Music NFTs: Everything to Know

By  Beluga Research November 2, 2023

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Summary

  • A music non-fungible token (NFT) is a music-related digital asset that uses blockchain technology to authenticate and enable the creation, purchase, sale and trade
  • A music NFT can be a song, an album, a video, a piece of virtual or real merchandise, like a T-shirt or artwork related to any of these items
  • Music NFTs are stored on the blockchain to ensure the identity of the owner and prevent replication
  • The advantages of music NFTs include direct artist-to-fan interaction, increased revenue opportunities and transparent royalty distribution

Overview

A music non-fungible token (NFT) is a music-related digital asset that uses blockchain technology to authenticate and enable the creation, purchase, sale and trade of the asset. A musical artist can develop music NFTs alone or in collaboration with other artists, like painters and animators.

Music NFTs help artists create assets that they can distribute in the manner that they choose. Then they can generate income without giving up control. Music NFTs help known artists get certain projects more exposure. They help less-known artists get exposure and attention, especially from audiences who are engaged with the crypto ecosystem.

A Brief History

The concept for NFTs originated with colored coins, a type of specially marked Bitcoin tokens. The special marketing for these coins is accomplished through metadata coding. The point of colored coins was to differentiate certain coins as giving the holder special privileges. Colored coins were offered on the Bitcoin blockchain in 2012. These coins did not become especially popular.

Yet colored coins showcased the potential for coins with special privileges. This led to an understanding that there could be a market for digital assets other than plain tokens. When Ethereum launched in 2015, its support of smart contracts fueled the popularity of NFTs. In 2017, CryptoKitties, digital art tokens of cats, were introduced. The popularity of these NFTs demonstrated users were willing to invest in NFTs.

The intersection of NFTs and the music industry gained traction in 2020. At this time, musicians started using NFTs to sell and distribute music directly to fans. Early adopters like 3LAU and Kings of Leon sold music NFTs for millions. They sparked interest and excitement in these assets. Since that point, artists from various genres have embraced NFTs to unlock new revenue streams and connect with audiences.

Music NFTs: Everything to Know

Creating Music NFTs: Artists mint music NFTs on blockchain platforms like Ethereum. They typically create NFTs from albums, tracks and exclusive content. Artists can store the files on decentralized platforms for availability and longevity.

Ownership and Authenticity: Music NFTs establish verifiable ownership and authenticity through unique identifiers recorded on the blockchain. Artists retain control and receive royalties from NFT sales or transfers.

Royalties and Revenue Sharing: Music NFTs enable revenue sharing and royalty distribution through smart contracts. Artists and stakeholders receive royalties when NFTs are sold or traded on the secondary market.

Licensing and Rights Management: NFTs streamline licensing and rights management. Smart contracts embed licensing terms. This automates the process of granting usage rights and receiving compensation for music use.

Fan Engagement and Interactivity: Music NFTs offer opportunities for fan engagement and interactivity. Artists include perks like limited edition merchandise, concert tickets and exclusive event access. Music NFTs foster a sense of community. They offer fans and investors the potential to interact.

Marketplaces and Trading: Online marketplaces like Rarible, SuperRare and Foundation facilitate the purchase, sale and trade of music NFTs. Artists can showcase and sell directly to fans. Collectors can invest in emerging talent.

Challenges and Considerations: The challenges of music NFTs include environmental impact and copyright infringement. Blockchain's high use of power is particularly a problem for platforms that engage in crypto mining. Artists and platforms must navigate these challenges to ensure long-term viability and sustainability.

Getting Started

  • Acquire an NFT wallet. A user should securely store and manage NFTs in a digital wallet.
  • Artists can create and mint music NFTs. Minting involves tokenizing music or artwork and attaching it to a unique NFT. The process includes selecting the music file, adding metadata and specifying quantity and price.
  • Acquire, sell or trade music NFTs. A holder can list a music NFT on an NFT marketplace. This is a space where collectors, fans and investors can discover, purchase, sell and trade music NFTs.
  • Acquire and trade cryptocurrencies that support music NFTs. Marketplaces facilitate the exchange of music NFTs with cryptocurrencies like Ethereum (ETH). There may be specific tokens oriented toward music NFTs, such as ERC-721 and ERC-1155 tokens.

Unique Aspects

Artists can receive a larger share of revenue . Artists sell music directly to fans without intermediaries. This direct connection fosters a more sustainable and equitable ecosystem.

Enable new possibilities for fan engagement and interaction. Music NFTs can include exclusive content, backstage passes and meet-and-greet opportunities. Collectors and fans can participate in the success of their favorite artists by holding and trading music NFTs.

Introduce royalties and secondary market sales. Smart contracts embed royalty mechanisms. They ensure artists receive a percentage of subsequent sales on secondary markets. Musicians can set rules for resale. This will ensure they benefit from the fact that their work appreciates value.

Put recording studios on notice that artists have regained some power. Music NFTs have helped artists who have experienced problems with recording studios regain some control. They show recording studios that artists have new options to share and profit from their work.

Advantages

  • Direct artist-to-fan interaction: Music NFTs enable artists to directly engage with their fans through exclusive releases, personalized experiences and community building.
  • Increased revenue opportunities: Artists can generate income by minting and selling music NFTs. This provides them an additional revenue stream independent of traditional record labels and streaming platforms.
  • Royalty transparency and automation: Blockchain technology ensures transparent and automated distribution of royalties. Smart contracts automatically allocate a percentage of future sales or streaming revenue to the artist.
  • Enhanced scarcity and exclusivity: Each music NFT is unique and indivisible. This drives up an asset's value. Collectors and fans seek limited edition or rare pieces of music or merchandise. Artists can leverage this demand to increase the perceived value of their work.
  • Immutable ownership and provenance: Blockchain technology guarantees a tamper-proof record of ownership and provenance for music NFTs. It prevents unauthorized duplication and counterfeiting.

Disadvantages

  • Environmental impact: Blockchains that utilize crypto mining consume a high amount of energy. This raises concerns about their sustainability and carbon footprint.
  • Market volatility and speculation: The value of music NFTs can fluctuate significantly. This poses potential financial risks for artists and buyers due to the volatile and speculative nature of the cryptocurrency market.
  • Lack of regulation and potential scams: The unregulated nature of the cryptocurrency space creates opportunities for fraudulent activities and scams. The concern necessitates that investors do thorough research before engaging in NFT transactions.
  • Accessibility and inclusivity concerns: There are technical barriers and costs associated with navigating blockchain platforms and participating in NFT transactions. These can limit accessibility and inclusivity for artists, fans and investors.