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Arts & Communication Blockchain and royalties in China’s art market

To illustrate the transformative potential of blockchain predefined royalty percentage back to the original creator
for artists’ rights and revenue, consider the example of on resale of the NFT.
Simon de la Rouviere’s conceptual piece, This Artwork is Different NFT marketplaces have adopted varied
Always on Sale. Minted as an NFT in 2019, this artwork strategies for resale royalties. KnownOrigin, for instance,
remains perpetually available for purchase, challenging employs a fixed 12.5% royalty strategy, providing stability
traditional notions of ownership and artist compensation. and predictability for artists. Binance, contrasting this
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Each sale mandates a listing price from the new owner, approach, sets a minimal 1% royalty rate, highlighting the
ensuring a continuous 5% dividend payout to de la diversity of strategies across platforms in balancing creator
Rouviere. To date, this innovative use of blockchain has incentives and buyer interests. 76
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generated over 26 ether, roughly AUD 56,000, for the artist,
exemplifying how digital tokens can facilitate a sustainable However, recent shifts in the NFT marketplace
income for creators. Such models prompt us to reconsider landscape have led to significant changes, especially on
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the artist-collector dynamic, showcasing blockchain’s role platforms like OpenSea, renowned for its flexibility in
in fostering equitable artist remuneration. allowing creators to set their own royalty fees. Traditionally,
Nevertheless, the practical implementation of resale creators on OpenSea could set fees up to approximately
royalties through NFTs and smart contracts faces 10%, giving them considerable control over their revenue
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challenges. The mechanism for royalty payments depends from secondary sales. Nevertheless, as the NFT market
on the blockchain standards used and the market platforms, has experienced a downturn, marketplaces aiming to
allowing possibilities for bypassing royalty payments. attract sellers have reduced trading fees and modified their
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There is also a concern that higher royalty rates on NFTs approach to enforcing royalty fees. Blur, for example,
may lead to reduced liquidity in the market, as evidenced has recently overtaken OpenSea in trading volume and
by fewer sales or prolonged sale times. 76 has implemented a nominal fee of just 0.5% on most
collections, a stark reduction from the 5% to 10% typically
Furthermore, the adoption of blockchain technology set by creators. This adaptation signifies a response to the
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for resale royalties might have unintended consequences declining market and the need to attract sellers, showcasing
on primary sales prices and market liquidity. While how market conditions necessitate dynamic strategies in
intended to support NFT creators economically, these setting and enforcing royalty fees.
mechanisms may not always be beneficial in the short
term. The decentralized nature of blockchain technology Amidst these evolving market dynamics, the Azuki
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also presents challenges in dispute resolution, contract project on OpenSea, managed by Chiru Labs in 2022, serves
execution, and control of contract terms. as a notable case study in the effective use of blockchain
for royalty management. This collection not only achieved
In summary, while blockchain technology, particularly an impressive AUD 300 million in transactions shortly
through NFTs and smart contracts, offers innovative after its launch but also innovatively implemented a 5%
solutions to issues in current resale royalty systems, its royalty on every secondary sale. The success of Azuki is
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application is not without limitations. The technology partly attributed to the automated blockchain system that
can improve transaction efficiency and transparency in facilitated a consistent and transparent flow of royalties,
the art market. Still, it requires careful consideration of its amounting to approximately AUD 15 million, back to
potential impacts on market dynamics, artist incentives, the creators. This model underscores the potential of
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and the overall sustainability of the digital art ecosystem.
blockchain technology in revolutionizing the way royalties
3.2. Application of blockchain in managing and are distributed, thereby marking a significant advancement
enforcing resale royalties in the digital art sector’s approach to monetization and
distribution.
This section focuses on blockchain’s application in
managing resale royalties, showcasing its potential to The process of setting resale royalties involves creators
simplify and secure the process. Various platforms adopt minting their digital artwork as an NFT and determining
different strategies, reflecting the technology’s adaptability the royalty percentage during this phase. This percentage
and its impact on the art market. Blockchain technology, then becomes an integral part of the NFT’s smart contract.
particularly through smart contracts, has significantly When the NFT is sold, the blockchain automatically
streamlined the management and enforcement of resale executes these contracts, ensuring the creator receives
royalties in the NFT market. These smart contracts, their royalties from secondary sales. This system is crucial
encoded onto the blockchain, autonomously execute in mitigating risks such as non-payment and disputes over
the terms of the agreement, including the transfer of a royalties, common challenges in the traditional art market.

Volume 3 Issue 1 (2025) 9 doi: 10.36922/ac.2875