Artists Weigh In on the Battle Over NFT Creator Royalties

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In June 2021, during my first interview with a major non-fungal token (NFT) collector, I learned about a Web3 Silver bullet. As a new self-employed writer, leaving a paid media job to pursue a freelance career, scarcity was on my mind.

I’m not worried about the “good” kind of scarcity we talk about in Web3 (the kind that makes digital art more valuable because of limited supply). Instead, I was concerned about the lack of resources available to creators to protect their intellectual property (IP) – This includes writers like me who are constantly generating new ideas for corporates.

I chose self-employment after realizing that the companies I wrote for in the past always had the right to turn my articles into newsletters, ebooks, social media books, digital courses, and more. than my regular salary after that job.

In a traditional creative industry, it often doesn’t matter how much value one’s creative work creates. If you’re familiar with intellectual property names or can’t afford skilled lawyers to negotiate on your behalf, artists will create while big businesses handle the rest.

I soon learned that Web3 had already considered this dynamic and developed a tool to ensure NFT artists continued to generate revenue from their intellectual property. By using Smart contractsArtists can schedule lifetime royalties on all Fungible Token sales, which automatically allocate a percentage of their profits to their crypto wallets in perpetuity.

Smart contract-based NFT royalties accepted by independent artists Much needed protection. But while smart contract-automated NFT royalties are the perfect Web3 antidote to years of creator exploitation, building the infrastructure to enable this vision has led to additional challenges.

Limitations of smart contracts

Perpetual creator royalties are great in theory, but there are some logistical holes in implementing them on-chain.

First, creator royalties are implemented by smart contracts, a type of blockchain-based code that implements predetermined contractual mechanisms. In this way, smart contracts are not technically “smart” – the code is structured as a set of if/then conditions that are executed according to specific inputs and triggers. Smart contracts are not a form of artificial intelligence (AI) because they do not generate any productive outputs; The result can only be a predetermined option.

Smart contracts are not technically contracts. Governments There is no obligation to recognize them As legally binding documents, whereas an agreement between two individuals or entities signed by both parties is always valid in the eyes of a judge.

Ethereum co-founder Vitalik Buterin has said he regrets giving such a strong (and misleading) title to smart contracts. He once said that “continuing scripts” is a more accurate description.

(1) Sorry, @cryptoecongames, aren’t we the ones who put the “Law” in “CryptoLaw”. It was Kaw Wood Inn & Adapted People @NickSzabo4They also lose their legitimacy quickly. We have been clear from the start: *Crypto* must be “outlawed” & legal.

— CleanApp 🌱 (@CleanApp) October 12, 2018

Charlotte KentPosted in April 2021 by an arts writer and professor The breakthrough of smart contracts is possibleAlmost a year later we wrote Tendency to praise them. “There is a practical folly in glorifying the sender/receiver model to the exclusion of all else, and an amusing folly in the assumption that smart contracts have real legal status,” Kent wrote.

Creator Royalty Dispute

Aside from practical questions about smart contracts and creator royalties, there are economically motivated issues that have emerged in recent months. NFT markets made headlines in the last quarter of 2022 Creator proposes to make royalties optional on their platforms in an attempt to attract more buyers. In November, a representative from Solana-based Magic Eden Market told CoinDesk The move to a royalty-preferred model is meant to address “collectors’ need for low-fee NFT trading.” Many others Markets adopted similar principles Be competitive.

Meanwhile, OpenSea doubled its determination For royalty payments by preventing NFTs printed on OpenSea from being resold in secondary markets that prohibit royalties. Skeptics theorized OpenSea’s tool is actually a secretive venture that keeps all sales on its own platform, but OpenSea co-founder and CEO Devin Fincher He responded that the move was an attempt to give artists more control over where they buy and sell their art.

“[Creator fees] A market is determined,” Fincher said. “Many markets have sprung up that have decided not to honor creator fees.” In an effort to circumvent these markets, OpenSea introduced new smart contracts with advanced programmability.

Meanwhile, artists took to social media and rallied for the rights of creators to control their own royalty structures. “We’re all talking to each other,” said prominent NFT artists and Deadfellas Co-Founder the box In an interview with an NFT-focused outlet in December 2021 NFT now. “It came through the grapevine [optional royalties] It was going to happen and we were all like – we have to act.

There is talk of marketplace CEOs working together to set royalty at 0 as the industry standard. I don’t even know what else to say about this.

— Betty (@betty_nft) December 1, 2022

Community responses

Many attribute the no- or discretionary-royalty trend Low NFT trading volumes During a bear market, suggesting an exploit, Zero sum mentality It favors centralized NFT markets and profits for speculative investors.

“The back and forth of OpenSea, the way it’s affected artists like me is that even though they’ve gotten back to their original intent of removing creator royalties to a certain extent, many people are reluctant to print on their platform,” said the NFT landscape photographer. Lori Grace Baileywho chose to release a 50-piece edition SloikaOne site Bailey says has “doubled down” on its commitment to protecting creator royalties.

The expectation is that artists (and loyal collectors) will move towards more creator-centric platforms. Compared to profile picture (PFP) Community founders like Petty may feel that one-on-one artists have less at stake because their art circulates less in secondary markets and therefore does not expect substantial revenue from royalties.

“Of course, royalty is one of the many aspects of NFTs,” said the painter and NFT artist. MJ Ryle. “As an artist, it doesn’t affect me too much. Primary sales can be challenging enough. It seems luxurious to me to be in a position where royalties from secondary sales are a concern!

Meanwhile, musicians can have a monopoly on royalties, he says Steph GuerreroHead of Marketing and Business Development Legato.

“No other industry was affected by music piracy in the early 2000s,” Guerrero said, adding that royalty payments suffered as streaming and torrent services rose in popularity. “Musicians are already fighting for royalties for music use independent of Web3, but some of the biggest voices in the space are saying that musicians should only be paid through actual NFT sales and, in some cases, royalties only through secondary sales.”

He added that a royalty-free or royalty-free model puts the onus on musicians to “continue to create to generate revenue.”

What’s Next in the Creator Royalty Conversation?

After the backlash from the artist community, many NFT markets reversed course on their royalty-preferred models.

Artists continue to have opinions about royalties and focus on advocating on behalf of creators. A favorite instrument among artists MultipleA creator studio that provides the ability for code-free minting and customizable smart contract creation that protects royalties.

“I will continue to pursue any and all options, including cutting pieces of my own contract. @manifoldxyzOr on platforms that wholeheartedly reinforce their commitment to protecting creator royalties,” Bailey told CoinDesk.

The views and opinions expressed herein are those of the author and those of Nasdaq, Inc.


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