Predicting NFT Earnings: Will Artists Permanently Gain Residual Income?
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In the world of Non-Fungible Tokens (NFTs), creators now have a unique opportunity to earn ongoing income from their digital works. This is made possible through NFT royalties, a system that automatically sends a percentage of the resale proceeds to the original creator.
The mechanism for NFT royalties is embedded in the smart contract of the NFT. This contract, powered by blockchain technology and smart contracts, ensures that royalties are distributed transparently and automatically without the need for manual intervention [1][2][4]. Creators set the royalty percentage, typically ranging from 2.5% to 10%, at the time of minting or listing an NFT. When the NFT is resold on secondary markets, the smart contract enforces the royalty payment, sending the specified percentage of the resale price back to the creator's wallet instantly [1][2][4].
However, the reliability of NFT royalties as a long-term income source is not guaranteed. While the automatic nature of blockchain smart contracts allows creators to continuously earn royalties from secondary sales without additional effort, critics argue that the royalty model often fuels short-term speculative trading [2]. This means that while creators earn from volume, the underlying value—and thus royalty income—may be volatile and unreliable long-term [2].
For NFT royalties to translate to stable long-term income, the NFT must maintain market interest and liquidity. Continuous creator promotion and community engagement are also vital to sustaining NFT visibility and resale activity that generate royalties [4].
Success stories abound in the NFT world, with artists like Fewocious, 3LAU, and XCOPY making millions and continuing to earn royalties as their work is resold. However, it's essential to remember that NFT royalties are not a guaranteed retirement plan and are more of a bonus while the work is popular [3].
It's also important to note that buying an NFT does not automatically grant ownership of the copyright unless it's explicitly included. Creators still control how their work can be used, printed, or remixed, unless they say otherwise [5].
In the rapidly evolving NFT market, it's crucial for creators to choose platforms that respect royalties and set fair royalty percentages. Some NFT marketplaces, like OpenSea, Rarible, and Foundation, allow creators to bake in their royalties from the start [6]. However, not all NFT marketplaces honor royalties, with some skipping out on payments to attract sellers and buyers with lower fees [6].
Smart contracts are the basis of NFT royalties, living on the blockchain and executing instructions without human intervention. However, the lack of enforcement can lead to a race-to-the-bottom where creators lose their revenue stream to stay competitive [7].
In conclusion, NFT royalties provide an automated way for creators to earn ongoing income from their digital works' resale. However, their reliability as a long-term income source depends heavily on sustained market demand and ecosystem dynamics that can be speculative and unpredictable. NFT royalties should be considered as one ingredient in a bigger recipe for financial success, not a guaranteed income stream.
[1] Blockchain.com. (n.d.). What is a Smart Contract? https://www.blockchain.com/glossary/smart-contract
[2] CoinDesk. (2021, July 14). NFT Royalties: The Pros, Cons and Controversies. https://www.coindesk.com/learn/nfts/nft-royalties-the-pros-cons-and-controversies/
[3] Decrypt. (2021, June 14). NFT Royalties: What They Are and Why They Matter. https://decrypt.co/77279/nft-royalties-what-they-are-and-why-they-matter
[4] NonFungible.com. (n.d.). How do NFT Royalties Work? https://nonfungible.com/learn/nft-royalties
[5] OpenSea. (n.d.). Copyright and NFTs. https://opensea.io/learn/copyright-and-nfts
[6] OpenSea. (n.d.). Creator Royalties. https://opensea.io/creator-royalties
[7] The Verge. (2021, June 11). The NFT market is booming, but creators are struggling to get paid. https://www.theverge.com/2021/6/11/22528782/nft-market-creators-royalties-cryptoart-ethereum-opensea-rarible-foundation
- As NFT royalties rely on blockchain technology and smart contracts, financial magazines often cover the technology's role in ensuring transparent and automatic royalty distribution.
- Lifestyle magazines may discuss investing in NFTs, highlighting the potential for ongoing income through NFT royalties while emphasizing the volatile and speculative nature of the market.
- General news outlets might report on education and self-development initiatives focused on understanding the intricacies of NFT royalties and their implications for creators.
- Entertainment news could feature interviews with artists who have successfully leveraged NFT royalties as part of their long-term finance strategy, sharing insights into their approach to maintaining market interest and liquidity.
- Technology blogs might analyze the shortcomings of the current NFT royalty system, examining potential solutions to ensure creators receive a more stable long-term income through these mechanisms.
