Turns out a lot of claims about NFTs were just a lot of hot air
Back in the innocent days of early 2021, I was stuck at home as Omicron raged, and desperate for human contact. And something called “NFTs” were roaring into life as other bored people at home decided to thrill seek by buying things.
As the two things converged I found myself taking a lot of calls from people who wanted to explain NFTs and how awesome they were to me. If I’d listened to them I would have made a lot of money…but that’s never been my game. A crypto-skeptic from jump, I was impressed by a few things that I kept being told. One was that the blockchain was a secure home for contracts so no one would ever dispute one again. A fireproof filing cabinet is also a secure home, but sure.
The other was that the blockchain would store contracts and royalty payments – so that when an oh-so-collectible NFT was resold the original artist would get a royalty – typically 5-10% paid by the reseller. This is a sore subject in the art world, with royalties rarely being paid even when art goes up in value and gets sold, so the idea that this would be enforceable on the blockchain was an appealing one…and just about the only positive thing I could see about the whole craze.
Well, fast forward to the end of 2022, and just about two years later crypto itself has cratered, Madoff-pyramid-scheme-style, and Reuters reports that NFT sales are down 99%, the lowest point in 15 months. And suddenly we’re seeing headlines like this:
If you are reading this and can still hold your mobile device evan as you roll on the floor in a fit of “I told you so” laughter, here’s a little bit more about how NFT royalties were never guaranteed.
As sales sank, NFT marketplaces have been increasingly ignoring artist royalties, as Brady Dale at Axios reported about a month ago. And despite what every one was telling me two years ago, it turns out, royalties were never actually “written into the blockchain,” as Brady writes:
A part of the popular narrative around NFTs was that royalties were built into the operation of the blockchain. This was never true.
“Honored the request”! B-but I thought the blockchain was IMMUTABLE LAW THAT LASTS FOREVER!?!?!?!?!? I was told it would do everything for me and then make me oatmeal for breakfast.
But as NFT prices get lower and lower, royalties are increasingly being ignored: Magic Eden and LooksRare, among the larger NFT marketplaces, have made royalties optional. OpenSea, the largest NFT marketplace, has been waffling on the whole thing, but due to pressure from creators, had to announce that they would be encouraging payment of royalties, including offering a tool blocking sales on platforms that don’t recognize them. OpenSea CEO and co-founder Devin Finzer was just SHOCKED, totally SHOCKED, at the pushback from creators.
Devin Finzer, co-founder and CEO of OpenSea, told Decrypt that the firm analyzed market data and spoke with creators ahead of its announcement, and that it hoped to open a dialogue with more of the NFT community. Finzer said that his team was “surprised” by the level of pushback, which he attributed to the “ambiguity of how we were handling existing collections.”
“Our goal there was really to start a conversation with creators. And I think we really did, in many ways,” said Finzer. “A lot of people came out super active, wanting to tell us their perspective. In some ways, while it was a mixed reaction, it was actually a really healthy discussion.”
I’d like to repeat again: despite what we’ve been told over and over again by those who thought NFTs were a revolution for artists, blockchain contracts do not automatically enforce royalty payments. As Art Newspaper reported:
Even though NFT creator fees are contracts, blockchain code cannot actually enforce token transfer stipulations, rendering those contracts essentially voluntary by design. From an operational perspective, royalties were never guaranteed on the blockchain; instead, the documentation of each NFT only requests a royalty, a procedure that platforms have previously honoured in more favourable market conditions.
In fairness (?) some of the NFT marketplaces and crypto currencies are taking creator rights more seriously. Tezos, the proof of stake based blockchain is generally considered more creator friendly, and Cardano NFTs, a protocol that back creators, has become the third largest market after Etherium and particularly Solana, which has been ignoring creator fees as the market gets smaller and smaller.
And no, I don’t really understand what I just wrote, either. If “NFTs will guarantee resale royalties” is just a lie, then maybe “proof of stake blockchains use way less energy” is also a load of horse manure. As I have also been saying over and over, it seems like, in the long run, the biggest opportunity that NFTs offered artists was to get paid insane amounts of money while the market was hot. And unlike the internet Calvinists who preach about artists needing to make money and then get angry when they do, I’m not particularly fussed at those who chose to cash in.
Through this whole ordeal charade, whenever I heard the term “gas fees” I kept wondering if NFTs were just a lot of hot air; sadly, claims that art on the blockchain would guarantee artists passive royalty payments have absolutely turned out to be just a lot of bullshit.
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