What are NFT Royalties?

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What is NFT?

NFT stands for non-fungible token. A non-fungible token is a financial security consisting of digital data stored in a blockchain, a form of distributed ledger.

For more detail, check out this article.

What are NFT Royalties?

Let’s first go through what are royalties: A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset.

NFT royalties work in the same fashion, NFT royalties give you a percentage of the sale price each time your NFT creation is sold on a marketplace. NFT royalty payments are perpetual and are executed by smart contracts automatically. The average NFT royalty typically ranges from 5-10%. In most NFT marketplaces, the creator can choose their royalty percentage and the payments are automatic upon each subsequent sale in the secondary market.

NFT Royalties is a way for creators to earn passive income from NFTs.

How do NFT Royalties work?

NFT royalties are automatic payments to the original NFT owner made on secondary sales of the owner/artist’s creation. The NFT royalty is chosen by the original owner in the marketplace, or blockchain platform, during the minting process. The royalties are tracked on the blockchain.

NFT royalties come from secondary sales, which are sales that occur in the marketplace after the original sale. To use a stock market comparison, this is similar to stocks trading in the secondary market after first selling in an initial public offering or IPO.

Example: you create an NFT artwork on Rarible. A fan of your art buys the artwork for say 8 ETH. So you have made 8 ETH (Ether). You also have coded into the NFT the term that anytime a sale occurs you will get 10% of the proceeds.

Now your buyer auctions your art for an even higher price in the marketplace. Presumably, your reputation has grown and hence the value of your work has gone up as well. Imagine that your buyer sells it for 200ETH. Since you have already precoded a 10% royalty into the NFT, you will receive 20 ETH from this sale.

Although NFT smart contracts vary by the marketplace and are not standardized, NFT royalties are calculated as a percentage of the sales price, as specified by the artist/creator. If the royalty fee calculation results in a remainder, the royalty fee may be rounded up or down.

Content creators manually choose the royalty rate during minting, which is the process of making the NFT content a part of the blockchain. To do this, the creator makes the specifications in a smart contract, which is programming that exists within the blockchain. Once the blockchain’s smart contract terms are created, the royalties can occur automatically. Marketplaces like Rarible let you enter royalties when minting your NFT.

How can you earn NFT Royalties?

Musicians creators, content creators, and artists of all kinds stand to gain from NFTs royalties. The buyer also stands to gain as they are able to verify the authenticity of what they are buying. This enables them to proudly display their assets as well as resell them at an assured price.

At the current time, content creators and investors can make money selling NFTs. The content creator can make money on the sale of the NFT, as well as royalties on subsequent sales. NFT investors can buy NFTs and resell them for a profit.