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

buyers, as they factor in the additional cost they will incur Finally, the technical demands of creating, minting, and
upon resale. This, in turn, can lead to reduced market promoting NFTs present barriers for artists, particularly
liquidity, where both the likelihood of sale and the speed those lacking in technical expertise. This skill gap increases
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at which sales occur are diminished. The challenge lies in vulnerability to cyber threats and creates a reliance on
balancing the interests of creators in earning fair royalties new forms of intermediaries, which, while different from
with the need to keep artworks attractive and accessible to traditional middlemen, still represent a layer between
buyers. This balance is crucial for sustaining a vibrant and the artist and the market. As a result, while blockchain
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fluid market, where artists can benefit from both primary reduces certain transaction costs, it also introduces a need
sales and secondary market royalties without significantly for new forms of support and infrastructure within the
deterring potential buyers. creative industry. These challenges highlight the complex
Another critical aspect is the impact on pricing and landscape artists must navigate in the blockchain-driven
market liquidity. Resale royalties can lead to a “delayed market of digital art and resale royalties.
gratification effect,” where artists might forego immediate 3.3.2. Impact on buyers
reward in the primary market in hopes of future monetary
benefits. However, higher royalty rates can reduce sales (a) Benefits for buyers in blockchain transactions
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or prolong the time to sale, negatively impacting market In the evolving landscape of blockchain and NFTs,
liquidity. In addition, the sale of NFTs with higher buyers in the art market are presented with a mix of
resale royalties takes longer, challenging the traditional advantageous developments and notable challenges. One
understanding that resale royalties are always beneficial of the most significant benefits for buyers is the enhanced
for NFT creators. 76 ability to verify the authenticity of creative products.
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Moreover, the application of blockchain technology Blockchain technology ensures that each transaction and
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and smart contracts in managing resale royalties brings its the history of an artwork are transparent and immutable.
own set of challenges. There is a risk of bypassing these This system effectively mitigates the risk of counterfeit
contracts in “off-chain” transactions or when trading on products, a long-standing issue in the art market. Buyers
different blockchain platforms. Such situations can lead can confidently trace the provenance and ownership
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to artists missing out on deserved royalty payments, as history of an NFT, ensuring its legitimacy. 93
these contracts are designed to automatically execute Another key advantage for buyers stems from
these payments within certain blockchain environments. the inherent efficiency of blockchain in processing
This loophole poses a significant risk to the reliability transactions. This efficiency translates into a notable
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and effectiveness of smart contracts in ensuring fair reduction in transaction costs from creators to buyers. Such
compensation for creators. cost reductions are expected to make art more accessible
Furthermore, the evolving nature of blockchain and affordable to a broader audience. This democratization
technology and the development of new protocols can of art purchasing, enabled by blockchain, could potentially
result in existing NFTs being tied to outdated protocols. expand the market by including a more diverse range of
This constant evolution can create difficulties in enforcing buyers, thereby enriching the art ecosystem with a wider
resale royalties, as older NFTs might not be compatible with variety of perspectives and tastes. 95
newer blockchain infrastructures, thereby complicating (b) Challenges for buyers in blockchain transactions
the royalty collection process for artists. This constant
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evolution necessitates that creators stay updated with the However, alongside the abovementioned benefits,
latest blockchain developments to ensure their works are buyers also face several challenges in the blockchain-driven
aligned with current standards. art market. The technical complexity and steep learning
curve associated with purchasing NFTs present significant
In addition, the reduced role of intermediaries in 96
blockchain transactions, though beneficial in reducing barriers, especially for those new to the digital art space.
costs, brings new challenges in market discoverability The process of purchasing and understanding NFTs
involves a steep learning curve, which can be daunting and
and choice. Artists may struggle to differentiate their time-consuming. This complexity is compounded by the
high-quality content in a saturated market, where risks of cyber threats, such as hacking or phishing, which
price volatility, driven by speculative investments, can can target less tech-savvy buyers.
overshadow the intrinsic value of the artwork. This
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volatility can discourage serious buyers and place quality- Moreover, the NFT market is characterized by
focused artists at a disadvantage, potentially leading to the significant price volatility, largely driven by speculative
marginalization of high-quality work. investments. This instability can be particularly challenging

Volume 3 Issue 1 (2025) 11 doi: 10.36922/ac.2875