Management of NFT Royalties by Blockchain Platforms

Introduction

Non-fungible tokens, or NFTs, have revolutionized the digital art industry and various forms of creative work by offering new ways to create, buy, sell, and trade digital assets on the blockchain. One of the distinguishing features of NFTs is the potential for artists to earn royalties on their work every time it is resold, providing them with an ongoing income stream. Blockchain platforms play a key role in managing these NFT royalties. This article explores how these platforms manage NFT royalties for token creators.

NFT Royalties: An Overview

Simply put, a royalty is a percentage of the sale price that is paid to the creator (artist, musician, etc.) with every transaction of the NFT. This opens up a new revenue model for digital creators where they can earn secondary sales commission from the appreciation of their work over time. The royalty rate typically ranges between 10% and 15%, but the creator is free to set it at any amount.

Setting of Royalties

The royalty percentage is usually embedded into the NFT during its creation, also known as ‘minting’. At this stage, the creator defines the terms of the royalty, including the percentage. Advanced contract standards like ERC-721 and ERC-1155 on Ethereum blockchain allow setting this royalty rate, making it a fundamental part of the NFT contractual agreement.

Role of Blockchain Platforms in Managing NFT Royalties

Blockchain platforms manage NFT royalties using smart contracts—self-executing contracts with the agreement directly written into lines of code. These contracts, stored on the blockchain, automate the distribution of royalties according to set rules every time an NFT is resold on the platform. Every transaction is publicly verifiable and cannot be altered, ensuring the accurate enforcement of royalties.

Tracking and Distribution

The transparency and traceability of blockchain technology make it easy to track the transaction history of an NFT. Every buy/sell action, including wallet addresses involved and the price paid, is recorded on the blockchain. When a resale happens, the smart contract automatically identifies the original creator and attributes them with the corresponding royalties, transferring it to their digital wallet instantly.

Standards Compliance

While the above describes an ideal situation, the state of NFT royalties standard can be more complex due to the lack of a universal standard for royalties implementation across different marketplaces. While a royalty set on one marketplace may not be recognized by another, some blockchain platforms are adopting cross-platform royalty standards such as EIP-2981 to address this limitation, ensuring artists receive their due share regardless of where their NFT is resold.

The Bottom Line

Blockchain platforms significantly contribute to enabling and managing NFT royalties. By employing smart contracts and thanks to the inherent transparency and traceability of blockchain, they ensure the secured, fair and automated disbursement of royalties to the original creators. A move towards universal royalty standards across platforms will further empower digital creators, making sure they are compensated for the value they bring in any NFT transaction. This is a crucial step in recognizing the worth of creators in the digital asset ecosystem.