces and Deathbats ), some with revenue streams (like Royal ), while others are purely collectible. More on reactions to the Twitter Blue announcement later.

    It was recently reported also that Meta is planning NFT features for Facebook and Instagram. As billions of users on these platforms get their first exposure to NFTs, the NFTverse is poised to grow.

    In light of this, we thought it might be ideal to write a piece that covers the basics of NFT. For someone who has just read about NFTs and is considering going down the rabbit hole, there should be a guide on how to get started.

    While there are countless guides on what NFTs are, there are very few that provide a simple navigational tour of how to NFT. How to create and mine, trade, use, rent, collaborate, etc. Intrigued? Read on.

    But first, what is an NFT

    To begin with, it is important to distinguish what NFTs are and what they are not. An NFT is a token that represents something unique and therefore irreplaceable. Fungible tokens like Bitcoin and Ethereum are indistinguishable from each other in terms of value or utility. For example, 1 BTC in my wallet is the same as 1 BTC in your wallet. If we swap them, it will be an equal swap with no net benefit to either party.


    Fungible v/s Non-Fungible

    A non-fungible token is provably different from another. So, NFTs offer a way to manage the provenance, ownership and transfer of unique items in a foolproof way.

    NFTs can be used to represent a wide variety of items, such as event tickets, legal documents, educational certificates, etc. However, the most popular applications of NFTs so far have been in collectibles and art. Consequently, common pop culture references to NFTs are almost always intended to represent a major work of art. In this article we will practice the same.

    While Ethereum is the most popular blockchain for NFTs, chains like Polygon, Solana, Tezos, and Stacks are also starting to see high traffic with their own dedicated patrons, communities, and marketplaces. In this article we will focus on Ethereum.

    Some of the NFTs at, a Tezos marketplace

    Some of the NFTs in , Tezos marketplace

    The audio-visual representation of the NFT comes from media files associated with the token's metadata. Media files can be static images, gifs, 3D objects, video, audio, etc. They can be created anywhere by the artist and then hosted on any repository. Mining an NFT involves creating a token on the blockchain whose URI points to that file link. So when someone "sees" an NFT, they are basically looking at the stored media associated with it.

    Mining is an on-chain process that requires a wallet to receive NFTs and pay transaction fees (ie gas). The fee is in the form of the native cryptocurrency of the respective blockchain in which the NFT is mined. Some platforms allow free mint by sponsoring the gas on your behalf.

    NFTs that have their media (or rendering instructions) hosted on a chain are considered by purists to be the truest form of NFT as CryptoPunks and OnChainMonkey . Then there are those that are hosted on distributed storage like IPFS. Since blockchains are not optimized for data storage, the vast majority of NFT collections choose to host their heavy media files in centralized repositories.

    CryptoPunks are stored on a chain. Inquiry for any punk here to see.

    CryptoPunks are stored on a chain. Inquiry for any punk here, to see. ( Source )

    It is important to note that while there is a real criticism of permissioned storage, the value of NFTs is in the token itself and the verification associated with it. The media file is an add-on. At the end of the day, the CryptoPunk token minted by Larva Labs is valuable, not a right-click save or copy media file with the same image.

    NFT Mining and Trading

    Now that you're familiar with NFTs, why not try mining one of your own? You can put your art up for sale or simply share your creation with other enthusiasts. You can even pick up a piece or two for your own digital art gallery. Platforms like BlockArt allow you to create procedurally generated NFTs and mine them. They would fall under the broader category of generative art.

    Creating NFTs in BlockArt

    Creating NFTs in BlockArt

    Most NFT markets have a built-in mining function. OpenSea is the most popular marketplace and has probably already been covered in great detail in most posts, so we'll explore an alternative platform instead.

    Rare is another popular and fast-growing decentralized NFT market built on top of Ethereum where you can mine, buy and sell digital collectibles seamlessly.

    To mine, all you need is the artwork file and a Web3 wallet like Metamask. Rarible's smart contract creates an Ethereum-based NFT and puts the file into IPFS. You can then choose to put the NFT up for sale on the Rarible marketplace itself or simply display it.

    Rarible provides a user-friendly interface for mining (and listing) NFTs

    Rarible provides a user-friendly interface for mining (and listing) NFTs

    Rarible uses two different NFT standards – ERC-721 to create unique digital assets and ERC-1155 to create multiple editions of the same item.

    The lazy function mining' on Rarible allows free mining. While NFTs are listed on Rarible's marketplace, mining actually happens at the time of purchase. The fee is paid by the buyer and in case the NFT remains unsold, the artist does not needlessly pay any mining fee.

    When buying an NFT, you can either pay the listing price or make an offer and see if the seller accepts. For each sale, Rarible charges 2.5% of the sale proceeds to both parties. Rarible's smart contracts also allow the original creator to earn royalties from secondary sales ie. every time the NFT is resold.

    NFTs listed on Rarible

    NFTs listed on Rarible

    While Rarible is a centralized platform at the moment, the creators plan to gradually hand over control to a DAO (decentralized autonomous organization) run by the community. $RARI, Rarible's governance token, will play a vital role in the DAO, allowing members to decide the future course of development through decentralized voting.

    Rarible recently started supporting Tezos and Flow blockchains other than Ethereum. This will not only introduce a host of new NFTs to the platform, but also allow users to create, buy or sell NFTs at relatively lower gas fees. Integration with other blockchain networks is part of Rarible's immediate roadmap.

    Monetizing your NFTs

    By now you are the proud owner of one (or more) NFTs, proudly HODLING them in your collection. Based on utility or aesthetic value, an NFT can be: wearable or property c metaverses like Decentraland or The Sandbox, placed in virtual galleries like Cyber , used to access exclusive communities such as Illiquid Capital , which can be played in P2E games like Axie Infinity and Star Atlas used to get a share of royalties through Royal, passive income from rental platforms etc.

    Since many blue-chip NFTs are considered valuable, there are platforms that help monetize them outside of a regular trading/flipping program. For example, NFT rentals for blockchain-based games. This is a new sector within NFT with many promising platforms. We had explored some of them in our article for NFT Finance. Here we will discuss one more.

    Double Protocol is a fully decentralized NFT rental protocol for blockchain games and metaverses developed on Ethereum. This is based on the DeFi primitives for staking. NFT lenders earn yield from dual-protocol tenants, just as liquidity providers earn APY in DeFi pools.

    How the dual protocol works

    How Double Protocol works ( Source )

    Released a few days ago, Double Protocol allows users to rent NFTs for a certain period of time. As a use case, you might have an in-game weapon that is required to complete a mission. Instead of spending money to buy it, the player can simply rent it from you for a few days. After successfully completing the mission, your game item will be returned to you automatically.

    On the other hand, games like Axie Infinity require users to purchase and create a team of 3 digital playable characters called "Axies" to play the game. This can represent a high economic barrier to entry for many potential players. With Double Protocol, you can rent trustless Axies (unlike Axie Scholarships) from existing players and evaluate the game before making a larger investment.

    NFT rental platforms usually require collateral higher than the value of the NFT itself. Judging from the price of NFTs in demand, such overcollateralization may dissuade most gaming enthusiasts.

    Additionally, many NFT leasing protocols transfer the NFT itself to the borrower upon payment of the collateral. NFT prices are volatile and in the event that the price exceeds the collateral amount, the borrower may not return the item, resulting in a loss of asset to the original owner.

    Double Protocol takes a different approach – it transfers time-bound ownership of the NFT, but not the actual NFT indefinitely. This is done through "doNFT Factory" smart contracts.

    Leasing forms a base layer for NFT Finance derivatives to build upon

    Leasing forms a base layer for NFT Finance derivatives to build upon ( Source )

    When a user borrows an NFT, the smart contract issues and issues a doNFT to the borrower. This doNFT is mapped to the original NFT and contains the terms of the loan, including the start time and expiration date. Upon termination of the rental period, the doNFT automatically expires, ceding ownership to the lender.

    This allows Double Protocol to offer NFT for rent with 0 collateral, while the lender is also not at risk of losing the NFT. Any ERC-721 compatible token can be borrowed through Double.

    DoNFTs can be split into new doNFTs or combined with other doNFTs. This opens the door to a wide range of rental NFT use cases, such as subletting borrowed NFTs or reserving NFTs that are not currently available for borrowing. Double Protocol plans to implement similar features in the near future.

    The rental marketplace for Decentraland LAND has recently launched on Double Protocol

    The rental market for Decentraland LAND recently launched on Double Protocol ( Source )

    Double Protocol has now been integrated into the popular metaverse project Decentraland. The integration will allow users to lease land and assets with minimal risk and without collateral. Decentraland also provided $10,000 worth of Double Protocol funds to increase user engagement in the metaverse.

    In the future, more metauniverse projects will be supported on both Ethereum and other blockchains. The Double Protocol contract is currently audited by Peckshield. The report is expected to be published soon.

    Owning NFTs via DAO

    The rising prices of popular NFTs led to the creation of NFT DAOs, where members manage together as a group and pool their funds to collect blue-chip NFTs as a community, much like a cooperative.

    DAO as PleaserDAO and Flamingo have become quite popular in the NFT space today, but most of them have a high financial barrier to entry for regular NFT enthusiasts. This is where PartyBid comes in.

    PartyBid allows users to trustlessly pool funds and collectively bid for NFTs. The platform is built on Ethereum. Anyone can create a new PartyBid or join an existing one, contribute ETH and place bids as a collective effort.

    PartyBid provides a live feed of current bids

    PartyBid provides a live feed of current bids

    During bidding, each member may increase their bid to the current lowest winning bid. If PartyBid wins, that group becomes the DAO, and the NFT is divided into factions and distributed among members in proportion to their contributions.

    Essentially, each member of a winning PartyBid receives a portion of the NFT. If the group decides to sell NFTs, the profits are shared based on the amount of fractional tokens held.

    PartyBid supports most of the popular NFT markets, such as OpenSea, Foundation and Zora. Fractionation is done by , a dApp that allows NFT owners to copy tokenized fractional ownership of their NFTs in the form of ERC-20 tokens.

    Browse existing parties or create your own PartyBid

    Browse existing parties or create your own PartyBid

    For winning bids, the PartyBid platform charges 2.5% of ETH used and 2.5% of fractional tokens created. In the event that the bid is unsuccessful, or if the user ends up contributing excess ETH to a winning bid, then the extra Ether is refunded (minus gas fees).

    In closing, a word of caution. Although the idea of NFTs has been around for a few years, they only started seeing big eyeballs last year. Suffice to say, like anything new that hits the scene, NFTs have received mixed reactions from the art, gaming, and software development worlds. This was shown in reactions to Twitter Blue's message about integrated NFT profiles.

    While crypto/Web3/blockchain advocates naturally have a positive stance on NFTs, there is a lot of politics and debate with the naysayers. For example, recently the editors of Wikipedia they voted not to classify NFT as art. Even among crypto advocates, there are nuanced divisions, with some camps not as enthusiastic as others.

    The idea of blockchain-based digital property hasn't sunk in yet. Cross-platform portability is also something game developers are skeptical about doubts . So there are issues that need to be addressed. It's not a slam dunk and will take time to mature. However, the world of NFTs is moving fast and something new is happening every day. Keep watching this space as it continues to evolve.

    Let us know if this guide helped you start navigating the world of NFTs. Rohit and I are always up for a chat at Telegram .

    Disclosure: None of the information mentioned above should be considered as financial advice. The authors own tokens (both NFT and fungible tokens) from some of the projects mentioned in the article.

    This article is a repost of our recent one article on HackerNoon .

    For the authors :

    Rohit Chatterjee  is an analog design engineer working at Texas Instruments. Abhijoy Sarkar  is a banker turned entrepreneur. They are high school friends who lost touch years ago. They reunited over crypto in early 2018 and invested through mutual research and shared knowledge.

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