The NFT craze has taken the art and music world by storm as artists of all kinds explore the possibilities of emerging blockchain technology. Digital art pieces, GIFs, memes, and other digital collectibles have sold for jaw-dropping prices on the NFT market, and now musicians are beginning to use NFTs as a way to monetize their work and connect with fans. As most of us are still struggling to understand what NFTs are, artists like Grimes, 3lau, and Kings of Leon have stayed ahead of the curve, selling millions of dollars worth of digital art, music, and exclusive fan perks as NFTs in recent weeks.
The ability to create and sell new digital content directly to fans could not have come at a better time, with musicians still largely unable to perform for live audiences due to COVID-19, yet NFTs are just one of the applications of blockchain technology showing promise for the music industry. Innovations like smart contracts and blockchain ticketing protocols have the potential to solve long-standing problems, including ticket scalping, copyright issues, and inefficiencies in how artists receive streaming royalties. So what exactly are NFTs, smart contracts, and blockchain ticketing protocols, and how can they benefit the music industry?
NFTs, or non-fungible tokens, are crypto-digital assets stored on a decentralized blockchain network much like bitcoin and other cryptocurrencies. They can include any form of digital media, like an mp3, jpeg, GIF, etc., or they can represent something physical, or be used as a redeemable token for whatever purpose—the possibilities are pretty endless. Creators mint NFTs in limited numbers, and each one has a unique ID, which is what makes them non-fungible, or not interchangeable, unlike bitcoin or regular currency, which are fungible since they can be exchanged for the same currency of equal value (a twenty-dollar bill is interchangeable—or fungible—with two ten-dollar bills, for example).
Every NFT transaction is recorded on Ethereum blockchain, which creates a public ledger of ownership that is encrypted and distributed among every computer participating in the peer-to-peer blockchain network, rather than being stored in a centralized database that could be hacked. Although the digital media attached to an NFT might be copied and shared, the blockchain ledger ensures that everyone can see who actually owns the NFT, which functions like a certificate of ownership and authenticity, preventing the possibility of counterfeit NFTs. This concept has been addressed in the fine art world for centuries by way of “provenance,” although forgers have often successfully falsified provenance in the past. The decentralized nature of NFTs render falsified histories and potential fakes a non-issue.
The value of NFTs, like stocks and rare collectibles, depends mostly on what buyers are willing to pay, and the market is experiencing a boom as NFTs explode in popularity. Since their inception in 2017, rare NFTs have traded at prices reaching hundreds of thousands of dollars, so it is no surprise that people are bidding large amounts of money on early music NFTs. A collection of ten pieces by Grimes, each featuring an animated image set to original music, recently sold on NFT trading platform Nifty Gateway for a total of $6 million. Most of the sales came from two pieces that sold nearly 700 copies at a cost of $7,500 each, and the most expensive piece was a one-of-one video NFT entitled “Death of the Old” that sold for almost $389,000.
With the release of their new album, When You See Yourself, Kings of Leon minted three kinds of tokens in a series called “NFT Yourself” that has raised $2 million, $600,000 of which will go to Live Nation’s Crew Nation fund to help support live music crews during the pandemic. The most limited token, called the “golden ticket,” included four front-row tickets for every Kings of Leon tour for life, with VIP perks like a personal driver, concierge, exclusive lounge access, a hangout with the band, and “every item from the merch booth.” Five “golden ticket” NFTs sold on OpenSea for the reserve price of 50 Ethereum or more, which is equal to about $91,000, with the highest selling for around $162,000. Not all NFTs are so expensive, though. For just $50, fans of the band can purchase an NFT that includes digital album art, a limited-edition vinyl, and a download of the album. These NFTs are available until March 19th, after which all the remaining unsold copies will be “burned” or deleted forever.
The “NFT Yourself” series was developed with a company called YellowHeart, which is dedicated to using blockchain technology to reverse the devaluation of music that has taken place since the recording industry went digital. “Previously, it cost $20 to go get one song,” YellowHeart CEO Josh Katz said in an interview with Rolling Stone. He said NFTs could help make people want to own music again, and give artists the power to sell their music directly to fans. “It’s early stages, but in the future, I think this will be how people release their tracks: When they sell a 100,000 at a dollar each, then they just made $100,000.” Katz calls the series an “extreme example to prove a point” because it shows a variety of uses of NFTs. It also shows the degree of control that can be written into NFTs using a related blockchain technology called smart contracts, which were used to create the “golden ticket” NFTs.
Smart contracts are self-executing contracts that use computer programs or transaction protocols to automatically execute the terms of an agreement. For instance, a smart contract could stipulate that every time a particular NFT is resold on the blockchain, 10% of the sale automatically goes to the artist who minted it. This way, the artist benefits as fans and investors make money buying and selling their work. But smart contracts apply to more than just selling NFTs. They could also be used to automate royalty payments and ensure that creators and rights holders are fairly compensated. A smart contract could track every time a song is streamed or used in a video, and then automatically distribute the royalty payments owed to each owner of the copyright instantaneously. This would be a big improvement over the way royalties are paid now, which can take a long time and involve many intermediaries, and it would eliminate licensing disputes between rights holders and streaming services, which have a history of ending up in court.
Companies like Audius have developed streaming platforms that operate entirely on blockchain, and Spotify has shown great interest in the technology for years. In 2017, the streaming giant acquired Mediachain Labs, a startup focused on developing blockchain-based solutions for problems of attribution and licensing. Spotify is also among the many industry leaders who have joined the Open Music Initiative, or OMI, which includes major music labels like Universal, Sony, and Warner, and streaming services like Netflix, YouTube, and SiriusXM. Led by the Berklee College of Music Institute for Creative Entrepreneurship (BerkleeICE), OMI aims to promote innovation related to music to help assure proper compensation for artists and rights holders, and they have been a huge proponent of using blockchain technology as a way of managing music licensing and royalties.
The live music and events industries can also benefit from blockchain technology like smart contracts and blockchain ticketing protocols. The “golden tickets” sold by Kings of Leon are technically the first concert tickets to be sold as NFTs, but blockchain-based ticketing solutions have been in the works for years. Aventus, GET (Guaranteed Entrance Token), and other ticketing protocols have shown how tickets can be sold directly on blockchain with added control using smart contracts. Multiple privileges can also be written into a single smart ticket, like the “golden ticket” NFT perks, and ticket prices can be set so they can never be resold above face value, eliminating the possibility of scalping, which takes almost $16 billion from fans and the ticket industry every year. With NFTs, the transparency of the decentralized blockchain network makes counterfeit blockchain tickets an impossibility. Ticketmaster is already working on bringing this technology to the masses with the help of blockchain startup UPGRADED, which they acquired in 2018.
Between NFTs, smart contracts, and ticketing protocols, blockchain technology offers promising solutions to many of the music industry’s biggest problems. It is still unclear whether NFTs will really revolutionize the way people consume music, or whether today’s frenzy is just a passing fad, and it may be a while before blockchain ticketing protocols replace ticket agencies, but the music industry has only just begun to explore the limitless possibilities blockchain technology has to offer, and we can be sure the best is yet to come.