Over the past three weeks, NFTs — non-fungible tokens — have overtaken the music industry, with artists and executives scrambling to wrap their heads around the emerging art form.
These unique digital collectibles bought and sold on the blockchain present a new opportunity for artists to get creative, engage fans and earn revenue. As prices soar, with some single NFTs commanding millions of dollars, artists including Grimes, deadmau5, Ozuna and Shawn Mendes are all getting in on the action.
If NFTs are where the music industry is headed, what do you need to know and how do you launch your own? There’s a lot to understand, so we’ve simplified the process with an easy guide covering everything from cryptocurrency basics to “minting” and why an artist’s first drop is the most important.
Understanding NFTs: The Basics
In simplest terms, NFTs are digital collectibles bought and sold on a blockchain. “Non-fungible” just means that these items are one-of-a-kind and irreplaceable. (By contrast, currency is fungible because if two people exchange dollar bills, each will end up with the same thing at the same value.) Almost anything can be sold as an NFT — from the Nyan Cat to Jack Dorsey’s first tweet — but for now, it’s helpful to think of an NFT as the virtual version of a rare trading card.
NFTs are bought and traded on a blockchain, an immutable digital ledger that records transactions between two parties in a verifiable and permanent way. While physical collectibles come with the possibility of counterfeit copies (think knockoff designer handbags), blockchain means that NFTs are embedded with their own proof of authenticity. Yes, anyone can view an NFT online, take a screenshot of it or listen to the accompanying music, but the NFT itself is completely unique.
Creators also set “smart contracts,” lines of code written for each NFT that automatically execute behaviors, such as giving the creator a cut of the resale total (typically 10% to 25%) each time the token is resold in the future.
NFTs typically exist on the Ethereum blockchain, where the native cryptocurrency is Ether, the second-most popular cryptocurrency after Bitcoin. While Ether is a fluctuating currency, at time of writing, 1 Ether equals roughly $1,800.
Importantly, NFTs are different from fungible social tokens, a form of cryptocurrency popular among celebrities and influencers which tokenizes fandom by giving owners special privileges. For example, enough of Lil Yachty’s YachtyCoin can buy the owner an appearance in a music video, a virtual meet-and-greet, exclusive merchandise and other perks; while Portugal. The Man’s $PTM gives token holders access to unreleased music and exclusive livestreams.
Given the ability to verify, easily track and reap resale money from NFTs, they make a lot of sense for creators. But what compels a fan to buy one?
The same reasons people collect and trade physical collectibles, from rare artwork to streetwear. NFTs simply bring the concepts of scarcity and “drop” culture to the digital domain.
NFTs are also highly fan-centric, offering people the chance to own a digital piece of art which represents their fandom for an artist, while at the same time, making an investment in something they can potentially resell for much more money down the line. In this way, NFT auctions also allow the market to determine an item’s value (rather than the creator or owner), a concept that was previously nonexistent in the music industry.
To paraphrase a widely used example, anyone can take a photo of the Mona Lisa, buy a keychain of the work or print it out from Google Images. But no one would argue that any of those things substitutes for the priceless real artwork, of which there is only one, with only one owner.
So You Want to Mint An NFT
So far, most musicians’ NFTs have taken the form of audiovisual loops: An image or video set to a music clip on repeat, like producer RAC’s “Elephant Dreams,” which sold at auction for $26,000 in October. Musicians need not be visual artists themselves to work in this format, though. Many artists use NFTs as an opportunity to collaborate with visual artist partners, like 3LAU, who has worked with digital art provocateur Slime Sunday (a.k.a. Mike Parisella) on multiple drops, and deadmau5, who has dropped NFTs in partnership with Mad Dog Jones, a digital artist known for post-apocalyptic cityscapes.
But there are endless other ways to present NFTs, presenting opportunities for artists across genres and audience bases to participate. NFTs can be tied to singles and album releases, like Kings of Leon’s “NFT Yourself” collection tied to the band’s March 5 album, When You See Yourself. They can take the form of virtual clothing for avatars, as Shawn Mendes chose in February. If you ask electronic artist Yaeji, NFTs can even be digital pets.
NFTs can also be used as concert tickets, cutting out scalpers, or redeemed for other experiences. For example, 3LAU sold an NFT which included the chance for the buyer to record a song with the electronic producer for $3.6 million on March 3, marking a new world record for the selling price of a single NFT.
Most marketplaces accept NFTs in jpeg, png and mp4 format, at the least. However, each marketplace has its own file upload requirements (including maximum file size), so it may be helpful to choose a marketplace and be knowledgeable about file requirements before you begin creating an NFT.
Marketplaces & Minting
If an artist incorporates his or her music into an NFT, but doesn’t own 100% of the recording and publishing rights, that artist will need to sort out the proper licenses. But more on that in the next section.
Once an NFT is ready to be sold, the next steps are creating a digital wallet to store cryptocurrency, purchasing Ether and connecting the wallet to an NFT marketplace.
There are many digital wallet options, but some of the most popular are Coinbase, MetaMask and Rainbow. You’ll need to purchase some Ether to cover the cost of the final step: “Minting,” a process which involves uploading the NFT to a marketplace and setting the rules in a smart contract. Minting requires paying for “gas,” the fluctuating price for writing data onto a blockchain. At the moment, it costs roughly between 0.022 and 0.056 Ether ($40 to $100) to mint an NFT, but that changes minute-by-minute.
By this point, you’ll need to have selected a marketplace, where you’ll connect your digital wallet and mint your NFT. There are more than a dozen NFT marketplaces in existence, but so far, OpenSea, NiftyGateway, SuperRare and Zora have proven the most popular amongst musicians.
Launched in 2017, OpenSea is the earliest established NFT marketplace. It frames itself as the “eBay” of NFTs, since the platform is open to all kinds of tokens from domain names to art, and anyone can sell on the platform, so far including superstars like Kings of Leon and Shawn Mendes. As of December, OpenSea has promoted itself as the first marketplace to allow creators to mint and sell NFTs for free (read more about that here).
Then there’s Nifty Gateway, a curated marketplace which was acquired by early crypto investor twins Cameron and Tyler Winklevoss in 2019. So far, new artists have to apply to post their work on Nifty, which has worked with the likes of deadmau5, Grimes and Steve Aoki. It is one of the only NFT marketplaces which accepts payment by credit card (allowing even fans with limited knowledge of cryptocurrency to dip their toes into collecting).
The fast-growing Zora was founded last May with an emphasis on giving creators ownership over their works, and has since made waves in the music space. In February, the platform collaborated with record label and management firm IAMSOUND on an NFT art exhibition featuring original work by artists like Mura Masa, Toro y Moi and Yaeji (including that digital pet fish, which sold for more than $27,000). On March 10, Zora (where minting is now open to the public) worked with a group of 20 emerging artists including VÉRITÉ to launch Catalog, a music-specific NFT marketplace which allows artists to sell songs as NFTs and receive 100% of their initial sale.
The three-year-old SuperRare — home to works by 3LAU, RAC, Lil Miqeula and more — is another heavily curated platform, onboarding a small number of artists each month through an online application form. And there are more marketplaces still to explore: Check out Origin, Foundation, Blockparty, Emanate, Rarible and Dapper Labs, to start.
During the minting process, creators will also select how their NFT will drop. There are two main ways to drop NFTs: Auctions and limited sales.
In an auction, collectors bid on a single copy of an NFT, known in crypto vernacular as a “one-of-one.” (A silent auction is the same thing, except that bids are not made public.) Auctions make sense for NFTs, since scarcity is what drives value in this market. But not every artist has a fanbase capable of ponying up the money these items usually demand.
That’s why some artists might consider pairing an auction with a limited sale, in which case there are a limited number of copies of an NFT available, each at a fixed price. (To clarify, even though these NFTs are “copies” in that each one may look the same, they are still non-fungible in that each is a unique asset with its own line of code and trading history on the blockchain. There’s also such thing as an “open edition” or “open sale,” in which case there are unlimited copies of an NFT available, but only a limited amount of time during which to buy them.)
A useful example of how these two types of sales can work in tandem is Grimes’ “WarNymph” NFT collection, a collaboration with her brother, Mac Boucher, that went on sale in February. The highest-selling single item in the collection was “Death of the Old,” a one-of-a-kind video involving a cross, sword and flying cherubs and set to an original Grimes song, which sold at auction for nearly $389,000. However, the collection also included two otherworldly audiovisuals (here and here) which sold hundreds of copies for $7,500 a pop; plus four cherub stills, each of which had 100 copies available at $20 each. The sale allowed a range of fans at different levels in their NFT journeys to participate, and the collection raked in a total of $6 million.
But Wait! Considerations for Artists
Don’t Rush Into It
Amid the music industry’s current NFT frenzy, it can be tempting to jump in on the action as quickly as possible. But as Cooper Turley, crypto strategy lead at Ethereum-powered music streaming service Audius, cautioned in a recent Medium post, “You only get to drop your first NFT once.” Most artists see a decrease in sale price from their very first NFT to subsequent ones, since — again — the market for NFTs relies chiefly on scarcity.
The first drop “is not something to be rushed or half-assed as there truly are no do-overs,” Turley wrote. Instead, an artist venturing into the NFT world should spend the most time and effort on their first token.
Don’t Forget Copyright
If an artist owns 100% of the recording and publishing rights to his or her music, then incorporating that music into an NFT is simple. But this is rare, and most artists will need to license music — even if it’s their own — in order to use it in an NFT.
As NFTs are a relatively new art form, there has yet to be a clear consensus on the copyright law surrounding them. Of course, the licenses needed depend on what form the NFT takes, but audiovisual NFTs would seem to require, at minimum, a synchronization license to marry audio with video (usually from a publisher) and a master license to reproduce the song recording (usually from a label). Both licenses are non-compulsory, meaning that the rightsholder has free rein to decide their price or refuse to grant a license at all, “just like a sample clearance,” says LaPolt Law founder and owner Dina LaPolt, who represents deadmau5.
LaPolt warns that although NFTs are hailed as a means to give creators ownership over their work, artists may need to fight to keep control of the art form as labels and other stakeholders move in on the new revenue source.
“The record company will want to create the NFT and give the artist a royalty or a piece of the pie,” she says. “Then, you have the record company controlling it just like the recording, and you lose control of how you distribute the NFT.”
Most blockchains, including Bitcoin and Ethereum, operate on something called a “proof-of-work” model, in which “miners” (computers running software) compete against each other to validate transactions to be added to the blockchain and earn cryptocurrency as a reward. The system is meant to keep the ledger accurate and prevent tampering in the absence of a third party (like a traditional banking system), but it sucks up an enormous amount of energy in the process.
The exact amount is difficult to quantify, and estimates vary, but Digiconomist estimates that the Ethereum network on which most NFTs exist uses up nearly 13 metric tons of CO₂ per year, comparable to the annual carbon footprint of Ivory Coast. This has led some artists to rule out NFTs for now. On March 12, English jazz artist Jacob Collier halted a planned NFT charity auction, electing to “postpone it to a time where the methods are more sustainable and ecologically sound,” he wrote on Twitter.
But NFTs represent only a small subset of all activity on Ethereum, and some companies and researchers present evidence that while Ethereum itself is energy-intensive, NFTs are not actually increasing emissions. That’s because even though Ethereum is constantly processing transactions, the number of those transactions doesn’t actually change the energy consumption of the network, which would run constantly regardless, Cambridge’s Bitcoin electricity consumption index and SuperRare have both argued. In this way, criticizing NFT collectors for the environmental impact can be likened to saying travelers are harming the environment by buying plane tickets — it’s not completely wrong, but it’s not the full picture.
What’s really needed, many crypto leaders argue, is a new system to replace proof-of-work in the first place. That might be coming: The most popular idea so far is to move toward a “proof of stake” model, in which users would lock some of their own cryptocurrency in the network to show their commitment to keeping the ledger accurate. NBA Top Shot, a popular marketplace for NBA highlights as NFTs, already operates on this model, and Ethereum has been promising to move over to it for years.