There’s a lot of hype surrounding NFTs, or non-fungible tokens, for sales of creative work using blockchain technology. Let’s talk about what NFTs are and how they might be used by authors in self-publishing.
What Are NFTs?
An NFT is a “non-fungible token,” a digital receipt of sorts for sales and ownership of assets that are digital or physical. For our discussion here, we’ll primarily concentrate on their use for digital assets such as graphics, photos, videos, writing, songs, or even more exotic things that can be bought and sold. For example, a video highlight of a sports moment, such as a winning basketball shot, can be sold as a collectible. Some NFTs also include special perks such as autographed merchandise, events or experiences, or other physical or intangible benefits.
Are you thinking, “Um, wasn’t that sports highlight on broadcast TV? How can it be sold?” The file of the art, or whatever memorializes those more exotic things, might be seen and used all over the internet already. Though you may purchase “ownership” of this digital file, the creator may still have rights to make money off of it through publishing, licensing, or derivative works.
Think of an original painting: the artist usually retains the copyrights unless otherwise specified in the purchase. The NFT is like that original painting. You could sell the NFT asset, just as you would an original painting. NFTs don’t give buyers the copyrights to it or the ability to license it to others or to display it, though some NFT agreements may include some use rights.
Tech billionaire Mark Cuban has compared NFTs in the sports arena to trading cards of the past (CNBC). Let’s say that the video highlight of a winning touchdown pass of a certain Super Bowl game is an NFT. Collector buyers could buy or bid on that highlight, with the more valuable highlights going for bigger price tags. In addition to the painting example, I think this explains how NFTs can work in fandoms.
What NFTs Are Not
NFTs are not a cryptocurrency, but you need a cryptocurrency wallet to buy and sell NFTs. Some of the more popular crypto wallets are CoinBase and Mycelium. When you make an NFT sale, you will be paid in cryptocurrency that can be exchanged for standard fiat currency, like US dollars, through your crypto wallet. Choosing and using a crypto wallet is fraught with its own risks and rewards. Make sure you do your homework when doing anything in the crypto world.
How Are NFTs Bought and Sold?
NFTs are bought and sold on platforms such as OpenSea, Rarible, SuperRare, and Mintable. Some may allow you to list for free, but all will take a percentage of the NFT sale as compensation, and may have transaction fees. As with the other monetization platforms such as Patreon and Substack, the platform doesn’t market your NFT, they merely list it. You are totally responsible for marketing your NFT.
Where the blockchain comes in is in authentication of the purchase. The purchase of the NFT asset is done with cryptocurrency, most commonly on the Ethereum blockchain. Transactions like this on the blockchain are permanent, immutable records. The blockchain is a network of computers that are redundant, meaning that every computer on the blockchain has the same information stored on it as every other computer on the blockchain. This helps with security in that a transaction can’t be obliterated by the failure or corruption of one computer node in the network.
That’s about as simply and quickly as I can explain NFTs and the blockchain as I understand them so far. I’ve taken multiple online courses on blockchain and cryptocurrency and done reading about it. But some of it is still as clear for me as an obsolete 8-bit gaming graphic from the 1980s (which might be an NFT!).
Why Are Creators So Excited by NFTs?
I think you can imagine why creators and celebrities are excited about the prospect of NFTs. They can sell these digital assets to fans while still retaining rights to make money off of them elsewhere, depending on the terms of the NFT agreement.
Right now, I think there’s almost a level of unwarranted euphoria over NFTs. Part of that was fueled by the sale in early 2021 of digital artwork for $69 million by an artist that goes by the name Beeple (New York Times). People, you are not Beeple!
But the prospect of being sponsored—which is what I think NFTs are really about—by people who want to support your work is intriguing.
What NFTs look like to me is a money grab from high-profile artists and celebrities to cash in on their fans who are anxious to own a part of the artist’s or celebrity’s world but whose fans might not be well-informed consumers on these emerging technologies.
Legal Challenges and Issues With NFTs
If you’re thinking this is a potential legal mess, I agree with you. Here’s just a brief list of legal wrangling I see coming.
NFT buyers will sue creators, or vice versa, over rights that have not been clearly defined or have been violated.
Digital files and links can become obsolete or unreadable over time. Content-consuming technologies are constantly changing, and files that we create now may not be readable mere decades from now. When an NFT is purchased, the buyer may just be given a link to the file.
Links are also subject to something called “link rot,” meaning that over time, links can point to locations that no longer exist. So what do you really own? Actually, you really don’t own anything, but that’s a detour conceptual discussion point beyond the scope of this post.
How long do you own an NFT? While that might be specified in the terms of the NFT, if it isn’t, how do the ownership and rights transfer upon the demise of the buyer or the creator?
I’ve also seen reports of scammers who create illegitimate NFTs of digital files and make money off of them without a cent going to the original creator. The blockchain doesn’t verify the provenance of the digital file. It only verifies the authenticity of the NFT transaction. This is an inherent problem in many emerging technologies, past, present, and future. It’s a Wild West until regulations and protocols step in to make it a safer environment.
NFTs and Self-Publishing
Most of your book buyers will not care if you offer an NFT or not. They will just buy your book on Amazon.
But authors could offer NFT editions of their books, as long as they have a non-exclusive arrangement with Kindle Direct Publishing or whatever self-publishing platforms they use. It could be like signed copy editions, similar to limited-run art prints that artists do, with each NFT copy numbered. It could include some kind of special digital goodie, like a signed book cover. However, there’s more to this equation.
I think NFTs for self-publishing are a sponsorship play. In addition to using NFTs for crowdfunding sponsorship, each NFT is sold to a specific entity and can be sold and traded, as Mark Cuban puts it, like trading cards.
So there are two pieces to NFT sales of creative works: sponsorship and trading value. NFT sponsorship could be solicited from even friends and family willing to play along. But trading value requires a fandom. If you don’t have enthusiastic fans, your NFT doesn’t have trading value or market value.
If you want to be a paid creator, you need to market yourself and your work. Whether that’s through social media, blogs, YouTube, or advertising, it will be an expense of time, effort, and money. If no one is visiting your NFT listings and work, you cannot hope to sell anything and make money or, in this case, cryptocurrency. Speaking of making money, if your reader fans don’t use cryptocurrency, what’s the point of offering an NFT?
Another money issue deals with taxes. While taxation laws are still evolving regarding all things related to cryptocurrency, the sale of your NFT could be considered taxable income, even though it was not paid with fiat or government-backed currency, such as dollars. Buyers of NFTs may also owe taxes if they sell their NFT assets. Before selling or buying NFTs, consult your CPA or tax advisor to find out how your NFTs will impact your tax situation.
As an overall tip, don’t buy or sell what you don’t understand.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Heidi Thorne