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 last time I visited, I didn’t want to leave. Maybe you’re sitting in one of those stretched out chairs with a huge umbrella over you, while you scroll through the cyberpunk NFTs you bought a few days ago, you know… those pixelated JPGs of humans with very slight cosmetic alterations, checking to see the passive income they’re earning, in fact maybe they’re the reason you’re at the beach in the first place.
Let’s dig in.
What is an NFT?
We actually have an entire NFT video that breaks down what they are and how they will eventually replace car titles and house deeds on the blockchain one day, but we’ll give you a quick summary. So NFT stands for Non-Fungible Token, which is a fancy way of saying it’s a unique token that can’t be duplicated and is special in some way. Most NFTs you probably know about are simply digital art NFTs, where you think that the token is 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 a token represents that image, although there’s truly no image data on the blockchain. The Token ID is simply a pointer saying “I represent that image over there” and the image is uploaded to a server that could easily change the image if it wanted to. NFTs can be so much more than art though. For example, I said they could be house deeds or car titles, and even domain names like WhiteboardCrypto.eth is an NFT, it’s a token that I hold that is unique, there’s no other token out there like it.
Now that we have brushed you up on what NFTs are, let’s explain how they can be used to earn passive income. If you’re new to the channel, we absolutely love using examples and in this example we will use our channel. For starters, you should know that each video on this channel is monetized and that means that Youtube ads play before each video. When they do, the advertisers pay Google, which takes a cut and gives us the rest.
What if I made an NFT of each video on this channel? I could sell them individually and then I could promise whoever owned them would get 20% of the revenue from that video’s ad income during the past month. For example, if the video got around 20,000 views, and earned $100, then whoever held the NFT would be given $20 worth of USDC coin for that month. This would continue forever, so if the video made $5000 in the course of a few years, 20% would be paid to the holder. The 20% is arbitrary, we could make it 100% or 2%, but the idea is the same.
This allows our audience to invest in our project and also be able to earn a reward if our videos do well, basically allowing you to have skin in the game for our success as well. Not only that, but these NFTs quickly could become somewhat of a gamble, where some users could pay more and more for each NFT expecting a certain video to pop off one day due to the algorithm.
I’m sorry to say, but we won’t be doing that any time soon, there are many problems, which we will talk about later in this video. If that idea tickles your fancy though, leave a like on this video and maybe we’ll consider it. Nevertheless, this is the core idea of a passive income NFT, that it is a digital representation of a physical asset that truly adds value.
I remember Youtube creators like Graham Stephan, Alex Hormozi, Andrew Kirby, and Practical Psychology were once in their growing stages and thinking “man, if they were a stock, I’d invest in them. They just need a little support and I know they’ll 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.
That’s exactly what music artists will soon be using them for!
The next example of passive income NFTs will be music artists. I recently heard of this artist 3LAU who set up an NFT drop of 333 total tokens. All of these tokens combined represents 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 playing that song, he’s giving to those NFT holders. Each token also had unique artwork tied to it, so they were all different.
To put into perspective how much this artist made, there are current 257 items on OpenSea, which is an NFT marketplace, and the floor price is 2 ether. 257 items * 2 ether * $4000 average eth price = 2,056,000 for half of his streaming royalties. This doesn’t mean he earned all of that though, he only got the proceeds from initially selling them.
One trick that these artists can implement is to add a transaction fee to each NFT that gets rerouted back to the artist’s wallet. For example, 3LAU could add a 5% trading fee so that if $100,000 of his NFTs get traded this month, $5000 would be deposited straight into his wallet, simply for his NFTs being traded. So NFT holders will earn passive income, but the artists will also earn passive income for their works, along with the other 50% of royalties.
I personally think this technology will revolutionize the way artists are created and promoted, however I would love to know your thoughts.
Real Estate is another great example. What if an entire apartment complex was turned into 100,000 NFTs, where each NFT holder got a percentage of the complex’s profits? This way you wouldn’t need to have one hundred million dollars to invest in these high-return buildings, but could join for fractions of that. 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 it’s own DAO, where NFT holders could vote on changes like whether to allow smoking, 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.
One of the main problems of this idea is “who is going to make the payment” because it certainly won’t be the blockchain. Someone has to take that earned money, deposit it onto the blockchain and then send it to a bunch of different addresses, which could quickly eat up fees if you’re not careful. This seems to be the biggest problem stopping passive income NFTs from becoming the next big 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, this would solve a big problem around the Gamestop naked short selling issues. If the NFTs were on the blockchain, we could see who owns every single share issued, where they were, how often they are 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 wanted to share with you. I even have a video idea that I might call “The NFT Bubble” where I explain a few other misconceptions and issues with NFTs, but you’ll have to hit the subscribe button if you want to be around for that video.