Celebrities, influencers, artists, singers, and producers of all stripes are getting on the nonfungible token (NFT) bandwagon to cash in on these new digital assets. The NFT ecosystem is attracting a lot of attention, with a wide variety of NFTs being traded for millions of dollars and a growing number of secondary markets.
However, there is a nagging issue that frequently goes unrecognised in the midst of all this.
Smart contracts, according to NFT proponents, are intended to offer content producers greater authority and control over their work. They believe that these smart contracts may enable artists set royalty payments for their NFTs, guaranteeing that every time the NFT is traded, the original inventor gets their fair portion of the earnings.
NFT royalty payments are structured in a unique way
Things don’t always go as planned in the real world, no matter how appealing the idea is on paper. CEO of CXIP Labs Jeff Gluck points out the technological flaw in NFT royalties, saying, “The issue with the existing NFT royalty system is that markets are not meant to be cross-market interoperable. When it comes to royalty-triggering events, the smart contracts can’t interact with one another throughout the ecosystem.”
It is essential to understand Jeff’s viewpoint on NFT coins to recognise that the vast majority of them are ERC-721-based. Because of this, an artist is entitled to the revenues of their first sale when it is sold to a buyer. There are no royalties for artists if the buyer goes to a secondary market like Rarible and then sells the NFT at a far higher price than it was purchased for.
No one can disagree that NFTs have the potential to disintermediate the current publishing paradigm and empower artists at the same time, particularly given royalties gained from these creative works are among the most powerful incentives driving drive and dedication.
However, today’s NFTs are plagued by the fact that the creator’s royalty is related to the marketplace where the NFT was first issued. If a buyer decides to sell their NFT on another marketplace, the creator can’t stop them from doing so. Consequently, it’s very possible that the original author may be deprived of any future earnings gained from sales of the work.
Consider for a moment that purchasers typically choose private purchases to avoid excessive transaction costs if this wasn’t already a big issue. An NFT transaction may be completed without any involvement from the original originator or any connected marketplace if it is directly transferred from one wallet to another.
Token specifications that apply worldwide
A single token standard acknowledged across markets is the logical solution for the NFT ecosystem to keep producers rewarded. As a result, regardless of the marketplace or blockchain where future transactions occur, the royalties derived from a body of work will be shared with the inventor.
In the face of fierce rivalry between NFT markets and the continuous struggle for domination between first and third-generation blockchains, adopting a long-term, mutually agreed-upon standard would likely be challenging for these parties.
Smart contracts, on the other hand, are more likely to be able to remedy this royalty disparity. Contracts using smart technology, such those based on NFT, may allow for new sorts of transactions like subscriptions while also guaranteeing that royalties from all future sales will be passed on to the inventor in perpetuity.
Progress is being made, but it is being kept under the radar. The ERC-721 standard, on which NFTs are based, is constantly being updated to provide for more flexible methods of disbursing royalties.
The NFT ecosystem, despite its near-parabolic development and astonishing amounts invested, is undoubtedly in its infancy. It’s for this reason that many platforms and efforts are focusing on building solutions that appropriately recompense authors for their contributions in perpetuity.