Illustration: Liz Xiong
Have you heard about NFTs?
You’ve likely heard the terms “NFTs,” “cryptocurrency,” and “blockchain technology” in the past, but didn’t think they had any relevance to your career as a musician.
Well, we happen to possibly be on the brink of a revolution in how artistic and cultural expression is monetized. NFTs might just be the biggest disruptor to the music industry since streaming.
Big-name artists are certainly catching on. Deadmau5, Grimes, Steve Aoki, and Kings of Leon, among others, have already made waves in the NFT world. And we’re talking big waves—DJ and producer 3LAU sold a record-breaking 12 million worth of NFTs in February 2021, and other artists have made well into the millions, as well.
So what exactly are NFTs, and why are they blowing up right now? Read on to find out what they are, why musicians should care, how to get started with selling your own NFTs, and whether or not they’re the right option for you.
What is an NFT?
An NFT is a non-fungible token that represents ownership of a digital asset, such as a song, photo, video clip, or digital artwork.
“Fungible” means interchangeable, so it can be replaced by something of equal value. Money, for example, is fungible—you can exchange a five-dollar bill for five one-dollar bills. However, something like an original Picasso painting isn’t fungible, since there’s only one original copy and it can’t be replicated. You also can’t easily trade the Picasso work for another painting, because they’re valued differently.
This is pretty easy to grasp when it comes to physical items like paintings, baseball cards, and Pokémon cards. You can buy a first-edition Shadowless Charizard Pokémon card and later sell it to a collector for a ridiculous amount of money. It’s valuable because only a certain number were printed, and they can’t be replicated.
But what about digital items? How can an mp3 file of a song be considered limited and appreciate in value if it can so easily be copied and uploaded to streaming services for everyone to hear?
That’s where NFTs come in. The non-fungible token is sort of like the mp3 file plus a tag that says “this file is original, limited edition, and can’t be copied.” In other words, NFTs allow digital items to be treated just like an original Picasso painting or a rare Pokémon card.
Why is this such a big deal? Well it means that people can now invest in songs, videos, and digital artwork in the same way they would invest in physical art. It opens up a whole new marketplace for fans and collectors, and a world of possibilities for artists.
If you’re still having trouble wrapping your head around NFTs, think of a signed vinyl record from your favorite band that you bought in 1995. The music from the record is still available pretty much anywhere, but you’re the only person who has that particular vinyl. There’s no other vinyl that was signed in quite the same way, and it’s impossible to replicate it. Now in 2021, the band is no longer together and a signed record from them goes for $1,000 on eBay. There’s an entire aftermarket of people who want to get their hands on it. You can sell it and make some cash, or hold on to it and see if it appreciates even more over the years.
NFTs operate in exactly the same way. An artist can release 15 NFTs containing a special remix of their song, and only 15 people in the world will ever own them at any given time. The NFTs can’t be copied or deleted. Owners can sell the NFTs and transfer ownership, and they can make or lose money, depending on how the value of the NFTs changes over time.
Now you may be asking, “But can’t everyone else still listen to this remix on Spotify, iTunes, or YouTube?” Yes, but this is sort of like taking a photo of the original Picasso painting and printing it on a bunch of canvases. The copies may look exactly the same, but they’re not nearly as valuable because they don’t have that tag of authenticity and they can easily be replicated.
Why should musicians care about NFTs?
So what does all this mean for the music industry? Above all else, NFTs have the power to change the relationship between artists and their fans. There’s now the option of a direct transaction between the people who make music and the people who listen to it—there’s no label, distributor, streaming platform, or social media platform involved.
Let’s take a look at what that means in more detail.
1. Fans can invest in your career
With the current state of the music industry, you as an artist have very few opportunities to learn about your listeners. You can look at the number of Spotify streams and some basic statistics, but you don’t really know much else about the people who make up those numbers.
With NFTs, your biggest fan can actually show you that they’re your biggest fan by investing in your career.
If you’re an up-and-coming artist, you can give your fans an opportunity to tell you how much they believe in your future success. They can buy your NFT now with the hope that if you blow up, it will be worth much more in the future.
The other thing is, if someone buys an NFT from a smaller artist, they will likely do everything they can to promote the artist and help their growth, in order to drive up the value of the NFT. This is obviously great for the artist and can help attract future NFT buyers, creating a positive feedback loop.
Lastly, you can use NFTs to help fund your next project. If you’d like to release an album but aren’t sure how you’re going to pay for it, you can raise funds by selling NFTs, much like with a Kickstarter campaign.
2. You can give fans exclusive perks
Since NFTs are still a relatively new concept, it’s understandable that many people might be a little hesitant to pay a significant amount of money for ownership of an intangible asset. That’s why many artists create NFTs that include their digital product, plus an exclusive perk or experience that buyers can redeem in real life.
For example, Kings of Leon released an NFT that includes their new album, as well as four front-row seats and a VIP experience at any Kings Leon concert for the rest of the token holder’s life. One of 3LAU’s NFTs includes an opportunity for the token holder to create a custom song with 3LAU and provide creative direction.
These perks provide a great incentive for people to buy and hold on to their NFTs. They also get passed on to the next buyer when the NFT is resold in the aftermarket.
3. You have the potential to make more profit
It’s not a secret that the average musician can’t make a living from streaming profits alone. Across the industry, artists only take home an average of 12 percent of the profits made from their music.
NFTs give artists a chance to have a direct transaction with their fans and keep virtually all of the money they make from the sale. Of course, your profits would depend largely on how valuable your NFTs are and how many people buy them, but in any case, it’s probably still better than the $0.0032 per stream you’d get from Spotify.
The other thing that could potentially result in more profit for you is that you can sell your NFTs at a set price, or you can set up an auction. Say you create 10 highly-coveted NFTs with exclusive perks, and you have 500 dedicated fans with the desire and the means to support your career. Your auction could very well turn into a bidding war and drive up the price of each NFT. That’s exactly how 3LAU made $12 million in one night.
Finally, when you set up your NFTs, you have the option to collect royalties every time the NFT is sold to a new token holder. 10% from every sale for the rest of time? Not too bad.
How to get started with selling NFTs
NFTs live in the blockchain, so they can only be accessed with cryptocurrencies like Ethereum, Polkadot, and Cardano.
If your brain is already turning into mush after that one sentence, you’re not alone. But if you’re serious about getting into NFTs, I highly suggest getting a crash course on cryptocurrencies and blockchain technology. For the purposes of this article, we’ll keep things relatively high-level.
Ethereum is probably the most popular choice when it comes to cryptocurrencies, so let’s stick with that. This essentially means that your dollars will be converted to Ethers (ETH), and that’s what you’ll use to buy or sell NFTs.
To make the conversion happen, you’ll need to sign up for an Ethereum wallet. Creating NFTs (or “minting tokens,” as it’s referred to) and putting them up for sale will cost you a transaction fee, so you’ll need to add some Ethers to your wallet before you do anything else.
Once you have your ETH ready, it’s time to pick a marketplace where NFTs are sold. Some popular options include SuperRare, Rarible, and OpenSea. Connect your Ethereum wallet to the marketplace and you should be ready to go.
Different marketplaces have slightly different processes, but generally, each of them will walk you through how to upload your files and mint your tokens. You’ll be able to select how many editions you want to create, decide whether you want to set up a fixed price or an auction, set any royalties you want to collect from resales, and add any exclusive perks or content that buyers can unlock. Once you pay the transaction fee, you will have minted your first token!
The last thing to do is to share the news with your fans through your usual marketing channels to drive traffic and sales for your NFTs.
Are NFTs bad for the environment?
You may have seen controversy in the media over the environmental impact of NFTs. I can’t take a side on the issue, but I’ll do my best to explain in simple terms why blockchain technology uses so much energy, why there are so many misconceptions about the environmental cost of each NFT transaction, and what alternatives we can look forward to.
A key characteristic of blockchain technologies like Bitcoin and Ethereum is that they’re very secure and unlikely to be hacked. This is because the network uses a proof-of-work method to verify that each transaction is legitimate. This method essentially consists of thousands of people racing to solve a complex mathematical puzzle using their computers in order to get a reward.
As you can imagine, this involves thousands of very powerful computers, using up lots of electricity, burning lots of coal to create this electricity, emitting tons of carbon dioxide into the atmosphere, and contributing to our global climate change issue. To put things into perspective, the annual carbon footprint of the Ethereum network is comparable to that of Lithuania.
Are blockchain technologies incredibly wasteful? Absolutely. But will abstaining from selling and buying NFTs help solve the issue? I’m not so sure.
You’ll find plenty of sources in the media attempting to calculate the carbon footprint of each NFT transaction. At first glance, this suggests that by choosing to not go through with an NFT sale or purchase, you’re somehow saving the environment. In reality, it’s the number of computers that verify the transactions that has the biggest impact on how much energy is used, not the number of transactions.
In the grand scheme of things, for every transaction that doesn’t happen, there will be another one that takes its place. Not to mention, NFTs are just a small piece of the pie when it comes to Ethereum transactions. And then there’s the environmental impact of Bitcoin, which is a whole other beast.
What’s really going to make a difference in how much energy is used by blockchain technologies is not discouraging people from using the system, but changing how the entire system works. Even Ethereum’s founder has admitted that the current process is a huge waste of resources.
Luckily, Ethereum is already well on its way to introducing an alternative to the proof-of-work method. Rather than having thousands of people verify each transaction, the task would be assigned to a single person in a new model called proof-of-stake. This method would reduce the carbon footprint of Ethereum transactions by 99% and is estimated to go live by early 2022.
Is it worth it?
NFTs are making headlines right now and the initial boom is causing prices to skyrocket. Skeptics are warning us that when the hype is over, the value of NFTs will drop back down and buyers will have lost money. Then again, there were also those people who said that the internet was a fad and will die out within a few years, and look where we are now.
Are NFTs a fad, or are they a revolution? It’s hard to say at this point.
If you’re seriously considering selling your music through NFTs, I will say one thing: do your research and make sure your fans are ready. You’re probably not 3LAU or Kings of Leon, so don’t expect to make millions overnight and don’t deter your potential buyers by setting ridiculously unaffordable prices.
Tons of people are actually losing money from minting tokens because they pay the initial transaction fee (and it’s not cheap), but then fail to actually make any sales, either because their prices are too high or because they don’t have any fans who are both willing and able to invest. It’s a little bit like the stock market; for every story you hear about someone making a fortune overnight, there’s always someone who lost their entire life savings.
Is it a bit of a gamble at this point? Certainly. Could it potentially forever change how we monetize creative expression? Absolutely, but only time will tell.
Have you considered buying or selling NFTs? Do you think they’re another fad, or are they here to stay? Let us know in the comments!
April 16, 2021