Non-fungible tokens, or NFTs, have gained notoriety in the digital ecosystem by offering a new way to verify and own unique digital assets. While the focus was initially on their speculative value, discussions are moving towards crucial issues such as royalties and copyright. These two aspects will determine the future of NFTs and their ability to create a fair and sustainable digital economy for artists, collectors and platforms.
What are NFTs and why do royalties’ matter?
NFTs are digital certificates of authenticity and ownership over specific assets, usually images, music, or videos. This certificate is backed by a blockchain which makes it unique and verifiable. Unlike physical assets, where the owner of a piece of artwork can transfer it, sell it or even inherit it, NFTs in the digital world offer this possibility, except that the digital file remains accessible to everyone on the network.
A key aspect that sets NFTs apart from other digital media is the ability to set royalties. When an artist sells a traditional piece of art, they lose control over future sales and receive nothing if the work increases in value. With NFTs, creators can receive a percentage of each secondary sale or resale, allowing them to earn ongoing income while their work circulates in the marketplace. This ability to automate royalties is one of the reasons why NFTs are considered revolutionary, as they open up a sustainable, passive income stream for creators.
How do royalties work in NFTs?
The royalty model in NFTs is programmed directly into the smart contract that underpins the token. This means that each time the work changes hands, a portion of the sale is automatically transferred to the original creator, without the intervention of intermediaries. The implementation of these royalties is possible thanks to the transparency of blockchain technology, where every transaction is public and immutable.
However, this royalty system presents challenges. Different NFT platforms have adopted varying approaches to the distribution of these royalties. Some marketplaces, such as OpenSea and Rarible, allow creators to set their own royalty rates, while others have predetermined rates. This creates a lack of standardisation and may lead to competition problems between platforms, as buyers may prefer those where royalties are lower.
Current royalty landscape in NFTs
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While royalties represent a step forward in compensating creators, implementation in the current ecosystem of NFTs has limitations. One of the main problems is the lack of standardisation across platforms. In addition, royalties depend on the goodwill of the marketplace, as some buyers and sellers prefer to avoid platforms that require such payments.
Legal problems also arise. Smart contracts are not legally recognised in all jurisdictions, which can make enforcement of royalties difficult. In addition, sales outside the platforms that originated the NFT, i.e. on secondary markets that do not apply the same terms, may evade royalty payments. Thus, although creators can set their royalties in NFT contracts, they are not guaranteed to receive these revenues in all resales.
Copyright in the context of NFTs
Copyright has been a contentious issue in the NFT market. Ownership of an NFT does not necessarily imply ownership of the copyright of the associated work. In most cases, creators retain the copyright, while the purchaser of the NFT obtains a unique digital property right, but not the right to reproduce, distribute or modify the work. This concept is still not well understood and has led to confusion among buyers, who sometimes believe they are acquiring full rights to the content.
One option being explored by some artists and platforms is to include licensing agreements alongside NFTs. These agreements set out clearly which specific rights the buyer acquires and which the creator retains. This could help protect both creators and buyers by establishing a framework of rights and responsibilities.
Royalties on TU Gallery
On Gallery Telefónica’s NFT marketplace, when selling your NFT, the buyer is free to resell it on other non-Telefónica marketplaces. This expands the reach of your NFT and increases the chances that it will continue to generate value. During the creation or editing of your NFT, you can set a Royalty percentage, which will allow you to receive a commission for every future sale of your NFT, even if it is made on other platforms.
However, it is important to note that the collection of these royalties will depend on the external marketplace where the resale takes place. Each platform has its own Royalty payment policies and mechanisms, so Telefónica cannot manage or guarantee the collection of these second transactions. Take advantage of this option to ensure continuous income for your creation, always considering the rules of each marketplace where your NFTs are traded.
