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Web3Music, NFTs, Metaverse - is it all just a hype or what?

How can blockchain technology benefit musicians and the music rights landscape? Are NFTs really a new source of income or just another way to exploit artists? How do they work and what even are they?

Published on
Feb 1, 2023
Author
Amke Block
Guest Author

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Web3Music, NFTs, metaverse - is it all just hype or what?

NFTs and Metaverse are real buzzwords, along with the generic term "Web3" - the new evolutionary stage of the Internet. "Crypto" has an even more dubious reputation, after numerous spectacular bankruptcies of crypto platforms such as FTX recently and speculation around cryptocurrencies (above all around Bitcoin) have repeatedly made negative headlines. Pyramid scheme, fraud and environmental outrage are common assessments of Bitcoin, as well as for numerous NFT projects.
Is all of this true? How can blockchain technology benefit musicians and the music rights landscape?
Are NFTs really a new source of revenue or just another new way to exploit artists? How do they work and what are they exactly?

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The origins: Bitcoin, blockchain & the banking crisis

To answer these questions, I'd first like to expand on the broader topic a bit: Bitcoin's origins as the very first blockchain project lie in the 2008 financial crisis, when a web of super greedy banks triggered a wave of bank collapses by bursting their bad, unsecured real estate loans, shaking the global financial market. One answer to the dubious actions of these banks was the Bitcoin blockchain, which was described by its anonymous inventors (with the code name 'Satoshi Nakamoto' in a so-called 'white paper') as a decentralised, bank-independent solution for financial transactions. With the help of the blockchain technology developed for this purpose, an intelligent combination of encryption technologies, automatically running programs (aka "smart contracts") and distributed memories on which all (Bitcoin) transactions are simultaneously written in interlinked file blocks, independent and maximum security for financial transactions was to arise.

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Image 1: The blockchain combines three long-standing technologies

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To ensure that every transaction is really correct, the participants in the blockchain network validate its correctness. The consensus mechanism in the Bitcoin blockchain runs according to the "proof of work" concept - all participants are busy with highly complex calculations at maximum computer performance in order to validate the next block of transactions. Whoever finishes first receives a reward in Bitcoin and everyone saves the validated transaction in a new block in the memory chain on their computers. Therefore, anyone who wants to change anything about the transaction would alsohave to change all the cryptographically chained files on the different computers at the same time, which is not technically feasible. This means that the system tamper-proof.
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However, the consensus form "proof of work" is extremely energy-intensive, which is why all blockchains except Bitcoin have now switched to more energy-efficient, faster procedures (e.g., "proof of stake"), which are also forgery-proof.
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Bitcoin was taken up by so many initially leading to highly speculative performance in its first few years, with the highest valuation reaching over 60,000 euros per Bitcoin at the end of 2021. After that, Bitcoin's value began spiralling downwards, as did all the other countless cryptocurrencies that have been released into the world in recent years. Bitcoin currently stands at around 16,500 Euros, while its little sister, Ether, from the Ethereum blockchain network, can currently be bought for around 1,200 euros per unit.

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What does all this have to do with NFTs, music and Web3?

"NFT" stands for Non-Fungible Token, as opposed to "fungible tokens" or crypto-coins that are money metaphors on blockchains. The first technical standard for NFTs was developed on the Ethereum blockchain, where the developer community embraced a token that represented something unique. The Ethereum blockchain differed from the Bitcoin blockchain right from the beginning in that its "smart contracts", the programs that run automatically under defined preconditions, were allowed to do more than just coin transactions from A to B. As a result, the automatic programs could also map more complex conditions, creating many more possible applications, e.g. for mapping delivery processes.

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There are now numerous blockchains that are more efficient, faster and also more environmentally sustainable in their operations than the Ethereum network. They all offer tokens as value metaphors, both money-like tokens/coins and representatives of non-exchangeable values, i.e. NFTs.

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DEFINITION "Non-Fungible Token"

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NFTs are blockchain-based, programmable certificates about access rights to events and/or to files.

The use cases for NFTs are manifold - they can stand for a digital artwork that is stored as a JPEG somewhere and referred to by a link in the token. The token is at that moment a kind of certificate, which gives information about the existence of this JPEG under the given storage location and about whom the (current) owner is.

Since the certificate is stored as an NFT in a blockchain, it is forgery-proof and transparent, as well as publicly viewable by anyone. Therefore, an NFT could also be used for patents or notarial deeds, which is already the case in some countries (e.g. Georgia, Ukraine, Brazil).

However, a ticket is also perfect for use. It gives access to something unique: an event at a certain time, at a certain place, for a certain person at a predetermined place. This event can be, for example, a real concert, sports event or a virtual event.

Ultimately, each individual copyright is also unique and inconvertible, thus, NFTs can also be representatives of copyrights and related ancillary copyrights.

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And finally we get to the music

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So an NFT can stand for an artistic work, of course, but also for a piece of music or audiovisual work. Β 
The hype around NFTs started at the beginning of 2021, with demand for both visual artworks and audiovisual art increasing and trading at crazy prices. The main reason for this was that the buyers were from the core crypto community. They got involved in blockchain and crypto currencies at a very early stage, speculated and, in some cases, were able to record large nominal increases in value.
The crypto community was into new use cases for the technology, which they thought was great, but it also had in part lost a realistic value connection to the coins/tokens they were spending on NFTs, in part because they only had paid a fraction when they purchased them.

Moreover, everything remained to some extent in the realm of financial speculation - it was not about art for art's sake, but more so its speculative value. Β 
The crypto and blockchain world is still suffering from this top-down view today. With finance in focus, other applications might appear worthless, being way behind the speculatively achieved sums of money of the hype phase.
Still, the Creator Economy in particular has produced numerous interesting use cases for musicians: the rather technical term "NFT" is gradually and deservedly receding into the background, and utility is making its grand entrance:

For artists, there are four major possibilities for NFTs at the moment:

- Digital Product / "Digital Vinyl"
- Digital Merchandise / POAP
- Ticketing
- Crowdfunding with the possibility to participate in future revenues

As with all products, the core of all NFT offers is that the fans, the customers, have to be reached. No product, no work, no piece of music sells itself. It must reach the ears and hearts of the customers.

Without marketing, without proximity to your customers, without communication with the community of fans, every new work and every new product will disappear into the digital underworld, drowning in the masses.

Dazzling success stories like the NFT series of the Bored Apes have shown once again that good storytelling and influencer/community marketing are the pivotal points for success. Technology is merely a vehicle. Β 

If you have a good connection to your community, you are already on the right track and can take advantage of NFTs.

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"Digital Product / Digital Vinyl"

We all know that income from streaming is only enough for a few artists to make a living. NFTs as "title deeds" allow to release digital products that do not have to obey the format requirements in streaming. Artists can express themselves freely, collaborate with others, bring their audiovisual ideas to life and sell them in limited digital editions via NFT certificates, without buyers necessarily being aware of the complex technology behind it all. There are numerous service providers that feel like "normal" stores, for example the Berlin startup Twelve X Twelve (twlvxtwlv.com), which has also entered into a partnership with GEMA (GEMA members receive discounted sales conditions). The name, by the way, refers to the old 12-inch format of a vinyl album.
If you want to try it out for yourself first, take a look at the NFT launch platform mintbase.io, for example. Here you can buy cheap NFTs, but also set up a store yourself.

What they all have in common is that artists have full access to their customers' data (within the limits of the law), which is a significant difference from the previous "platform economy," where the big services like Instagram, YouTube, and TikTok sit on the customers' data and profit from the content created by creators and the reach that it generates.

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Digital Merchandise/POAP

In addition to the "digital vinyl" release, digital merchandise is also conceivable. Here too, there are no limits to imagination and creativity, but it should appeal to the fans. Haftbefehl, for instance, offers digital trading cards via the platform Amuzed.io, but avatars or community icons are also conceivable.

Digital merchandise doesn't necessarily have to be sold, but can of course be given away first in order to retain fans.
A special phenomenon is POAP (poap.xyz) - short for "Proof of Attendance Protocol" - concert-goers can pick up a kind of collector's trophy as proof of their participation in the concert. The organisers thendisplay a poster with a QR code on it that attendees scan with their cell phones, gaining direct access to POAP. Some personal details are asked for, to which the artists then have access. For example, they can send their fans small souvenir photos from the concert to their account because direct contact is possible. Fans with a particularly large number of POAPs from a tour could then receive an extra ticket.

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Ticketing

As mentioned earlier, tickets are ideal use cases for NFTs - they are digital, unambiguous and prevent speculative black market prices or even counterfeit tickets. Artists and promoters can theoretically participate in resales and gain access to buyers' data, which in turn enables better direct fan engagement before and after concerts.

There are already some NFT ticket services in Europe, e.g. GUTS Tickets from the Netherlands or Mintix.no from Norway, as well as Biddz.io from Berlin, which recently started offering fan tickets in addition to crowdfunding NFTs.

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Crowdfunding through special NFTs

Crowdfunding is nothing entirely new:Β in the early 2010s, it was the new form of financing for artists. Platforms like Patreon enabled artists to find another form of marketing and interaction between their art and the fans. Just as it does now, it only worked then, with the help of a vibrant community.

In the age of NFTs, several platforms starting with Justin Blau's (aka 3LAU) Royal.io, have started selling NFTs that grant rights to future earnings of musical works. In Germany, this is offered by biddz.io and as of earlier this month, 360Xmusic.com, the parent company of twlvxtwlv.com. 360Xmusic.com is even cooperating with GEMA for this, issuing a so-called security token to legally secure the offer. Such securities come from the financial market and require a license from the German Federal Financial Supervisory Authority BAFIN because ultimately these are options for future cash flows, similar to stock options.

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Community First!

What all NFT types have in common is that they ultimately address a community of fans - fans and super-fans willing to support you with more than just streams on Spotify or YouTube. All offers to the fan community have to be coherent though. Both the artist and the fan have to understand them and stand behind them.

In Web3, every participant, i.e. person, software, smart contract program, even thing, is identified by a crypto ID, which means that every participant can be directly controlled. Only through this unique ID can a unique associated value be assigned. This is precisely what the term Internet of Value (IoV) stands for, which, like the term Web3, is used to describe the new evolutionary stage of the Internet.

Naturally, all activities are subject to existing laws. The Internet will not be a lawless space in the future either - anyone using NFTs must know the rules and also read the small print contained in the terms and conditions. This is the only way to define what the terms of use are and this applies to both creators and consumers.

NFTs are technical tools that can promote and support digital products and direct customer contact. As such, they are a great tool for artists and creators to offer new digital products to their followers and fans, and today we are still only at the very beginning of this development.

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Photo Credit image 1: https://media.coindesk.com/uploads/2017/03/3-techs-of-a-blockchain.jpg

Photo Credit cover picture: Β© istock/Andrei Metelev

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