How to Make Money From NFTs: A Review of Key Methods

Non-fungible tokens, or NFTs, are unique digital assets that emerged with blockchain technology. Unlike traditional currencies, which are interchangeable, each NFT possesses a distinct digital identifier recorded on a distributed ledger, making it one-of-a-kind. This inherent uniqueness allows NFTs to certify verifiable ownership and authenticity of digital items, preventing them from being copied or subdivided. These tokens typically reference digital files such as art, music, or videos, establishing digital scarcity for easily reproducible content.

Creating and Selling Digital Assets

To earn from NFTs, create your own digital assets. This involves conceptualizing digital content like artwork, music, or collectibles. Then, select a blockchain platform such as Ethereum, Solana, Polygon, or Flow. Ethereum, a pioneering force in the NFT space, is known for its robust smart contract capabilities, though it can incur higher transaction fees, often called gas fees. Solana and Polygon offer alternatives with faster transaction speeds and lower costs, providing efficiency for creators.

After selecting a blockchain, set up a compatible crypto wallet, like MetaMask, and fund it to cover transaction costs. Connect this wallet to an NFT marketplace for listing and selling your asset.

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Minting transforms a digital file into an NFT on the blockchain, recording its authenticity and ownership. This involves uploading the asset and embedding metadata describing its characteristics and origin. Once minted, list the NFT for sale on the marketplace at a fixed price or through an auction. Creators can program royalties (typically 5-10% of the sale price) into their NFTs. These royalties are automatically paid on secondary sales, providing continuous income.

Income from creating and selling NFTs is taxable. If NFT activities are a regular business, profits are self-employment income subject to ordinary income tax rates. Royalties from secondary sales are also ordinary income. Report all digital asset transactions on federal income tax returns.

Trading Existing Digital Collectibles

Trading existing NFTs, or “flipping,” involves buying them on the secondary market to resell for profit. Success requires research into promising projects, analyzing rarity, roadmaps, and community engagement. Monitor market trends and sales data for informed decisions.

Acquire NFTs through direct purchases or auctions, using cryptocurrencies like Ethereum (ETH) or Solana (SOL), subject to network transaction fees (gas fees). Selling an NFT involves listing it on a marketplace, setting a price, and managing offers. Market timing and liquidity influence transaction ease and speed. Higher-priced NFTs may have fewer immediate buyers.

The IRS treats NFTs as property. When an NFT is sold, any gain or loss is subject to capital gains tax. Profits from NFTs held for one year or less are short-term capital gains, taxed at ordinary income rates (10-37%). Profits from NFTs held longer than one year are long-term capital gains, taxed at lower rates (0%, 15%, or 20%). If an NFT is classified as a “collectible” by the IRS, such as digital artwork or a digital gem, long-term capital gains can be taxed at a maximum rate of 28%. Losses incurred from NFT sales can be used to offset other capital gains, potentially reducing the overall tax liability. All digital asset transactions must be reported on federal tax returns. Starting in 2026, brokers will be required to report these transactions on Form 1099-DA for activity occurring on or after January 1, 2025.

Generating Income from NFT Holdings

Individuals can generate income by holding NFTs. One method is NFT staking, where certain NFTs can be locked within specific protocols to earn cryptocurrency rewards or even new NFTs over time. This process involves committing the NFT to a decentralized application for a set period. Earnings from staking are considered ordinary income for tax purposes.

Another strategy is NFT lending, where owners lend their assets for a fee. The borrower temporarily uses the NFT, while the owner earns passive income. Similarly, NFT renting allows owners to lease NFTs for temporary use, common for in-game assets or virtual land. Smart contracts automate the rental process, ensuring return and secure payments. Both lending and renting monetize holdings without selling them. Income from NFT lending and renting is ordinary income.

Fractionalization divides a high-value NFT into smaller, tradable pieces. This creates fungible tokens, each representing a share of the original NFT, which multiple investors can buy and sell. Fractionalization lowers the barrier to entry for expensive NFTs, increasing accessibility and liquidity. These fractional tokens can be traded on secondary marketplaces.

Earning Within Digital Economies

Earn income through NFT-powered digital economies like Play-to-Earn (P2E) games and metaverses. P2E games allow players to earn valuable in-game assets, often structured as NFTs, or cryptocurrency tokens through active gameplay. These assets can include characters, virtual land, weapons, or other digital collectibles. The value of these in-game NFTs and tokens is often tied to their utility within the game or their rarity.

Players earn income through activities like winning battles, completing quests, or developing virtual land. Earned NFTs or tokens can be sold on marketplaces or exchanged for other cryptocurrencies or fiat currency. This model turns gaming into a potential income source. NFTs provide verifiable ownership of digital assets in these environments.

Metaverses also offer income generation. Individuals can earn by creating experiences, designing and selling digital goods, or developing virtual real estate. NFTs are integral, representing ownership of virtual land, avatars, or unique digital items. This fosters digital entrepreneurship.

Income from P2E games and metaverse activities, whether NFTs or cryptocurrency, is taxable. This income is ordinary income, and if a business activity, report it on Schedule C. If NFTs are earned and sold, capital gains rules apply to any profit. Track and report all earnings to the IRS.