Inside the Billion-Dollar Crypto Sensation.
1. Authentication and Reduction of Art Forgeries:
Every single artwork can be traced back to the creators, and the collector also receives valid proof of ownership. You can go to websites like etherscan.io and view the entire transaction history of your purchase.
2. Digital Editions:
Creatives can make limited digital series of their artwork, and all their editions can be traced back. (The YouTube star Logan Paul recently sold $5 million worth of NFTs, his own version of Pokemon cards) Say What!!
3. Compensation for Future Sales:
NFTs contain highly trustworthy documentation of their history and origin and can have code attached to do almost anything programmers dream up (one popular feature is code that ensures that the original creator receives royalties from secondary sales).
A percentage of an artwork being resold gets compensated back to the original artist, which incentives the creators to create more. There is a caveat, though. Currently, the method that few platforms use for paying creator shares is not reproducible on secondary markets. The creator share percentage is only paid out if the secondary sale also occurs on the platform it was first sold at.
4. Fractional Ownership:
“With NFTs, you could collect a high-value piece and fractionalize it, put it on a bonding curve, and sell fractional pieces of work to a bunch of people. Or, let’s say there’s a really popular artist, like Pak. Someone could bundle a bunch of Paks, and create an index fund around that. Similar to a commodities ETF, you could have exposure to Pak without owning a singular Pak because you have tokens that are a part of that index fund.”
Zack Honarvar, 27, the founder of the talent management firm One Day Entertainment, said that he and Airrack, a creator he manages, have been playing around with using NFTs to give fans “shares” of a YouTube video.“Before the video goes up, we could break it into, say, 10 clips, then mint those 10 clips as NFTs,” Mr. Honarvar said. “When someone buys that NFT, that person would be entitled to a one tenth split in ad revenue from the video. By buying in advance, you’d become a shareholder of that video.”
5. Fundamentally better economics for creators:
The first already alluded to above is by removing rent-seeking intermediaries. The logic of blockchains is once you purchase an NFT, it is yours to fully control, just like when you buy books or sneakers in the real world. There are and will continue to be NFT platforms and marketplaces, but they will be constrained in what they can charge because blockchain-based ownership shifts the power back to creators and users — you can shop around and force the marketplace to earn its fees. (Note that lowering the intermediary fees can have a multiplier effect on creator disposable income. For example, if you make $100K in revenue and have $80K in costs, cutting out a 50% take rate increases your revenue to $200K, multiplying your disposable income 6x, from $20K to $120K.)
In case you were wondering How Does Platforms like Nifty Gateway make money?
On Nifty Gateway, whenever your work is bought and sold, you receive a percentage of the sales. As an artist, you get to choose what percentage this is — it could be 5% of every secondary sale or 50%. Nifty Gateway takes 5% + 30 cents of every secondary sale to cover credit card processing fees and to keep our platform running.
6. Granular Price Tiering
The second-way NFTs change creator economics is by enabling granular price tiering. In ad-based models, revenue is generated more or less uniformly regardless of the fan’s enthusiasm level. As with Substack, NFTs allow the creator to “cream skim” the most passionate users by offering them special items which cost more.
But NFTs go farther than non-crypto products in that they are easily sliced and diced into a descending series of pricing tiers. NBA Top Shot cards range from over $100K to a few dollars. Fan of Bitcoin? You can buy as much or little as you want, down to 8 decimal points, depending on your level of enthusiasm. Crypto’s fine-grained granularity lets creators capture a much larger area under the demand curve.
7. Converting users into owners:
NFT Market Distribution
The third and most important way NFTs change creator economics is by making users owners, thereby reducing customer acquisition costs to near zero. Open any tech S-1 filing, and you’ll see massive user/customer acquisition costs, usually going to online ads or sales staff. Crypto, by contrast, has grown to over a trillion dollars in aggregate market capitalization with almost no marketing spend. Bitcoin and Ethereum don’t have organizations behind them, let alone marketing budgets, yet are used, owned, and loved by tens of millions of people.
The highest revenue NFT project to date, NBA Top Shot, has generated $200M in gross sales in just the past month while spending very little on marketing. It’s been able to grow so efficiently because users feel like owners — they have skin in the game. It’s true peer-to-peer marketing, fueled by community, excitement, and ownership.
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