Can NFTs Change How We Value Music?

Last week, the Tennessee rock band Kings of Leon announced they’d be releasing their new album, When You See Yourself, as a non-fungible token (NFT) —a digital, blockchain-based collectible. In this case, it works a little like a deluxe edition or a bundle; the NFT comes packaged with a set of MP3s and an animated version of the cover art, as well as a physical copy of the vinyl.

These perks aren’t nothing, but it’s tempting to view the whole rollout as a cynical attempt to cash in on the hype around NFTs and get the band widespread media attention—and it certainly did. 

NFTs are everywhere right now, from the NBA to Taco Bell, and artists like Grimes, Yaeji, and Toro Y Moi have been testing the waters. Grimes sold a collection of visual art for over $6 million; 3LAU, an EDM musician, made $11 million by selling an album as 33 individual NFTs; and Mike Shinoda of Linkin Park has sold several multimedia pieces through the NFT marketplace Zora. The website XLR8R announced a dedicated marketplace for music NFTs earlier this week, and there’s a burgeoning cottage industry of NFT auction houses looking to bring these collectibles to the masses.

But behind the early-stage gimmickry is a genuinely intriguing question about the future of artist economies, and the ways we think about how music is owned. The music business has always been about assigning value to something that fundamentally resists precise valuation—who’s to say how much our favorite songs are worth?

For the better part of the last decade, the answer has been streaming services like Spotify and Apple Music, which offer access to a vast library of recorded music for relatively low fees. Their implicit pitch: access has replaced ownership. (When was the last time you purchased a song through the iTunes Store?) It’s a business model that’s responsible for revitalizing the industry; the decline of physical media sales left a massive hole in the market, and streaming services walked right in. Per the Recording Industry Association of America’s most recent year-end report, streaming now accounts for 83% of the entire industry’s revenue.

But small artists are getting squeezed harder than ever. The largest streaming services distribute money through a “pro rata” model, which rewards artists in proportion to their total market share: if you’re only listening to your favorite indie artist, your money is still going to Drake and Billie Eilish, since, according to Rolling Stone chart data, 90% of what’s streamed on Spotify is music from the top 1% of performers.

“Streaming is a wonderful technology, but because it is dominated by large tech companies, artists, engineers and the like don't have the ability to self-determine value,” said Ben Cronin, a member of the Union of Musicians and Allied Workers. He added that the pro-rata model has ended up gutting a “middle class of musicians” that can’t generate hundreds of millions of streams per month.

Spotify has decided to pay artists about $.003 per stream, but profits can be less than that. Cronin, who’s one half of the electronic duo Gilligan Moss, said his music was streamed 92,000 times in January; he got a check for $8.19.

Here’s a look at whether NFTs have the potential to change how music is valued, and create a new funding source for artists looking to make back some of the money lost to streaming.

What are non-fungible tokens?

In finance, assets are “fungibile” when they’re fully interchangeable. Bitcoin is a fungible asset, since each Bitcoin is worth exactly as much as any other. The same goes for dollars, which—though they can be torn or drawn on or otherwise physically altered—are always worth exactly as much as other dollars.

The idea with NFTs is that each one is unique, one of a kind or one of a very limited batch They’re typically built on the Ethereum network, and can take the form of anything on the Internet. Visual art and music are common use cases, but more intangible things like tweets can be tokenized too. An early example was CryptoKitties, a blockchain-based game focused on collecting digital cat NFTs. The closest analog today might be CryptoPunks—tiny, pixelated images of unique characters, some of which have sold for millions of dollars.

“But wait,” skeptics retort. “Why can’t I just screenshot the same art? Or stream the Kings of Leon album on Spotify or YouTube? What could possibly justify such high prices for things I can access for free online?”

Those are fair questions. Consider Nyan Cat, a looped animation of a cat with a pink Pop-Tart for a torso. It’s a ubiquitous GIF—an artifact from the early-2010s memescape that’s become a piece of Internet history. In celebration of its 10th anniversary, Nyan Cat was turned into an NFT and auctioned through an NFT startup called Foundation, where it sold for 300 ETH, or over $500,000. 

“Nyan Cat is an example of where this is going,” Foundation CEO Kayvon Tehranian told Decrypt. “Why is something like Nyan Cat going for 300 ETH? Because it's reached that level of stature within the Internet ecosystem. How many people know about that? Hundreds of millions? How many places has that been referenced?”

For Tehranian, NFTs are a way of ascribing value to a category of cultural phenomena that people already want to pay for. What was previously replicable and free is now, all of a sudden, discrete and monetizable.

“I think we're headed for a world in which every piece of media that's uploaded to the Internet will be represented as a token,” he said. “And so I think there will be many, many, many, many, many, many forms of value created in that process.”

It’s a phenomenon that extends well beyond cryptocurrency. What’s valuable about much of contemporary art is less the physical works themselves than the pieces of paper that certify ownership. It’s the same reason knockoff Yeezys aren’t worth anything, even if they’re nearly identical to the real thing, or why expensive sports memorabilia comes with a certificate attesting that it’s really that pitcher’s signature —the fact of authenticity is what you’re paying for, beyond the raw materials. 

What you’re really getting with an NFT is a hard and fast certificate of ownership that hypothetically should live forever on a blockchain. Even if you tokenized another Nyan Cat on another platform, it wouldn’t be the tokenized Nyan Cat.

The Grimes and Kings of Leon NFTs were issued in limited editions, which work like prints in the traditional art market; there’s more than one of each, but since the supply is always capped, they still work as collector’s items.

New opportunities for artists

Rather than just turning a song into an NFT and charging for ownership, the producer Jacques Greene went a step further. After exiting what he characterized as an imperfect publishing deal, he sold an NFT called “Promise” on Foundation, representing the publishing rights to a single of the same name. It’s not something that’s baked into the code of the NFT—instead, it was a “promise” to write the buyer into the contract.

Greene explained that “the last 10-15 years has aggressively told us that music is free and worthless,” and that while less invested fans might still want to buy music on Bandcamp or stream on Spotify, NFTs can be a new option for the diehards. 

“The direct line to patronage and putting your money where your mouth is, as far as your passions, is kind of cool,” he said. The buyer for Greene’s single turned out to be Trevor McFedries, who’s responsible for the virtual influencer art project “Lil Miquela,” and the high bid was nearly $24,000.

Charles Damga, who founded the venerable indie label UNO NYC and recently took a job at Foundation, told Decrypt that NFTs are a “much more democratized” funding opportunity for artists. If you ask him, they’re a complement to streaming services as opposed to a replacement. 

“I think like NFTs are beautiful in that they put the actual marketplace in the hands of the artists,” Damga said. “There’s interest here, and there's people that want to reward their artists in a real way.”

Where streaming services decide exactly how much a song is worth, NFTs are a way for artists to directly monetize what they create. Tehranian hopes NFTs will create new markets for creators that had been previously sharing their work for free online via the existing version of the Internet (sometimes referred to as “Web 2.0,” as opposed to an eventual crypto-based “Web 3.0”). “Instead of uploading it for free to a Web 2.0 platform, mint it as a token,” he said. “That token can then be directly monetized by you, by a collector. And then as you build out this collector base, you build out a market for yourself and for your work.”

And NFT platforms have commission structures that allow artists to stay tied to their work even after they sell it. On Foundation, the creator of an NFT gets to keep 10% of each subsequent sale on the secondary market. Zora is even more flexible, allowing creators to structure their own royalty payments.

A drawback is that those royalties are platform-specific, meaning that if you want to buy and NFT on Zora and resell it on Rarible, the creator isn’t getting exactly the same percentage. But the NFT itself will live in your wallet as long as the Ethereum network is up and running; if Zora and Rarible collapse tomorrow, existing NFTs won’t go anywhere.

Mat Dryhurst, an artist and technologist who hosts a podcast on Internet culture with his wife, the composer Holly Herndon, said that blockchain-based systems are “light years ahead” of streaming when it comes to prioritizing artists, and that NFTs are a way of rejecting platform risk. In contrast to Web 2.0, where a few big companies dominate, the protocols and smart contracts of the Web 3.0 era offer a chance to reconsider how value is distributed, and to whom.

“We've been living in this very docile state for 10 to 12 years where we just take what we're given,” he said. “Protocol thinking is: ‘What you want to do with these basic elements?’ and figure out a way to do it. Because if you do, and many will, I think the next 10 years will be very exciting.”

“It’s definitely more invigorating than just sitting around complaining about Spotify,” Greene said. “For the first time there's like, wow, something new that feels like there could be something here, and it’s kind of a nice feeling.”

Exclusivity, scarcity, and bad art

The flip side of this is an exclusivity problem: Jacques Greene can move an NFT for $24,000 because he’s a respected musician with a sizable following, and also because he’s embedded in the crypto community online. Foundation is an invite-only platform, and Greene got involved through Damga, with whom he’s had a decade-long relationship.

“Privilege in the cryptocurrency space is a huge, huge issue in terms of the barrier to entry and the people who are natively in the space,” said Damga.

Those people who are “natively in the space” have already established aesthetic norms which may deter certain kinds of artists.

Many of the most popular NFTs tend to feature images of Elon Musk, the Shiba Inu “doge” meme, and rocket emojis, along with plenty of Bitcoin logos and references to pop culture; they’re usually garish and didactic, pandering to the “extremely online” ethos of crypto’s wealthiest patrons. The digital artist Beeple makes flashy, sensationalist images in this vein (they might remind you of KAWS or Jeff Koons), which have been described by Spike Art Magazine as “a very boring sort of outsider art, made by nerds for other nerds.” He just sold a piece at Christie’s for $69 million; it was the third-highest price ever paid at auction for work by a living artist.

Mat Dryhurst suggested that headline-grabbing sales numbers and off-putting, explicitly crypto-themed artworks might not be a good indication of where NFTs are heading, or what they can do for the value of music. “For most people, right now, when they see crypto or blockchain and art, likely all they've seen is a Beeple GIF, and people making market memes on Twitter. I can understand why that would be kind of alienating. I'm not all that excited about that aspect of it.”

Even beyond these visual signifiers, there’s a danger in thinking about art as a product. The music that Grimes, Kings of Leon, and others have turned into NFTs is usually available to stream for free online, and paying thousands of dollars for a music NFT doesn’t preclude anyone else from listening—at least not always. For her first NFT release, Azealia Banks sold a one-of-one audio sex tape to a pseudonymous buyer for $17,000, and hasn’t released it elsewhere. As with the Wu-Tang Clan’s selling the only copy of Once Upon a Time in Shaolin to the fraudster Martin Shkreli, it’s a model premised on exclusion.

According to Mat Dryhurst, without guardrails, this sort of gatekeeping is “inevitable.” The protocols behind NFTs are just tools like any other: they’re neither exploitative nor inherently pro-artist. It’s the people behind the keyboard, coding these things into existence, who decide how equitable these systems can be.

“There's nothing stopping people from using these tools to create a co-op in which all profits are immediately on chain, distributed between everybody involved,” said Dryhurst. “You can build whatever utopian projects you see fit here, but I just don't think people are even in the habit of thinking about it.”

To be sure, a certain degree of exclusivity is inherent to the value proposition of NFTs. EulerBeats is a project looking to turn music into a pure investment play, with a set of 27 algorithmically generated audio tracks in the form of NFTs. (Euler Beats is funded by Ethereum studio ConsenSys, which also funds an editorially independent Decrypt.) For each “beat” you own, you’re entitled to 8% of what it sells for on the secondary market. Billionaire Dallas Mavericks owner Mark Cuban has framed EulerBeats as a great money-making opportunity. But shouldn’t the value of music be tied to the music itself, rather than the potential to be flipped for a quick buck?

This sort of dynamic isn’t specific to crypto; it already exists among vinyl resellers, where rare, limited edition presses are considered investments. That it’s so easily replicated supports Dryhurst’s idea that when it comes to the crypto ecosystem, we’re only limited by how big we’re thinking. The companies that dominate the current version of the Internet have already set their terms, exploitative or not. In the crypto space, there’s a chance for artists to drive the conversation about what comes next.

Ecological cost

Some artists have already written off NFTs entirely, since crypto as an industry is extremely energy-intensive. The Bitcoin network’s current annualized electricity consumption is now nearly 130 TWh, according to research from the University of Cambridge’s Center for Alternative Finance; for context, the entire country of Ukraine used about 129 TWh in 2019. 

Ethereum, the blockchain most NFTs run on, uses around 26 TWh. But the disparity is more a function of transaction volume than consumption rates: Bitcoin is still crypto’s big dog, with a market capitalization that exceeds Ethereum’s by a factor of about five. With greater demand comes greater energy expenditures.

Crypto’s energy problem has to do with something called a “proof-of-work” consensus mechanism. When you initiate a Bitcoin or Ethereum transaction, there’s no single governing body that verifies it and then carries it out (as with a bank). Instead, the transaction is sent out to a network of computers, each of which is tasked with performing a difficult math problem; the first computer to solve the problem gets to verify the transaction in exchange for newly created (or “mined’) crypto. It’s an intentionally resource-intensive process, since the “work” of solving the math problem is what “proves” a transaction is legit.

Facilities known as crypto mines are dedicated entirely to this process, and form the bedrock of the Bitcoin and Ethereum networks. These are essentially just rows of computers and accompanying cooling systems, whose only function is to crunch numbers in the hopes of being rewarded with crypto. Cambridge’s data suggests over 70% of the computational power behind Bitcoin is coming from China, which is still heavily reliant on cheap coal.

Offsetra, a group that brokers carbon offsets for companies looking to reduce their climate impact, is already working with the NFT marketplaces Zora and KnownOrigin. “You have all these computers that are basically just computing smashing numbers together, securing the network,” said Offsetra analyst Drew Bonneau. “And you end up having a race to the bottom of energy usage for Bitcoin miners.”

Carbon.fyi, Offsetra’s calculator for the emissions output of individual addresses on the Ethereum blockchain, formed the basis of Cryptoart.wtf, which was a similar tool developed by the researcher Memo Akten specifically for NFTs. Akten took the site down on Friday, citing its role in “abusement and harassment” toward artists experimenting with NFTs.

In a post criticizing Grimes, singer-songwriter Lucy Dacus wrote that “NFTs are destructive and irresponsible,” and Jaime Brooks, who records as Default Genders, has called NFTs an “ecologically wasteful” vanity project.

Charles Damga acknowledged the environmental impact of NFTs, and said he wants to address artists’ concerns head-on. “It’s not falling on deaf ears. We’re not like the car industry, saying ‘It’s not our responsibility, go talk to the gas companies.’ It’s very much an egalitarian, forward-thinking community that you’re entering. You decide whether a lack of a voice is louder than a voice that’s going to come in and be progressive.”

There’s also a glimmer of hope in the form of Ethereum 2.0—the network’s long-awaited shift away from proof-of-work in favor of proof-of-stake, a far less wasteful consensus mechanism. And blockchains like Flow and Wax are already using proof-of-stake. While there’s no set timeline for Ethereum to actually make the jump, progress is being made slowly but surely.

Until that day comes, does the environmental toll—and the stigma that can come with it—outweigh the potential benefits for artists considering jumping into NFTs?

“For me, it very much comes down to like, are you happy with the existing dynamics on Web 2.0?" Dryhurst said. “If you’re not, there is a new world being built."