What Does NFT Mean And What Are NFT Royalties?

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We bet you have heard about NFTs because they are everywhere! And we are guessing that if you are reading this article, you are probably a bit confused and trying to understand what it is all about. Luckily we are here to help you.

NFTs are revolutionizing the world in all aspects, from music and art to brands and business experiences, you can even find the weirdest things in an NFT marketplace, like pet rocks! Lots of people are intrigued by this world and ask questions such as ‘what does NFT mean’, ‘what NFT should I buy’, ‘where NFT is used’, ‘are NFT worth it’, ‘what are NFT royalties’ and we can answer some of those questions. But let’s not rush and start with the most important question:

What Is An NFT?

NFT stands for Non-Fungible Token, this means that it is a digital asset that is unique, that can not be replaced with anything else. To understand this, let’s talk about bitcoins: they are fungible because they can be traded for another bitcoin, but they are not unique. However, NFTs are unique and unrepeatable, this is one of their main characteristics. Once you own an NFT, no one else can have it unless you want to sell it, of course.
NFTs can be, for example, music, drawings, films (not that common but there are some out there), GIFs, and collectibles, but the current hype is around digital art. The whole NFTs world supports content creators and artists and gives them an opportunity to sell their art; they no longer need to economically rely on art galleries or auction houses.

But as we said, not only artists are jumping into the NFTs’ world, but celebrities like Lindsay Lohan or big companies like Taco Bell are also selling their own NFTs. The huge popularity of the NFTs comes from the opportunity to make money and, most importantly, that anyone can understand how to create an NFT and how to sell them.

How Does An NFT Work?

Now that we know a little more about NFTs, let’s talk about how they work. NFTs exist on a blockchain, this is a digital ledger of transactions that is distributed across the entire network of computer systems. Thanks to blockchain technology, NFTs’ authenticity and ownership can be certified.

The NFTs are known by their properties which are that they are unique, as we’ve mentioned before, indivisible, of non-transferable identity and limited. These tokens, which are limited and rare, are certified by certain token standards, like Ethereum’s ERC-721, which introduces a standard for NFT. The ERC-721 standard describes how to build unique tokens, this means that there is no other like it. There is also another variant that can be ERC-1155 tokens. This way, you know that an NFT is unique, indivisible, of non-transferable identity and limited.

What Are NFT Royalties?

You might be wondering, are royalties part of the NFT world? The answer is yes! Usually, royalties as we know it, pay the creator a percentage of sales. When it comes to NFTs, royalties pay the NFT creators for the use of their NFTs. Basically each time the NFT creation is sold, the original owner receives a percentage of the sale price. In the majority of the NFT marketplaces, the owner can choose their royalty percentage, although 5-10% is considered average.
The payments of these royalties are automatic and perpetual made by smart contracts. There are no intermediaries needed since these smart contracts are the ones in charge. Smart contracts are key for these transactions since they make sure there is no tampering in the process. They operate and execute tasks automatically, without the need for humans involved. Of course, the royalties must be written into the terms and then, the rest is taken care of automatically.

How do NFT Royalties work?

Artists of all kinds, musicians, and content creators are given the opportunity to make money through NFTs royalties. Quick note, Ethereum is the most used blockchain for buying and selling NFTs and the main currency used there is Ether.

So let’s say that you have created an NFT artwork and someone buys it from you. Now imagine that the person that bought that artwork from you, decides, at some moment, to sell it at a higher price. Also, let’s imagine that you choose a 10% royalty for your NFT. So, if this person sells your artwork to someone else at 500 ETH (Ether) you will receive 10% of this amount, which is 50 ETH. And what if the new owner decides to sell it again even at a higher price? Well, easy, you will get 10% of this new sale price.

It is very important to understand that the blockchain technology that operates in this world along with the smart contracts makes it super easier to be sure of the authenticity of the work, the author identification and that the royalty payments are made automatically when the transaction is over. With this technology, you can forget about fraud and fake work circulating.

Why Should You Use NFT Royalties?

We understand that the NFT world might be new and scary but once you get to know it, there’s nothing to be afraid of. Content creators and artists are benefited from this system.

It’s a way to earn money, and since NFTs are backed by the blockchain, it’s possible to track every sale made, which means that it is way easier to collect royalty payments. The fact that you can also set the percentage you desire for the royalties is awesome!

And of course, let’s not forget about the best part, the royalty payments are automatically made. Forget about hiring someone to manage your finances for royalties! Also, many artists are not always able to collect all royalties (for songs not registered properly, for example), these are the so-known unallocated royalties that due to missing information, the royalties are never paid. With blockchain technology and its database forget about that too, because it ensures you that you won’t lose money.

So if you are a content creator or artist, and you are wondering if it’s a good idea to submerge in the NFTs world, well… we hope this article helped you enough to know if it’s for you!

Are NFTs The Future?

A lot of people are wondering if the NFTs are here to stay and we think that yes because they not only offer a great business opportunity but also it’s something people enjoy while also making money. Artists, celebrities, athletes, musicians, and content creators, all benefit from the NFTs since they found an attractive and unique way to sell their goods. There will definitely be much more involvement of brands with the NFTs, and more celebrities, and people in general. Right now, NFTs are the new trend and everyone is making money out of it.

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