Artists Weigh In On The Battle Over NFT Creator Royalties - CoinDesk

Artists Weigh In On The Battle Over NFT Creator Royalties – CoinDesk

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Megan DeMatteo is a service journalist currently based in New York City. In 2020, she helped launch CNBC Select, and she now writes for publications like CoinDesk, NextAdvisor, MoneyMade, and others. She is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.

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In June 2021, during my first-ever interview with a prominent non-fungible token (NFT) collector, I learned about a Web3 silver bullet. As a freshly self-employed writer who left a salaried media job to pursue a freelance career, scarcity was on my mind.

I wasn’t preoccupied with the “good” kind of scarcity we talk about in Web3 (the kind that makes digital art more valuable due to a limited supply). I was, instead, concerned about the scarcity of resources available to creatives to protect their intellectual property (IP) – this includes writers like me who continuously generate new ideas for corporate entities that can then repackage, repurpose, republish and resell creative works in as many different forms as they’d like.

I chose self-employment after realizing that companies I’d written for in the past would forever have the right to turn my articles into newsletters, ebooks, social media threads, digital courses and more, yet I would never be entitled to additional compensation other than my fixed salary once that work was completed.

In a traditional creative industry, it often doesn’t matter how much value someone’s creative work generates. And unless you’re familiar with intellectual property designations or can afford skilled lawyers to negotiate on your behalf, artists are usually expected to create while big businesses handle the rest.

I soon learned that Web3 had already considered this dynamic and developed a tool to ensure NFT artists could continue to make revenue from their intellectual property. By utilizing smart contracts, artists could program lifetime royalties into all non-fungible token sales, which would automatically deliver a percentage of their profits to their crypto wallets in perpetuity.

Smart contract-based NFT royalties have been embraced by independent artists as a much-needed protection. But while smart contract-automated NFT royalties are the perfect Web3 antidote to years of creator exploitation, building the infrastructure to execute this vision has led to additional challenges.

The limits of smart contracts

Perpetual creator royalties are great in theory, though there are some logistical holes in enforcing them on-chain.

First, creator royalties are enforced by smart contracts, a type of blockchain-based code that executes instructions of a pre-determined agreement. In this way, smart contracts aren’t technically “smart” — the code is structured as a set of if/then conditions that execute according to specific inputs and triggers. Smart contracts are not a form of artificial intelligence (AI), because they don’t originate any generative outputs; the outcome can only be an option that has been predetermined.

Smart contracts aren’t technically contracts either. Governments aren’t obligated to recognize them as legally binding documents, whereas a contract between two individuals or corporations signed by both parties with lawyers present will always be valid in the eyes of a judge.

Ethereum co-founder Vitalik Buterin has even said he regrets giving smart contracts such a strong (and potentially misleading) title. He once said a more accurate description is “persistent scripts.”

Charlotte Kent, an arts writer and professor who wrote in April 2021 of the breakthrough potential of smart contracts, wrote almost a year later of our tendency to glorify them. “There’s a practical foolhardiness in the glorification of a sender/receiver model that eliminates all others, and an amusing foolishness in the assumption that smart contracts have actual legal standing,” wrote Kent.

Creator royalty controversy

Aside from the practical questions about smart contracts and creator royalties, there are the more economically driven issues that have surfaced in recent months. NFT marketplaces made headlines throughout the last quarter of 2022 for proposing to make creator royalties optional on their platforms in an attempt to attract more buyers. In November, a representative from the Solana-based marketplace Magic Eden told CoinDesk that switching to a royalty-optional model was meant to address “collectors’ need for low-fee NFT trades.” Several other marketplaces adopted similar policies to remain competitive.

Meanwhile, OpenSea doubled down on its commitment to royalty payments by blocking NFTs minted on OpenSea from being resold on secondary marketplaces that ban royalties. Skeptics theorized OpenSea’s tool was in actuality a covert attempt to keep all sales on its own platform, but OpenSea co-founder and CEO Devin Finzer responded by saying the move was an attempt to give artists more control over where their art is bought and sold.

“[Creator fees] are decided on a per-marketplace basis,” said Finzer. “Many marketplaces sprung up that decided not to honor creator fees.” In an attempt to circumvent these marketplaces, OpenSea launched a new set of smart contracts with advanced programmability.

Meanwhile, artists became vocal on social media and rallied on behalf of creators’ rights to control their own royalty structures. “We all talk to each other,” said prominent NFT artists and Deadfellaz co-founder Betty in a December 2021 interview with NFT-focused outlet NFT Now. “It came through the grapevine that [optional royalties] was going to happen, and we were all like — we need to act.”

Responses from the community

Many people attribute the no- or optional-ro