In the world of digital assets, non-fungible tokens (NFTs) and royalties have been two of the most talked-about topics in recent months. But what do they mean for artists, collectors, and other stakeholders?
In this article, we will explore how NFTs and royalties work and discuss some of each system’s key benefits and drawbacks.
NFTs And Royalties – What Are They?
Non-fungible tokens, or NFTs, are unique digital assets that are unchangeable. They’re kept on a blockchain and have their smart contract to govern how they may be utilized and transferred.
One of the key benefits of NFTs is that they can be used to pay royalties. For example, suppose an artist sells an NFT representing a piece of digital art. In that case, they can use the smart contract to specify that the buyer will automatically pay them a royalty every time the NFT is re-sold.
This way, the artist can continue to earn revenue from their work even if they no longer own the NFT. Similarly, musicians can use NFTs to ensure they receive royalties for future music sales. In this way, NFTs have the potential to revolutionize the way we buy and sell digital content.
How NFT Royalties can Help Music Artists
Throughout any industry that has involved some form of art, be it artwork, or a music track, typically, music artists were the last ones to get paid.
Royalties can help artists by giving them a solid income stream at any point in time when their NFT gets sold in the future.
Furthermore, artists can show their appreciation and support by giving their fans exclusive access to their NFTs. Through this process, they can monetize their work by earning directly from these fans, by selling NFTs of their songs, or even tickets for their online events, all of which will put more money in their pocket instead of that money going to the label they have signed up with.
Example of NFT Royalties
By properly setting up NFT royalties, the artist in question can earn from their creations at any point when they get sold.
Step-by-Step Process Example
- This essentially means that, for example, an artist can launch a set of 1,000 NFTs.
- Each of these NFTs will have a minting cost or can be purchased directly from the artist.
- The artist would initially own all 1,000 NFTs.
- They would set up a 10% royalty on each NFT.
- If those NFTs are sold for $50 per NFT each, the artist would initially get $50,000 for them.
- However, let’s imagine that those NFTs increase and all of them reach a value of $100.
- If all of the NFTs were to be sold, they would sell for $100,000.
- As the creator of those NFTs has royalties tied to them, equal to 10%, they would receive 10% of those $100,000 or $10,000.
- And every time the NFT gets re-sold from one person to another, 10% goes to the original creator.
In reality, these NFTs will likely shift up and down in value, and there is no guarantee that all of them will get sold.
However, these numbers are meant to give users a perspective on how they can expect the procedure to occur.
Earning NFT Royalties
If you’re creative, you may be wondering how you can earn money from your work. After all, traditional methods like selling prints or charging for commissions can only take you so far. One newer method that has gained traction recently is selling non-fungible tokens, or NFTs.
NFTs are smart contracts that represent ownership of digital assets. They can be used for various things, from buying and selling virtual land in online games to representing ownership of digital art. When you sell an NFT, you receive a cryptocurrency payment in return. This payment is generally split between the creator of the NFT (you) and the platform that facilitated the sale.
Royalties on Each Secondary Sale
However, it’s important to note that NFTs can also be re-sold by the original buyer. So, if someone buys your NFT for $100 and then re-sells it for $200, you’ll still receive a royalty payment based on the original sale price. Royalty payments typically range from 5-10% of the total sale price, so in this case, you would receive $5-$10 from the secondary sale.
How To Set Up NFT Royalties
When creating a smart contract related to an NFT, the first thing to consider is how royalties will be set up. There are a few different options available, and the best option will depend on the specifics of the contract.
One common approach is to set a fixed percentage that the creator will pay out each time the NFT is sold. Another method is to set a minimum price for the NFT and then pay out royalties based on a percentage of the sale price.
This approach allows the creator to earn more money if the NFT sells for a higher price, but it also means that there is less incentive for buyers to purchase the NFT. The best approach will depend on the objectives of the smart contract.
Secondary Sales
Regarding secondary sales, the original artist or creator always keeps their NFT royalties. No matter how many times the NFT changes hands, it will continue to receive a royalty fee each time it is sold. This is how NFT royalties work – the artist is compensated for every sale, ensuring that they continue to profit from their work even after it has been sold.
NFT royalties can be set up in a few different ways, but the most common method is a percentage-based system. Under this system, the artist receives a certain percentage of each sale, with the rest going to the new owner.
This ensures that the artist is compensated for their work while also allowing the new owner to profit from the secondary sale. While there are other methods of setting up NFT royalties, this percentage-based system is by far the most common.
How Are NFT Royalties Paid and What do Smart Contracts Do
On platforms and blockchains that NFTs are minted on, NFT royalties can be set up to be automatic. In other words, these NFT royalties are automatic payments to the original NFT owner, which are consistently made on each secondary sale of the artist’s creations.
The original owner sets the royalties here in the marketplace. Furthermore, they can also be set at the time of the creation or listing of the NFT or on the blockchain platform directly throughout the minting process. These royalties are then tracked on top of the blockchain on which the NFT has been minted.
This essentially results in the fact that, no matter how many secondary sales of the NFTs occur, the payments of the royalties will always find their way back to the cryptocurrency wallet of the original creator.
This is because the royalties of each NFT get coded within the NFTs smart contract.
How To Split NFT Royalties
With the Split contract, you can tell any revenue or royalty to go to more than one wallet address. You choose how much money sent to this address goes to each recipient.
The Split contract is a simple and secure way to distribute royalties and send money to the correct people.
It might be used to store funds by sending them straight to the contract’s address, using another contract’s recipient address as the recipient address of other contracts, or sending money to a regular wallet. The Split contract can be used to:
- Usage of a “team wallet” where money is split between team members in an equal way.
- In an NFT drop, you can share the profits from your main coinage.
- Share the money we get from selling royalties with people on our team, like an artist.
What Are The Benefits Of Earning NFTs Or Royalties?
One of the key benefits of NFTs is that they can be bought and sold on subsequent occasions, with the original creator often receiving a royalty percentage from each sale. This makes them an attractive option for creators looking to monetize their work in the digital space.
NFTs also offer greater security and transparency than traditional assets, as all transactions are stored on the blockchain and can be verified by anyone. Given the many advantages of NFTs, it’s no surprise they are becoming increasingly popular in the digital marketplace.
How To Check NFT Royalties On OpenSea
If creators want to configure their royalties and have deployed a custom contract, they need to go to the Custom Contract tab on the OpenSea page, after which they can click on the “pencil” icon on the top side of the screen and adjust the percentage fee yield. OpenSea creators can set a fee of up to 10%, after which they can select the payout wallet address.
Checking the NFT Royalty Payments
If a user wanted to see their NFT collection’s royalties on top of OpenSea, they would have to click on the “Buy Now” button within a specific NFT that is a part of that set.
This will essentially open a checkout window that displays the royalties in the form of “Creator Fees.”
Note that third-party solutions are typically developed as extensions for a browser, which will automatically insert all of this information at the top of every NFT collection on OpenSea.
Conclusion
In short, NFTs and royalties ensure that the people who create or contribute to something receive some form of payment for their work.
They can be used in many industries, but they are especially popular in the creative arts. Whether you’re an artist looking to sell your work online or a business owner looking for new ways to reward your employees, it’s important to understand how these systems work.
