Following the advancement of blockchain technology, new forms of earning interests have been realized. Non-Fungible Tokens are the current trend, and artists who create digital artwork can receive as well as control royalties for their digital assets. Blockchain technology allows sellers and buyers to verify and authenticate their artwork. Digital assets have become more popular with their adoption, having more than $42 billion in sales this year.
Benefits enjoyed by creators and artists come in the form of NFT royalties. These royalties allow creators to earn a continuous passive income on subsequent sales of their artworks, unlike in the real world. NFT royalty payments are compensation to the NFT original creators. This article explores NFT royalties and how they work in the digital world.
What are NFT Royalties?
Royalty payments are basically the percentage payments made to an artist for subsequent and ongoing use of their assets. In business terms, royalties are a percentage payment of the profits sales of an artwork. For NFTs, these royalties are set by the creators during their minting process. The NFT royalties give the original owner or creator of the Non-Fungible Token a percentage of their sale price every time the digital artwork is sold. Usually, the average pricing of NFT royalties is between 5-10%. Also, the NFT royalty payments are executed by smart contracts.
In most NFT marketplaces, NFT creators choose their own royalty percentage. They receive automatic payments when the artwork is sold in the secondary market. These NFT royalties are perpetual, meaning creators continue earning passive income indefinitely. Although not all NFTs are highly profitable, several individuals have made millions from trading their artwork and earning royalties.
How Royalties Work
When an NFT creator mints their digital artwork, they choose their royalty percentage. After subsequent sales of the digital asset on the secondary market, automatic payments are made to the NFT artist. Royalties are automatic payouts made to the author on secondary sales. The royalty percentage is coded into the smart contract on the blockchain network. Every time a secondary sale is made, the smart contract checks whether the NFT terms are fulfilled. The specified royalty rate is applied to the secondary sales and is cut off the sale price and awarded to the NFT creator. No intermediaries are present. However, not all NFTs yield royalties or are profitable.
Imagine creating an NFT on Rarible. Then code it to meet the NFT terms that allow you to earn 10% of the profits on secondary sales. Afterward, sell it for 10 Ether (ETH). As your digital artwork gains recognition and popularity, the initial buyer would sell the digital asset for a higher price, such as 250 ETH. According to your code, the smart contract authenticates and automatically rewards the 10% profits upon meeting the NFT terms. It means that you will earn 25 ETH from that secondary sale. For each sale made, your NFT royalties are cut off the sale prices and automatically awarded to you, the original author.
NFT royalties are selected by the owner in the blockchain platform, NFT marketplace, during its creation and are then tracked on the blockchain. Comparing NFTs to the stock market, NFT royalties are similar to trading stock in the secondary market after an IPO (Initial Public Offering). However, it’s not only the NFT creators who can benefit from NFT royalties. Content creators of all kinds and musicians can leverage NFT royalties.