How NFTs Could Revolutionize Royalties for Musicians

Non-fungible tokens, or NFTs, are one of the most talked-about trends of 2021. On the surface, NFTs may seem like another form of digital art, but by utilizing blockchain technology popularized by cryptocurrencies, NFTs have the power to revolutionize the way art is made, sold and even perceived.

In this blog, we'll explain what an NFT is and how to buy one, why creators are so excited about this new form of technology, as well as how to create and sell your own NFTs. But first, let's start at the beginning:

How NFTs Could Revolutionize Royalties for Musicians

What Is An NFT?

NFT stands for non-fungible token, which is a unit of data stored on a digital ledger (called a blockchain) that acts as a record of ownership for digital assets, such as images, videos and audio recordings.

The term non-fungible means it cannot be easily replicated. If something is fungible, it can be easily replaced by another identical item. For instance, a bitcoin is fungible. If you sell a bitcoin, you can replace it with another bitcoin that holds the exact same value. They're mutually interchangeable.

But other forms of goods, like a painting or a collectible trading card, can't be so easily replicated. As a matter of fact, they often include a certificate of authenticity to prove that they're original works.

NFTs are often compared to digital works of art. Much like a physical work of art, which can be mass-produced and sold infinitely, NFTs are unique digital assets—more like an original work of art.

For instance, despite the fact that Pablo Picasso's famous The Old Guitarist painting is printed on posters and sold at every college bookstore for $10, the original painting resides at the Art Institute of Chicago and is believed to be worth more than $100 million.

NFTs are essentially a certificate of authenticity for digital assets. But how do you prove that you own a digital file, which can easily be copied and transferred? That's where the blockchain comes in.

What Is An NFT?

How Do NFTs Work? (And What The Hell Is A Blockchain?)

A blockchain is a digital ledger that keeps track of online transactions. Originally, blockchain technology was designed to buy and sell the cryptocurrency Bitcoin in 2008.

When a transaction occurs, all of the data is stored as a "block" in the blockchain, available for anyone to see. Each block is tied to the block before it—just like links in a chain—making it impossible to hack or cheat the system. There's no way to alter the data of a block, as everyone else has a record of the actual transaction.

Think of it like this: whenever you make a purchase on the blockchain, everyone gets a copy of the receipt. The blockchain allows us to authenticate purchases and transfer ownership of digital goods.

Ethereum (ETH) is currently the most popular blockchain used for buying and selling NFTs. It uses Ether as the primary currency, which is the second-largest cryptocurrency, after Bitcoin. 

How Do NFTs Work? (And What The Hell Is A Blockchain?)

How Much Are NFTs Worth?

Can you really put a price on art? Much like any form of art, the value of an NFT is entirely subjective. There is no set amount of money an NFT is sold for. Furthermore, the price of the NFT is typically based on demand and interest, which means it has nothing to do with the amount of time it takes to make or the cost of materials.

As a matter of fact, the price of an NFT can vary from sale to sale. You might sell an NFT for $1000 USD, only to have the buyer turn around and flip it for two or three times that amount. Alternatively, you might buy an NFT for $100 USD and have to sell it at a loss because no one else wants it.

It's also worth noting that you can sell more than one copy of an NFT. Creators typically release collections, which either include a limited number of copies available for purchase, a limited window within which you can purchase, or both. Each NFT still represents an original product—similar to a limited edition run of hand-numbered vinyl records.

By limiting the number of products available for purchase, it increases the interest and demand, which means people are willing to pay a higher price.

NFTs are at the intersection of art and investment. They're collectibles, designed to stimulate the super-fans of any given group. For instance, here's a short list of digital assets that musicians have sold as NFTs to help you get an idea of how much value they can hold:

  • Deadmau5 - Sold more than $100,000 worth of digital artworks

  • Grimes - Sold more than $6 million worth of digital artworks, including a video that sold for nearly $389,000.

  • Kings of Leon - The first band to release an album as an NFT, generating more than $2 million.

  • Aphex Twin - Sold an animated video NFT for $128,000.

  • Nifty Gateway - Top NFT marketplace Nifty Gateway raised more than $200,000 for independent venues with support from Shawn Mendes, Tove Lo, Dillon Francis, Pabllo Vittar and Tycho.

  • Ja Rule - Sold his Fyre Festival oil painting as an NFT for $122,000

Grimes' debut NFT collection 'WarNymph'

Grimes' debut NFT collection 'WarNymph'.

How NFT Royalties Can Change The Game

NFTs are often compared to digital works of art, but they vary in one key way: royalties. Because NFTs are exchanged on the blockchain, we're able to track every sale, which makes it much easier to collect and distribute royalty payments.

When you upload an NFT to the blockchain, you have the option to set a royalty payment amount. Royalty systems differ for each marketplace, but most platforms allow you to set any percentage you want. Whenever your NFT is re-sold on that platform, you'll get a cut of the sale.

Here's an example: say you sell an NFT for $500 USD with a royalty rate of 20%. As the original seller, you'll receive the full amount. If the original buyer re-sells your NFT for $1,000 USD, you'll receive a 20% commission ($200 USD).

The best part is, unlike traditional music royalties, these payments are automatically deposited into your account. There's no need to sign up with a Performing Rights Organization or hire an agent to manage your finances to collect royalties from an NFT.

However, it's important to note that NFT royalties are separate from other forms of royalties. Even if you sell your music as an NFT, you can still host your song on streaming sites, license your music for use in TV and film, and any of the other activities that generate royalties.

How NFT Royalties Can Change The Game

How To Buy NFTs

Ready to start your NFT collection? Don't worry, it's actually pretty simple and you don't need any previous experience with cryptocurrencies to buy (or sell) NFTs. Let's start with the basics.

First, you'll need to find an NFT you want to buy. You might hear about a new collection from one of your favorite creators on social media, but if you're itching to buy a new piece you can browse one of the many NFT marketplaces, such as RaribleOpenSea or Mintable (although there are dozens to choose from).

Next, you'll need to set up a crypto wallet and purchase some Ether to cover the transaction. Think of it as converting your currency to make a purchase while visiting a new country. MetaMask is one of the most popular crypto wallets and integrates seamlessly with a variety of blockchain-based applications.

After setting up your wallet, you can either purchase Ether directly through MetaMask, or using one of the popular crypto trading sites such as Coinbase or Robinhood. The exchange rate for Ether varies by the hour, so be sure to check the current price to make sure it's not spiking when you make your purchase. At the time of this writing, the price for one Ether is hovering around $2,400 USD.

In addition to the price of the NFT, any transaction using Ether will cost you an additional “gas fee,” which is a processing fee for using the Ethereum blockchain. These fees also vary daily, based on how many transactions are made that day. More transactions require more processing power, which increases the gas fee for all users.

Additionally, most marketplaces charge network fees, so be sure to purchase enough Ether to cover the full amount.

How To Buy NFTs

How To Create And Sell An NFT

Ready to start selling your own NFTs? It's actually not that difficult and doesn't require any previous experience with cryptocurrency. First, start by creating an account on one of the NFT marketplaces, creating a crypto wallet, and purchasing some Ether to cover the processing fees for listing an NFT.

Next, create a new collection on your NFT marketplace of choice and upload the files of your digital artwork. Then, adjust the selling parameters to your liking. Most marketplaces offer three different options:

  • Sell at a fixed price for an unlimited time

  • Auction for a limited time with a reserve price

  • Sell at a gradually reducing price over a period of time

Next, enter the price for each item. Be sure to charge enough to cover your gas fees as well as any additional processing fees. This is also where you can enter your desired royalty percentage. Most sites let you choose any percentage you want, although 10-20% is common. Remember, people will be less likely to buy your NFT if you take a large commission on future sales.

Finally, connect your crypto wallet to the marketplace and pay the processing fees to "mint" and list your NFT in the marketplace. Now all that's left to do is sit back and wait for the money to pile up!