Why NFTs are poised to take the music industry by storm

2021 saw the rise of a new term, which has taken several industries, including music, by storm. Interest in NFTs has overflowed from the crypto world, with NFT sales reaching $17.7 billion in 2021, more than 200 times the $82.5 million of 2020, according to a report from Axios.

With music NFT sales skyrocketing among recording artists ranging from Grimes and Jay-Z to The Weeknd, and hip-hop royalty Snoop Dogg aiming to set up the “world’s first NFT record label”, it’s clear that NFTs are going to impact the music industry in a big way.

But what are NFTs exactly, how are artists using them, and what are their potential downsides? In this blog, we delve into the world of blockchain, music and NFTs.

What are music NFTs?

Simply put, NFT is short for non-fungible token. This token can represent anything that is unique, from digital art to graphic illustrations, songs and pictures. But there’s a catch. The token does not physically exist in the real world. An NFT gives the holder ownership of a digital asset that is stored on a blockchain, the most secure ledger currently in existence. Blockchain provides ownership certification, which makes it easy to verify authenticity, trace the origins of the NFT and pay the creators on the open global market.

Music NFTs are tokenised audio files, but they can also contain additional assets such as images, VIP tickets and backstage passes. NFTs are seen as rare digital collectibles, and some music NFTs offer their owners more specific options, such as Nas’s single NFT “Ultra Black”, which grants owners a share of the royalties. Generally, though, music NFTs do not give the holder ownership rights to the track unless specified.

How are NFTs impacting the music industry?

Artists are using NFTs in two ways. Either as a promotional tool to create a closer, more direct connection with fans, or as a tool for investing in their careers. Even though NFTs technically do not exist in the real world, they can be traded for, or linked to, objects such as vinyl records or concert tickets. Kings of Leon, for example, released their latest album as an NFT in March 2021. The limited number of NFTs included the album, exclusive artwork and extras like VIP seats for future concerts.

Some artists use NFTs to sell their music directly to their fans. Music NFTs let artists earn money by engaging with their fans without relying on traditional intermediaries, such as managers, record labels and publicists. Fans can show their support for their favourite artists by investing in their careers, with music NFTs as a crowdfunding tool or through a share of the royalty revenue. Musicians can also include a royalty kickback on every NFT transaction. If an artist creates an exclusive song limited to 100 NFTs and sells them for $5 each, they can add the option to receive a 10% cut as the creator each time an NFT is traded. Now imagine that five years later these NFTs trade for $5,000. That means $500 of every trade goes to the artist.

Should we be concerned about NFTs?

Music NFTs offer several benefits, as highlighted above. But bear in mind that this is an entirely new system of selling and trading creative tokens. At this point there are no legal regulations or rules regarding NFT ownership and transactions, so issues may arise when buying and selling them. As NFTs are digital assets, there is always a chance that someone creates an illegal copy of the artist’s creation, bringing down the value of the NFT. The good news is that a forgery is easy to spot, because NFTs run on blockchain technology, so there is complete transparency about who created and owns them.

In conclusion, NFTs offer musicians a new, exciting way to share their music and engage with fans. If you want to learn more about NFTs and how to monetise them for your career, get in touch with SmartLabel.