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

for small or retail buyers, who may lack the resources (b) Challenges facing blockchain platforms
to manage diversified portfolios to mitigate short-term However, the integration of resale royalties into
risks. As a result, these buyers may be more vulnerable blockchain platforms is fraught with challenges that
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to market fluctuations, affecting their investment decisions could impact their operational and financial stability.
and potentially deterring them from participating in the For instance, as resale royalty rates increase, they may
NFT market. adversely affect the primary market sales prices, leading
Enforcement of smart contracts is another concern for to prolonged sale times and reduced market liquidity. This
buyers. The effectiveness of smart contracts in enforcing situation could result in decreased commission revenues
resale royalties depends on their operation within the same for the platforms, challenging the assumption that higher
blockchain standard or marketplace. Buyers must be aware royalties always benefit creators and platforms alike. 76
of the potential for bypassing these contracts in off-chain Moreover, the evolving nature of blockchain technology
transactions or different blockchain platforms. This issue poses significant challenges for platform operators. As new
highlights the need for buyers to be informed about the smart contract protocols emerge, there is a risk that NFTs
specifics of the blockchain protocol and smart contract minted under older protocols might become less compatible
terms associated with an NFT. 98 or even obsolete. This technological mismatch could lead
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Finally, concerns about the authenticity of digital art, to enforcement difficulties regarding resale royalties and
specifically the issue of “double minting” or counterfeit add layers of complexity to the platform’s operations.
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NFTs, pose risks for buyers. The relative ease of altering Furthermore, the potential for off-chain transactions
original artworks and minting NFTs for nearly identical poses a significant challenge. NFTs transferred outside
pieces raises serious questions about the authenticity the platform’s ecosystem can bypass the smart contract’s
of digital art pieces. This issue highlights the need for resale royalty mechanism, leading to revenue loss for both
buyers to be vigilant and informed when navigating the creators and the platform. This scenario underscores the
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digital art market, balancing the allure of new technology necessity for platforms to innovate continually and adapt
with the practicalities and risks involved in digital art to ensure the effectiveness of smart contracts in a rapidly
acquisition. evolving digital landscape.

3.3.3. Impact on blockchain platforms 3.4. Challenges and considerations in blockchain
(a) Benefits of blockchain platforms adoption for resale royalties
The impact of blockchain technology on NFT Blockchain technology’s potential for implementing
marketplaces, particularly in the context of resale royalties, resale royalties in both digital (NFTs) and tangible
presents a multifaceted landscape with both opportunities artworks offers a transformative shift in the art market.
and challenges for platform operators. One of the key However, this adoption is not without its complexities and
benefits of blockchain platforms is the enhanced market challenges, which span technical, legal, ethical, and market
transparency afforded by smart contracts. Smart contracts considerations.
facilitate an environment of transparent transactions 3.4.1. Ethical considerations in blockchain technology
and pricing mechanisms, which could attract a broader
spectrum of users. Platforms can benefit from the While blockchain technology promises to revolutionize
increased activity due to the trust and clarity offered by the art market, its deployment raises substantial ethical
blockchain technology. The ability to dynamically adjust considerations, particularly concerning its environmental
prices based on market demand not only benefits creators footprint. The initial reliance on proof of work protocols
and buyers but also enhances the platform’s appeal as a fair by major blockchain networks, including Ethereum—
and transparent marketplace. 81 the platform underlying a significant portion of NFT
transactions—has been a source of considerable carbon
Furthermore, blockchain technology aids in emissions due to its intensive energy consumption.
establishing a robust reputation system. By recording Recognizing these concerns, Ethereum and several
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the behavior of participants, platforms can mitigate issues blockchain networks have begun transitioning to Proof of
related to trust and reliability. This feature is crucial in a Stake (PoS) mechanisms, which significantly reduce energy
market where the provenance and authenticity of digital usage and carbon footprint. Yet, the environmental
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assets are paramount. Such a system could lead to a more impact of blockchain operations remains a pressing issue.
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responsible and accountable community, enhancing user This shift underscores a broader, industry-wide movement
experience and potentially increasing platform loyalty. toward environmental responsibility, but it also highlights

Volume 3 Issue 1 (2025) 12 doi: 10.36922/ac.2875