What are music NFTs, and how can they be invested in?
A quick overview of NFTs
Before we can get into investing in music NFTs, we need to understand what NFTs are. If you’re already familiar, you can skip ahead to the next section.
Blockchains enable two types of transactable records (referred to as “tokens”): fungible and non-fungible.
Fungible tokens are indistinguishable from one another and can thus be exchanged with true one-to-one value. The majority of cryptocurrencies fall into this category. Remember, there are no discernible differences between one BTC and another.
Tokens that are non-fungible are intentionally marked with unique identifiers, allowing them to be distinguished from every other token in existence. Think of serial numbers printed on paper currency.
When hype takes hold of a market, as it has in the art NFT space, the best way to cut through the noise is to remember what the product/technology in question is all about. Consider what NFTs can bring to this industry, community, and system.
NFTs are currently referred to as ‘digital ownership.’ But that’s not all they’re about. NFT technology can be applied to almost anything that can use unique identifiers. Not only for digital ownership, but also for digital access, community, and identity.
NFTs can be used by metaverse residents for real estate, clothing, and personalization. NFTs can be used by DAOs to designate specific roles for members to fill, or simply to signal group membership in a personal way.
Collectors can add to their trove without having to worry about rust, dust, or storage. As NFTs, venues can issue collectible admission tickets. Art collectors can now digitally own works by their favorite artists.
Perhaps more than any of these examples, NFTs are reimagining music as both an art form and a business-and more importantly, empowering creators.
PleasrDAO recently purchased the sole physical copy of the Wu-Tang Clan album “Once Upon a Time in Shaolin,” citing it as the “ultimate protest against middlemen and rent-seekers of musicians and artists.”
Music NFTs can do what PleasrDAO did with the album digitally. Digital album artwork, favorite lyrics and audio clips, even behind-the-scenes content or unedited sound bytes, can all be minted with unique identification, providing collectors with a new way to connect with the artist and express their interest.
Artists and venues, on the other hand, can issue NFT concert tickets, which become collectible and tradable items in addition to granting concert access. Transaction fees can be built into the smart contracts that sit beneath the NFTs to pay artists a royalty every time one of their NFTs is bought or sold.
Music NFTs allow fans to truly own the music they love. Streaming rights and smart-contract-disbursed royalty payments may be included with sound clips and digital artwork. Royal, a music NFT marketplace that allows users to purchase shares of songs and earn royalties on the music they’ve invested in, is one example of this in action.
Fans can support artists by purchasing unique non-fungible tokens, and artists can in turn include fans in ownership of what they create. NFTs are transforming the music industry from an exploitative contractual system between label and artist to a collaborative symbiosis between artist and fan.
Artists have historically been on the short end of music distribution deals, with up to 50% of revenues frequently going to agents, lawyers, and distributors. The above-mentioned uses for music NFTs vastly expand revenue sources for artists and allow even small artists to break free from label constraints.
This liberation is already underway, with projects such as Audius developing decentralized streaming platforms to distribute music in the absence of legacy systems. Morgan Chittum of Blockworks reports:
“Audius launched a peer-to-peer NFT music streaming service that allows users to upload their own music and monetize through tokens rather than royalties in order to disrupt this system that has frequently failed artists.”
Music NFTs, whether as merchandise, royalty portions, or artist access, can also be used to fundraise. Fans can invest in an upcoming album and receive NFT assets in exchange, allowing artists to create work without the need for label funding. Devotees gain direct access to streaming, early-stage collectible merchandise, and, in some cases, ownership of a portion of streaming rights.
How to Make Money Investing in Music NFTs
Music NFTs are ushering in a new, purer paradigm for the music industry that benefits both fans and artists. The best investments are those that make the world a better place without sacrificing profit, and the ethical investor understands that in an ethically conscious society, profit follows people.
Music NFTs are an impactful investment vehicle, and the good news is that many would-be investors are ahead of the curve. There are currently three main ways to invest in music NFTs: funding NFT marketplaces, starting NFT collections, and leveraging NFT funds. Let’s take a look at each one individually below.
Earlier this year, Coinbase announced the launch of an NFT marketplace; OpenSea reached $3 billion in monthly volume; and Visa is arming NFT creators. NFT marketplaces are rapidly emerging, and the music industry is beginning to follow suit.
There are already a plethora of NFT marketplaces to choose from, many of which are publicly traded companies or organizations with native cryptocurrencies in which investors can invest.
Music NFT marketplaces differ from art NFT marketplaces in that they are designed to foster relationships between artists and fans rather than simply facilitate sales, so music platforms vary culturally. Frontrunners in the movement include Todd McFarlane and the previously mentioned Royal.
Collections of NFT
Investors looking to add a personal touch to their portfolio can begin an NFT collection by purchasing NFTs from artists they admire.
While investing in a marketplace is similar to (and sometimes identical to) investing in a stock, beginning a music NFT collection is similar to purchasing art. Aesthetic value, personal interest, and collectibility must all be considered in accordance with one’s personal priorities.
NFT indexes are emerging as risk-averse alternatives. If a personal music NFT collection poses too much risk, investors can seek exposure through offerings such as the Bitwise NFT index fund.
NFT collectors in certain parts of the world, on the other hand, can use their personal NFT collections as loan collateral, allowing them quick access to capital and offsetting the sometimes slower liquidity of NFTs.
NFTs are reimagining cultural and artistic expression through music, which is art. Investing in music NFTs isn’t just a numbers game; it necessitates an examination of the societal ethos, one’s personal interests, and pop culture.
The best practices for investing in music NFTs are simple: find a trend, artist, or piece that speaks to you, then decide what combination of marketplaces, personal collections, and funds best suits your risk tolerance. Remember that when it comes to Web3 decentralization, collaboration and community always win.
Remember, have fun and don’t ever invest more than you can afford to lose.
I write about blockchain, crypto, NFTs and other disruptive technologies and innovations.