When NFTs started to emerge one of the most exciting conversations was about how they would be able to support artists. It was proposed that this would occur through royalties. These are a percentage of the NFT sale price. These fees will be sent back to the creator. This will continue for the life of the NFT.
But what are royalties and how much will they pay creators? Keep reading to learn more about how NFT royalties will affect artists.
Not All NFTs Contain Royalties
While royalties are common, they won’t be found on all NFTs. In this case, you will be able to buy and sell the NFT without any fees going back to support the creator. This is often because the creator forgets to set them up. If this is the case there is nothing they can do as it will be set in the blockchain, which will be impossible to change.
The Creator Sets the Royalty Amount
The creator of the NFT will be able to set the royalty amount that they want to receive. Generally, though, an NFT will attract a royalty of between five to ten percent.
There are a few things that creators will need to consider when deciding on their royalty amount. If it’s too much, it might become an issue. For example, if you set your royalty amount at 100% the buyer is never going to buy as if the intention is to sell at a future date there would essentially be no profit.
So, it’s probably best to keep your amount in the 5-10% range. Setting an appropriate royalty amount is only one part of your NFT strategy. You really need to get people interested in your project and that’s why we created this unconventional guide to help you out.
Royalties Don’t Expire
The way they are currently designed, royalties are issued in perpetuity. The immutability of the blockchain means that it can cope with longer-term arrangements.
In theory, royalties could continue to be paid until the end of time. Because of this, more artists are starting to stipulate what happens to their crypto income if they die.
It should be noted that this approach could cause some legal problems. This is because NFT royalties are designed to imitate real-world principles. These state that all living artists are entitled to receive royalties from the use of their work.
But there is such a thing as artwork going out of copyright and entering the public domain. What does this mean? So far there are only theories but it is something that needs to be ironed out.
If you are curious about the challenges of copyright and how it pertains to NFTs you have to read this article, Is NFT Art Protected by Copyright Law? (How To Get Sued).
Royalties Include Smart Contracts
Smart contracts are one of the biggest trends in the world of NFTs. These have a few uses. They can be used to verify who created the token and are used to pay the royalties in all future sales. There are a few reasons why this technology is used to provide royalties to creators:
- Fast. A smart contract will provide a form of instant payment. No more need for creators to wait around to receive a check in the mail.
- No external agents are needed. As soon as the transaction takes place, the smart contract will initiate. There doesn’t need to be any additional input, the creator will just find the money they are owed deposited into their wallet. This also ensures that the transaction cannot be manipulated.
- Greater clarity. The royalty fee will be written into the code. Because the contract is so clear, there won’t be the need to get lawyers involved. Plus, this will stop people from making false claims about the amount of royalty fees that they will be charging.
- Auditable. Because the transactions are stored on the blockchain they will always be around. As a result, it will be easy for government bodies to audit them and make sure that they are all doing the right thing.
Depending on the situation, the smart contract can be taken one step further. Sometimes, you will want to split the royalty fee amongst several different people. For example, a band can split the royalty fees to make sure that each member gets some. In fact, NFTs and music is going to be major in the near future. These two articles will get you primed:
- How to Sell Music as an NFT (Ultimate Beginner’s Guide)
- How Musicians Make Money with NFTs | You Can Too!
Buyers Can Authenticate the Sale
There is another reason why smart contracts have become so popular. They allow you to verify who the original creator was. This gives buyers the confidence that they are purchasing a genuine NFT. This will help weed out the scammers and add additional value to real NFTs.
Many Fans Want to Use Royalties to Support Their Favorite Creators
Interestingly, there is more research to indicate that fans remain passionate about their favorite creators. They want to find ways to support them financially. Because of this, they will often be willing to purchase their NFTs. This is partly because they know the royalties will be going back to the artist.
Royalties Aren’t Always Guaranteed
Sometimes, an NFT will be minted to a specific platform, like Rarible. The royalties will be set up specifically for this platform. But if the buyer then decides to move the token to a new platform, like Opensea, the creator might not get the royalty from the sale.
This might be a calculated move to get out of paying a royalty, so the seller gets to keep all the money from the sale. But in more cases, it will because the other platform offers a better chance of making the sale.
The good news is that this loophole might soon be getting shut down. There is a new type of smart contract actively being developed. This is known as the ERC-721 Royalty Standard. If it is adopted, the royalty fees will be paid regardless of what marketplace the transaction occurs on.
Royalty Can Benefit Creators Over the Long-Term
Much of the conversation around royalties, though, have focused on how they will be able to help support creators. This is why so many mainstream artists are starting to embrace the world of NFTs. Here are some of the reasons why royalty fees are so innovative:
- Giving artists more control over their work. Artists will retain copyright over their original work. This means that they will have the ability to make additional NFTs or commercialize the work in other ways. This allows them to avoid getting screwed over by dodgy deals with record companies.
- Ensure that they are getting paid. Many artists are sick of seeing their work stolen. NFTs make it easy to prove that an item is authentic. True fans will want to seek out the real deal, making sure that their favorite artists are getting compensated fairly for their efforts.
- Long-term profit source. Artists will appreciate the longevity that a good NFT can provide. It can be sold and resold hundreds of times, each one giving them a small cut of the proceeds. This can add up to a significant revenue stream over time.
- An incentive to produce better work. The way the NFT market is structured gives artists a clear incentive to want to produce their best work. If they grow more popular, demand for their work increases. This raises the price of their NFTs, which increases the royalties they will be set to receive.
- No more art galleries. I’m not saying this is totally good but art galleries are a middle man and can charge hefty commission fees , up to 90% to sell physical art. Now that digital art is a major thing art galleries are less relevant and the artist gets more income over time.
There are plenty of examples of famous artists that are using these principles to good effect. People like Beeple and Steve Aoki have made millions from NFTs. However, this is available to non-celebrities. For example, Justin Aversano made over $130,000 from selling his NFTs. For many smaller artists, it can provide enough income to focus on creating NFTs full-time.
Final Thoughts
NFT royalties provide a unique way to reward creators. It ensures that they will be able to receive a small percentage of the sale price.
This will continue in perpetuity. For many artists, this can be a substantial revenue stream, encouraging them to continue to produce their best work. If you are still curious about the world of NFTs then these super popular articles will be helpful: