If you spend a little time on the internet – and let’s face it, we all spend more than a little time – then you have likely heard three letters come up in a lot of discussions about investing online: NFT. Whether it’s an article about Elon Musk changing his profile picture to a collage of NFT art or about how retailers are “minting” their own NFTs, wherever you look there are more people talking about these digital assets.
Information about how to actually use or make money with NFTS or “Non-Fungible Tokens” is a different case entirely. Cryptocurrencies like Bitcoin have been in the mainstream for a number of years, so there are many options for buying, selling, and trading them. There are also more resources for individuals looking to “dip their toes” into this cryptocurrency market than there are for the emerging market of NFTs.
Below you will find six tips for de-mystifying digital collectibles, how to make money with NFTs, and how you can protect yourself and your NFT collection.
Figure Out Your Approach Before Diving In
It can’t be stressed enough how important it is to have a plan prior to embarking on any new venture, and the domain of NFTs is no different. Content creators may see digital collectibles as a way to engage with their audience or to build a brand. Artists, on the other hand, may see an opportunity to sell digital art securely to a wider range of collectors.
Your relationship with NFTs will likely be dependent on the approach you take from the beginning, so it is vital to have an understanding of your strengths, weaknesses, and goals prior to creating NFTs or purchasing them.
The biggest traders and brands currently operating in this space didn’t reach the top by accident. They had a clear vision of how to get there and were able to adapt to the challenges that they faced.
Embrace The Community
As a wider variety of NFTs for creators became available to collectors, the internet saw the emergence of like-minded groups organically rallying around their favorite projects. Fans of certain NFT artists and collections formed communities centered around their passion for ownership of digital assets.
Those hoping to start creating their own digital assets should be aware of the potential of building their community. Whether it’s through catchphrases, mascots, inside jokes, or social media hangouts, building engagement and excitement around your project can help to increase interest, attract new buyers/sellers, and possibly increase the perceived value of what you create.
Start An NFT LLC to Pool Funds
Perhaps you’re not looking for information on starting an NFT business. Maybe instead you and some partners dream of owning a rare digital artwork or want to start a collection together to increase your buying power. Creating an NFT LLC may be a great option for you in this case.
An NFT LLC is a limited liability company that has specific provisions in its operating agreement establishing how it will treat digital assets. A trusted attorney or professional can help you create this agreement that can outline the purpose of the LLC, how ownership of the LLC’s assets is determined, and provide some peace of mind when it comes to purchases made with collective funds.
Some of the most sought-after pieces of NFT art are priced at points that they exclude many smaller and medium-sized purchasers. The NFT LLC is an effective entity structure that can allow a group of interested individuals to pool their funds and avoid relying upon informal commitments and promises about how the group will operate. Instead, they can set out their rules and expectations upfront to avoid disagreements down the road.
Protect Yourself With A Business Structure
It is well known that the digital landscape is changing constantly, and historically these changes are accompanied by similar changes in laws, regulations, and oversight. The “law of the land” one month may be obsolete after a court ruling, and transactions that were once legal and routine can become engulfed in controversy and legal challenges as regulators take a closer look.
While it won’t prevent all liability, using a business entity for your NFT dealings can help keep you and your personal assets protected from lawsuits or other legal action. An LLC, Corporation, or even a Limited Partnership can remove some of the personal liability from you when it comes to your business.
Learn About Changing Tax Rules
The IRS regularly makes updates to its tax codes which can impact NFTs. Many assume that there aren’t taxes related to these assets, or that the IRS has no way of knowing how to tax them. Instead, it is possible that traders and collectors who don’t pay attention to changes in the rules will be surprised when they receive a tax bill for their digital assets.
Most of the specific tax codes for the industry are still being written, so frequently checking the IRS website for new guidance or consulting with a tax professional is recommended.
Know How To Take Advantage Of Transaction Fees
When it comes to creating NFTs, there are costs known as transaction or “gas” fees. Almost all NFTs operate on the Ethereum Blockchain, which uses “gas” fees as a way to pay for transactions being processed. This fee goes up and down depending on demand, as well as how complex the process is, and there are many different websites and businesses which track and publish the “gas” price. By staying aware of when the price is high or low you can manage your costs related to creating NFTs.
NFTs are an exciting, emergent digital asset with further potential for growth. By utilizing the tips above, you will be well on your way to achieving your NFT dreams.
If you want more information about LLCs, corporations, or any other types of businesses, Midland Forms is here to help. Check out our information about different business structures on our website at https://midlandforms.com/.