You may have seen the term “NFT” (or “nifties” for short) floating around recently and wondered what all the hype is about. Although they’ve been around for a few years, they’ve only just started to explode in the past year with people spending more time at home, and with the recent surge of interest in crypto-currencies and stock trading. Lets take a look below at what they are, and how they apply to you as a musician.
What is an NFT?
The acronymn NFT stands for “non-fungible token”, the term “fungible” referring to a good which can be mutally exchanged. For example, you can trade a US $1 bill for another US $1 bill, and no value will be lost. With a non-fungible item however, you can’t simply exchange it because it’s a unique item. Think of an NFT instead like a collectible, such as a rare baseball card or a Stradivarious violin; it’s one of a kind, rare, and exists in extremely small quantities, making it more valuable.
As for what it actually is, an NFT is a digital asset that is consctructed similarly to crypto-currencies such as bitcoin, containing a string of code that makes it unique and not copyable. Importantly, it contains the digital signature of the original creator of the file—similar to an artist’s signature on a painting—as well as information such as when it was purchased, and who currently owns it.
If you buy an NFT of a piece of art, you won’t receive an image file with the digital signature embedded into it. Instead, an NFT is simply a small file with a serial code in it that proves that you are the owner of the item it represents, be it a piece of art, a song, or even a physical object tied to it.
How does this apply to artists and songwriters?
A question you’re probably asking right now is how exactly do NFTs apply to you as a musician? The biggest positive that many creators like about NFTs is they tackle the issue of piracy and illegal distribution of art and music on the internet, which has overall lowered the value of intellectual property items and made it much harder to earn a living profiting from it. For example, when you create an NFT of your album and sell it, only one person in the world can own it and call it theirs. The physical equivalent would be signing only one CD copy of your album and selling it to someone. In other words, you’re creating scarcity, which previously hasn’t been possible with digital files that are normally extremely easy to duplicate and distribute.
For example, Kings of Leon was the first band to release their album as an NFT this past march, earning a total of $2 million, which would be normally be extremely difficult to achieve through streaming sales, especially for a band their size. The record amount of money that an NFT has ever been sold for is $69 million, which is a digital collage art piece created by artist Beeple, a.k.a. Mike Winkelmann. It seems the sky is the limit with what you can sell in an NFT and how much you can earn from it, and this is only the beginning.
Am I giving away my intellectual property if I sell my music as an NFT?
No. Unless you decide to include the copyright to your music in your NFT—which may increase the value and allow you to sell it at a higher price—you aren’t giving away your intellectual property. This means that you can still earn residuals from your music when it’s played on streaming platforms or aired in TV shows, even when someone else owns the NFT. That being said, you want to be 100% sure that you aren’t accidentally giving away your song ownership if you do decide to sell an NFT, in which case consulting an entertainment lawyer may be appropriate.
You may be wondering what you actually own when you buy a music NFT, since traditionally, whoever owned the copyright technically owned the song. Think of it this way; if I buy a signed print from a digital artist, that doesn’t mean I own the copyrights to it—I just own a signed copy of it which I’m free to look at or even sell to someone else. Similarly, if I buy an NFT of a musician’s album, I don’t own the rights to the music, I just own a digitally signed copy of it. However, unlike physical art, I can still earn money every time my NFT is sold to someone else.
When you create an NFT, you have the option of setting a commission percentage on it (eg. 25%, 50%) that determines how much you get from each subsequent purchase. So, even after you’ve sold your NFT to someone, you will get a comission on it every time it’s purchased. For example, lets say your sell an NFT of your album for $10,000. If the person you sold it to sells it for $15,000 to someone else, and you put a 50% commission on your NFT, you will get $7,500 from that sale. Now you have $10,000 from your initial sale plus the $7,500 commission the second time it’s sold, totalling at $17,500. This applies to every sale of your NFT, so even when the 7th person down the lines buys it, you’ll still be getting a 50% commission from whatever price at which it’s sold.
What can I sell in an NFT?
You can sell anything, including music, concert tickets (digital or physical), merchandise, digital experiences, and really anything you can think of that your fans would want. For example, you can give the owner of your NFT not only your album, but you can also give them a VIP pass to all of your future live shows, or even a cut of the residuals from your music if they’re more money-motivated. You can also sell tickets to your live shows as NFTs, which would eliminate the huge problem of hidden fees, ticket scalping, and outright scams. Below is an excerpt from an article by CoC that explains it well:
“According to CNBC, 12% of people buying concert tickets get scammed, but the blockchain technology used to power NFTs makes scamming nearly impossible, allowing for much more clear transfers of ownership and easier verification. NFT ticketing (or “smart ticketing”) can also prevent secondary sales markets and scalping. Where resale and scalping is forbidden by the ticketing company, smart tickets can be made non-transferrable in its computer code to prevent the transfer of tickets.”
Pretty cool, right? Not only can you sell an NFT of your album at a respectable price and still earn royalties from your music, but you can also sell your tickets scam-free and still earn more because there is no middle-man involved, which normally takes a cut from each ticket sale.
NFTs sound awesome, but don’t abuse them
At this point, NFTs are probably starting to sound very attractive to you, however you should be careful not to abuse them. As the CoC article points out, you should avoid using NFTs to manufacture scarcity where it doesn’t exist. For example, a live show has real scarcity because there are only so many physical seats available. With a livestream however, there isn’t really a cap to how many people can watch, but if you sell a limited number of spots through NFTs, you’re creating scarcity where it didn’t exist in the first place. This may rub your fans the wrong way, especially since running a live stream from your living room doesn’t cost any money the same way live shows or recording albums do. In other words, people will think you’re greedy, so be mindful of what you decide to sell as an NFT.
Why are people interested in buying NFTs? What’s the point?
It may seem baffling at first why anyone would pay large sums of money to obtain a digital file containing a serial code deeming them the owner of a piece of art or music. You may still be wondering why people would be willing to spend so much money on something they could otherwise download for free. Think of the wealthy folks who spend millions of dollars on a piece of abstract modern art, or people who pay thousands of dollars to buy collector’s items such as basketball shoes or a Supreme Brick (yes, a brick). Humans win the prize for assigning high value to essentially useless things and then pining after them. NFTs are just another way to satisfy that itch, but in the digital realm.
Some people are more enterprising, and are purchasing NFTs with the hopes that they can flip them at a higher price. Others just want to support the artist, and have the money to invest in more than just a CD.
Are there any cons?
NFTs are an exciting concept, but we should approach them with cautious optimism since they’re still in their early stages. For example, one issue that has sprung up is people selling NFTs of artists’ work and making a tidy profit, despite not having participated in the creation of it at all.
Another con with NFTs is they won’t be worth a lot if you’re a small artist, since you aren’t in demand to the same degree as Bruno Mars or Drake. In essence, the value of your NFTs will largely depend on how big you are as an artist, unless you happen to have a multi-millionaire in your fanbase who is feeling generous. I suppose you could still sell a cheap NFT of your music when you’re starting out and set a high commission so when you take off, you’ll make a decent buck when it’s sold to someone else, but what if the person you initially sold it to never sells it? It’s probably best to wait.
The biggest question everyone has right now is whether NFTs will continue to grow at the exponential rate they currently are, or whether they’re simply a fad and will die off in the next year or so. I have a gut feeling that NFTs are not only here to stay, but they will continue grow, especially given the surge in interest in crypto-currencies and stock investing in the past year. That being said, please don’t take my prediction as gospel and sell your entire music catalogue and all the copyrights to it in an NFT for $500. Do your own research and decide what makes the most sense for you. In the meantime, I’m going to keep my eye on the NFT situation, and you may see more posts on this topic in the future.
If you’re interested in learning more about NFTs, I recommend the following articles:
What is an NFT, and How Could it Help the Music Industry?
An Introductory Guide to NFTs in the Music Industry