How do NFT royalties work?

With the gain in popularity of NFT’s many artists begin to see the benefits this technology can bring into their work. Not only can minting an NFT ensure the scarcity of an art piece, but many marketplaces offer artists the opportunity to get royalties from their work. But what are those royalties exactly?

Royalties are a form of payment the original artist receives when his art piece gets sold on the secondary market. For example if the artist sets royalties of 10% and the original buyer resells his piece for $100, the artist makes $10 from the secondary sale.

This basically ensures that an artist can continuously make money from his work, even after he doesn’t own his piece anymore. This form of payment has unique value to the NFT space as all transactions are decentralized and transparent, making royalty payments a credible source of income. However there is still a lot of potential and room for improvements, as you will see later.

Royalties in the art world

Before blockchains and crypto royalties worked in a slightly different way. For the case of physical assets and art pieces it is nearly impossible to implement. The way physical art is bought and sold is often intransparent. When did the asset change hands? Was the actual price paid? These are questions that make royalty payments hard to implement in the real world, even with physical NFTs aleardy on the move.

This is where digital assets have an advantage over physical art, even before the invention of NFT’s. The way it works is by selling licences to people who have an interest in distributing your work. If all of this sounds complicated to you, let me show you an example to make things clearer:

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