Over the past 12 months, the non-fungible token (NFT) market has exploded in both volume and media presence. But while the media buzz around non-fungible tokens may be shrinking, it’s now clear this new market will further grow. That’s because of the unique advantages these tokens offer. NFTs with royalties and standard are an excellent solution for ensuring the uniqueness and provenance of physical and digital assets in a secure and transparent way.
NFT ecosystem opportunities
Participants in the NFT ecosystem, depending on the case and role, find appealing the opportunity to invest in a new class of assets, to be part of a community, the opportunity to resell items for profit, and generally see the long-term positive impact of NFT technology.
One promise that has been present since the inception of NFTs, is the idea that there is now a new means for creators to monetize their work. More specifically, getting royalties for their works through the blockchain infrastructure. Users should therefore ideally benefit from a robust and flexible NFT infrastructure that can also integrate NFT royalties through a combination of Layer-1 features that allow them to monetize their work, whether it’s music, art, fashion items, patents or other assets.
In this way, blockchain technology can transform entire industries and support the creator economy. NFTs have gained popularity due to their ability to digitally represent something unique and scarce, which gives the holders full ownership rights over a particular asset. But it is also necessary for creators to be able to monetize the object created. For this, some platforms allow you to integrate royalties, which are payments to a creator, such as a musician, author or artist, every time a user purchases a copy of their work.
Royalties can be customized and can be used with unique artwork that is sold as a whole piece or even fractional. Each time the artwork changes hands on secondary markets, the artist gets a certain percentage for each exchange. On these platforms, such as Algorand, creators can easily monetize their work and have direct contact with fans. They can also customize the royalty scheme to accurately reflect their relationship with their audience. Traditional royalty systems are often flawed due to a lack of transparency. This causes huge losses to authors. Especially in the music industry royalties often go to the record company instead of the artist. Only in US, artists lose hundreds of millions of US dollars due to these missed payments. Basing the royalty system on the blockchain can therefore make sure that artists do not lose their income.
The current situation
Thanks to the NFT standards (ERC-721/ERC-1155) and their implementation on Ethereum, marketplaces easily transfer ownership of NFTs between collectors at the time of sale. With the current systems, creators have also already been able to benefit from royalty payments. Many have already been able to generate a new income. However, royalty information is kept in marketplaces and is generally not shared. This means that if an NFT is transferred from a platform and then sold, the creator will not receive the royalties they are entitled to. This limitation is due to the fact that, to date, an open royalty payment standard is not globally present in the Ethereum ecosystem.
The EIP-2981 standard
The EIP-2981 standard addresses this issue. This standard defines how to retrieve royalty payment information for non-fungible tokens (NFTs). The goal is to enable universal support for royalty payments across all NFT marketplaces and ecosystem participants. EIP-2981 essentially allows contracts, such as NFTs that support ERC-721 and ERC-1155 interfaces, to report a royalty amount payable to the NFT creator or rights holder each time a user buys the NFT. After nearly a year of discussions, the release of EIP-2981 took place on July 24, 2021. In some time, EIP-2981 will enjoy a wide support. Pressure from artists on marketplaces will accelerate adoption. Several marketplaces are implementing the standard in anticipation of demand for it. It is a form of competitive advantage over competing platforms.
Marketplaces will freely decide whether to support the EIP-2981 standard. Some famous names in the NFT landscape already support it. Therefore, it is very likely that other platforms will adopt it. In the long run it will be a must-have for every NFT platform.
Brightnode and EIP 2981
Brightnode has a focus on technological developments and the new opportunities they offer. The company is already actively involved in the creation of a marketplace based on the EIP 2981 standard.