What are NFT’s, anyhow?

This blog post is based on the Slideshare ’What are NFT’s, anyhow?’.

Unless you’ve been living under a rock, you’ve likely heard talk recently of blockchain and NFT’s, and the overall potential impact of cryptocurrency on the music industry. Perhaps you’ve wondered to yourself in the process… just what is an NFT, anyhow?

Let’s start with the basics.

What does NFT stand for?

NFT stands for Non-fungible token.

“Non-fungible” means that it’s unique and can’t be replaced with something else.

Eg: a quarter coin is fungible. If you were to trade one for another… well, you’ll still have the same item. Conversely, if you had a one-of-a-kind trading card (say the Michael Jordan rarest card ever that’s 1 of 1 in the world) and you traded it for a different card you’d end up with a different item. That makes the one-of-a-kind Michael Jordan card non-fungible. 

The word ‘Token’ in NFT refers to a unit of currency on the blockchain. This blockchain is how cryptocurrency is bought and sold. We’ll get to that more in a moment.

What can be sold as an NFT?

In theory, anything digital can be sold as an NFT. This includes drawings, music, or any other kind of digital file.

Recently, Twitter CEO Jack Dorsey listed his first-ever tweet as an NFT, selling it for $2.9 million dollars. 

Yes, you read that right.

How do NFT’s work?

If you’re even slightly familiar with bitcoin (and who isn’t by now?) then you have a basic understanding of how NFT’s might work.

NFT’s are part of the Ethereum blockchain and ethereum is a cryptocurrency, somewhat like bitcoin. Think of blockchain as being a bit like “CarFax” - I.e The Carfax system tracks and reports a transparent record of all prior use of a vehicle. Whereas the ethereum blockchain supports the data capture and transparent record of all prior ownership of a digital file. This information is recorded in the blockchain, in a way that makes it extremely hard to hack or steal.

What does this mean for the music industry?

NFT’s - and cryptocurrency in general - represent a huge revenue opportunity for digital artists.

We touched on Jack Dorsey’s tweet but let’s explore some other NFT sales.

The musician and artist Grimes recently sold a bunch of NFT art for nearly $6 million. That’s an image she sold here on this page.

The band Kings of Leon has just released an album in the form of an NFT. 

Mike Shinoda, the co-founder of Linkin Park, raised $33,000 auctioning an unreleased song, which he paired with a skull animation as an audio-visual NFT.

Shinoda noted, “Think of it like owning a 1 of a kind item in a game … It’s a weird thing to own, yes, but: Here’s the crazy thing. Even if I upload the full version of the contained song to DSPs worldwide (which I can still do), I would never get even close to $10k, after fees by DSPs, label, marketing, etc.” - Hypebeast

In February 2021 alone, NFTs earned nearly 22 million dollars in the music industry, according to data collected by Water & Music. In fact, sales of music NFTs have reportedly grown 150 times over the last six months, according to additional data from Water & Music.

NFTs in the music industry can take on many forms, including but not limited to ticket sales for concerts (virtual and physical), sample packs, previews of unreleased songs, art, and more.  However, what makes NFT’s so interesting to musicians, is the ability to build royalties into them - including for future sales. Meaning that artists can make a commission on those sales well into the future. Artists see potential in the NFT space because it represents new ways in which to create, build, and grow revenue. 

Why can’t I just download the file?

If you find yourself asking: What? Why are people are paying this kind of money for a digital file? Couldn’t I just right-click and download the file from the internet?

While you can do this, NFT’s actually give you written and legally recognized ownership of that file - this kind of ownership can’t be copied and it provides the file owner with a certain kudos or clout. After all, how many people can say they own the original Nyan Cat meme? Technically, only one.

How do you make an NFT?

Log on to one of the NFT marketplaces and upload a file. This process is called “minting” an NFT. You’ll typically need to confirm that it’s a one-of-a-kind, and will be asked if there are multiple copies and so forth. Once you’re done, fans can start bidding.

What do music industry experts think of NFT’s?

“While NFTs are important as a newly developing market, they have similar potential to their gaming and fitness initiatives” - Billboard Magazine

Oana Ruxandra @ Warner Music Group says NFT’s have the potential to provide tremendous value to artists.

Celine Joshua @ Universal Music Group says NFT ownership is a step forward in collectible items which bring fans closer to their favorite artists.”

NFT’s open up a whole new world of opportunity and it’s clear they have the potential to make artists, publishers, labels, and the broader industry a lot of money. However, the market and the technology do need to adapt and grow to support the technology. 

For example, ethereum mining is viewed as being environmentally concerning, which might be off-putting to many artists. As a result, newer cryptocurrencies are being developed on more energy-efficient blockchains. One such platform is Flow, which will allow developers to build tools for blockchains, very similar to the app market exploded for Apple and Google phone operating systems.  “Look at Flow as you would iOS. Ethereum, like Android,” one executive says. - Billboard Magazine. 

Further, while Gen Z - raised online - already implicitly understands cryptocurrency and NFT’s (having developed habits actively purchasing digital goods such as in-app purchases on games like Fortnite), cryptocurrency education for older generations is going to be key in order for market adoption.

However, if you’re still internally debating whether NFT’s - and cryptocurrency in general - will play a key role in the future of the music industry, then let me leave you with this thought about how technology can advance and adapt to the market: At the time you started using the internet, did you think one of your most-used computer tools would be an app on your phone that you use to listen to and stream music?

Author Bio: Dayna Young has 15+ years of global experience in music, entertainment, and leading creative teams to success. She is the Founder of Fred & Augustus and an expert in music marketing and digital artist development. Ultimately, what gets her up in the morning is the knowledge that she’s creating opportunities for artists.

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