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Deep Dive

Doing Music Deals in the Metaverse? Experts Answer Your FAQs

Billboard asked a few of the top professionals working at the intersection of Web3 and the music industry to answer these frequently asked questions regarding the applications and potential uses of…

Billboard asked top professionals working at the intersection of Web3 and the music industry to answer these frequently asked questions regarding the applications and potential uses of crypto technology in the business

What are some of the most common use cases of blockchain technology in the music business today?

“To date, they are almost entirely focused on digital merchandise and collectibles. While this is a natural starting point, we believe that the next generation of products will leverage blockchain technology to make the music industry more efficient. We’ll shift away from digital merch and toward offering true ownership of music to fans — an approach that paves the way for a new era where artists and fans have aligned incentives and see each other as partners.” —Justin “3LAU” Blau, co-founder/CEO, Royal

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What are some of the most common cryptocurrencies, and what are the main differences between them?

“Three of the most popular cryptocurrencies today are bitcoin, ethereum and solana, with the latter two more heavily utilized in the NFT/Web3 ecosystem to date but nonetheless all maintain a fair share of early growing pains. While bitcoin maintains the largest market cap of all digital currencies by a hefty margin, the prominent differences among these currencies relate to their technical architecture. Ethereum is currently leading the pack in integration of Web3 applications — real-world utility — but solana gives ethereum a run for its money in both transaction speed and costs per transaction. Transaction fees, known more casually as ‘gas fees,’ are of utmost priority in the blockchain landscape today, given the need to significantly decrease these costs to allow for more mainstream adoption.” —Shara Senderoff, partner/president, Raised in Space; founder, Something Gold

Can the trading of NFTs be regulated like securities?

“While some NFTs may fall under the Supreme Court’s definition of a “security,” the use cases for NFTs are continuing to evolve. An NFT of a [master recording] can be fractionalized and sold to multiple holders to fund its production and offer equity in its hopeful success, and another NFT of an individual’s doctorate diploma can be minted for authentication and personal preservation. Though the former NFT may fall under the definition of an investment contract, the latter would likely not. Even when an NFT has no clear economic use case, its definition as a security may turn on the way it’s marketed to potential purchasers. For example, if the seller is advertising future profits due to its own managerial efforts, it could be considered a security, whereas an NFT advertised for recreational use rather than for investment should not be considered a security. The hope is for existing regulatory frameworks to continue evolving to provide room for on-going innovation to advance.” —Gai Sher, senior counsel, innovation and technology group, Greenspoon Marder

If I buy an NFT, do I own the copyright of what I purchased?

“Not necessarily. An NFT is a sequence of unique code on a decentralized digital ledger called a blockchain. When you purchase an NFT, you are purchasing this sequence of code that is distinct from any assets associated with or linked to the code, [such as] works of art, music, videos and physical collectibles. The intellectual property [IP] rights in any work underlying an NFT are held by the author, unless such rights are assigned or licensed away. When you buy an NFT, your license to any assets linked to or associated with your NFT will be provided by the applicable seller or creator of your NFT and will determine your rights and restrictions in its underlying assets. While most NFT sellers grant buyers a limited license to exploit the underlying work for personal use, some notable NFT collections like Bored Ape Yacht Club, CryptoKitties or World of Women also grant buyers more expansive licenses, including rights to commercialize the associated works. As a buyer, understanding what rights you are receiving with your NFT could change your assessment of its value.” —Gai Sher, senior counsel, innovation and technology group, Greenspoon Marder

Why are cryptocurrency prices so volatile?

“While not all cryptocurrencies are volatile, [such as] stablecoins like USDC, USDT and DAI, in the very simplest of terms, prices of cryptocurrencies are often so volatile because most of the value of the currency is based on whether or not people want to buy or sell it. Often these decisions can be made based on short-term gains and losses and not based on the underlying tech the tokens represent. The United States has had stock exchanges since the late 1700s, so comparatively, crypto is a very new asset class. Generally speaking, the longer an asset class is around, the less prone to fluctuation the market gets. While crypto has seen its share of dramatic spikes in both directions, as they say, ‘Zoom out!’ And if you zoom out far enough, you’ll find that charts across asset classes don’t look all too dissimilar.” —Ian Galdy, marketing director, Serotonin

Why are some music companies, like UnitedMasters and Prescription Songs, giving artists and writers the option to be paid in cryptocurrency?

“Giving artists diversified tools helps build their independence, and that includes the way artists get paid and their ability to transact in different ways. It also helps further financially empower their success. As the creator economy scales, more artists are looking for different ways to build their own enterprise, and it is important to provide a myriad of financial tools for more economic opportunity. We hear more and more artists taking interest in the idea of ownership, and the technology behind cryptocurrency fuels that.” —Sally Shin, chief strategy officer, UnitedMasters

How can Web3 help artists connect with fans?

“Many of the applications of Web3 exist around community ownership that lets the fan hold part of what they support. We’ve seen that when fans own part of a community or project, they become more vocal about the musician and their content. Years ago, participating in your street team would get a fan a high-five, a sticker or an MP3 from an artist… all things that don’t hold much value today. These days, your street team members can hold a token or NFT that not only offers them community perks and access but allows them to share value in the musical community that you’re building together. In a world of content overload, this allows fans to be directly engaged and build stronger relationships with artists. Web3 tools are building more transparent and equitable communities in ways that allow artists to grow communities without intermediaries.” —Bryce Carr, director of creator partnerships (music), Rally

Why do Web3 communities love using the app Discord?

“I think the first thing to note is that Discord is completely free of algorithms, which attracts people who may be suspicious of social media and big tech in general. It’s also super customizable and allows for a blend of text, voice and video chat — a range of communication modes is a huge bonus to anyone engaged in intensively building communities. Finally, Discord servers are semigated communities, where users have to be invited to join. This creates a sense of safety and exclusivity within Web3 communities and largely protects them from the social media backlash they may face on more traditional platforms like Twitter.” —Kat Rodgers, community manager, Water + Music

What are the possible applications for decentralized autonomous organizations in the music industry?

“DAOs expand what is currently possible online by providing tools to quickly and easily create trusted financial agreements between strangers across the world. I can see many labels, bands and production crews emerging from a Discord server [the app where most DAOs convene] this way already. DAOs, smart contracts and NFTs will also be invaluable in managing IP in the music industry to come. I specialize in [artificial intelligence] and music and have created a DAO, called Holly+, to manage my digital likeness. I released an instrument where anyone can make music using my voice, and a DAO of stewards can vote on appropriate use. If approved, a creator can sell works using my voice, with a portion of profits going back to the DAO treasury to create more tools and a portion going to me directly. I believe that in a decade it will be common for people to release music in the likeness of other artists — I call this process ‘spawning’ rather than ‘sampling’ — and blockchain-certified identities and DAOs are very helpful in managing that.” —Holly Herndon, artist; podcast host, Interdependence

Is crypto mining bad for the environment, and if so, are there any ways to lessen its impact?

“Crypto mining — the process by which new units of digital currency are created — does require energy to verify and add new transactions to blockchains, particularly with proof-of-work [POW] blockchains. With POW, blockchain solvers, or miners, must solve complex mathematical puzzles and process a block on the network, which requires significant energy use. But with proof-of-stake [blockchains], solvers are only required to post cryptocurrency as collateral for the opportunity to successfully approve transactions. This process is not only faster, but according to recent studies uses 99.99% less energy.” —Adam Fell, co-founder/board member, OneOf