A Field Guide to Music’s Potential Crypto Boom
In a huge labyrinthine ecosystem of labels, publishers, distributors, and royalty collectors, the idea of artists getting paid quickly may sound like a revolutionary concept. What if it wasn’t?
— who are especially cash-strapped when they can’t tour, like right now in the Covid-19 pandemic — didn’t have to wait a cripplingly long time to get their royalties, but rather could receive streaming money instantaneously? Broaden that thought experiment: What if there was a “merch royalty,” so that the artist got a cut every time a branded hoodie or piece of art was resold, or a system to ensure accurate paychecks for musicians?
All these things are possible, according to music’s cryptocurrency enthusiasts — a growing group of tech-obsessed entrepreneurs who want to apply the technology of blockchain and bitcoin to the multibillion-dollar global business of selling albums. Crypto advocates want to engineer a new financial system for music that can support real-time revenue streams and ultimately hand much more power to the individual artist. The average music fan may be easily deterred by these conversations: Cryptocurrency is, well, cryptic, and articles on the subject tend to be filled with in-the-know jargon and lengthy digressions. So Rolling Stone has scoped out the landscape and, with the help of experts like Zach Katz, Shara Senderoff, Adam Alpert, and RAC, we’ll walk you through the genesis, potential applications, and latest developments in what crypto can mean for music.
How cryptocurrency works, in a nutshell
It was 2008 when the developer Satoshi Nakamoto — likely a pseudonym for either a person or group — introduced the first cryptocurrency, Bitcoin. The first official Bitcoin transaction happened in 2010, when Florida resident Laszlo Hanyecz paid 10,000 BTC for two pizzas. Over a decade later, Bitcoin’s value hit a record high in January 2021 when one BTC became worth more than $40,000 in U.S. dollars, meaning those pizzas would cost $400 million by today’s standards.
Cryptocurrency arose out of popular distaste for society’s bank-reliant money model. Essentially, it was created so that average citizens could have complete control over their funds without government interference. Most importantly, it operates on a blockchain, which eliminates double-spending. (Double-spending happens when someone copies a digital currency to use the same “token” on multiple purchases — the equivalent of scanning a real dollar bill and then printing a fake one, but far easier to get away with. Prior to bitcoin, many coders and technologists had tried their hand at an anti-government digital currency, but they failed due to issues around double-spending.)
A blockchain is a publicly accessible, transparent ledger. When a person makes a transaction, it creates a data “block” that houses the sender and recipients’ addresses — strings of letters and numbers that log involved parties but don’t give away a person’s identity — and a timestamp. Those blocks, which form a digital chain as transactions continue, cannot be edited. And once someone participates, their computer begins keeping a copy of the blockchain. That means — say, in the case of Bitcoin — any hacking attempt would be immediately flagged thanks to the hundreds of thousands of computers that are now keeping track of and updating Bitcoin’s decentralized blockchain.
These days, Bitcoin is just one of many forms of usable cryptocurrency. And there are also non-fungible tokens (NFTs), which can hold unique assets like art, tickets, or trademarks instead of money.
Easier, faster, and more accurate payments for songs
Ghazi Shami, the founder and head of music distribution company and record label Empire who has worked with everyone from Snoop Dogg to Migos, is one of the many music executives excited by crypto’s ability to circumvent banking headaches. Says Shami to Rolling Stone: “How is it that I can jump on an app like BitPay and I can send somebody Bitcoin any time of the day, anywhere in the world, but if I want to send somebody a wire or an ACH, I have to do it during business hours, it takes 24 hours, and I can’t do it on Saturday and Sunday or holidays? The banking system is very antiquated.” Shami also scoffs at banks’ refusal to let patrons take their account numbers with them if they switch banks — which even cell phone companies allow. It’s a “gigantic undertaking” for a label like Empire to switch banks, he says, because all the vendors have to be manually switched over. But “if I controlled my account number, I can go anywhere with it. Crypto is a peer-to-peer thing. It’s faster, it’s more fluid.”
Upon realizing these advantages, Shami started to think about what would happen if the process was applied to receiving payments from digital streaming platforms (DSPs) like Apple, Spotify, Amazon, and YouTube. “You could create a much clearer and cleaner sequence of getting paid by them,” he says. Because stable coins — a type of crypto coin that is traded against a stable existing currency, such as the dollar or the euro — are globally traded, there’s no issue with conversion rates when the euro-using Amazon France pays an American rights-holder, for example.
Currently, paying royalties out from labels to artists is also a laborious process involving various bill-pay systems, a horde of vendors and software platforms, and checking and rechecking all the paperwork. “I have to initiate the royalty from my system, they have to draft the money from my bank against that royalty, and then they pay it out,” Shami says. “That can take three to five business days. If I had a crypto address for somebody and we were dealing in direct payments on blockchain, I could send them their royalties in seconds.”
For Shami, crypto’s appeal is also its reduction of systems that are at risk for fraud or misbehavior. “As a label, you have to do business with all the other labels; there are side artists, clearances, and you’re sharing royalties on things. We could pay each other easier, we could interact with one another in a much easier fashion, we could pay our artists easier, we could track the payments,” he says. (He recalls being flagged for fraud by both MoneyGram and Western Union while trying to pay a Ghana-based graphic designer.) Shami knows there are possible pitfalls with crypto payments, like a lost password resulting in lost millions, and he also knows it would take a lot of time and educational efforts to get everyone on the same page, but he believes the possible upsides are greater than the downsides.
This future doesn’t require the industry to agree on one currency or even one blockchain, as long as there’s an interledger “where all the blockchains can be interconnected and can report and speak to one another,” explains entrepreneur Shara Senderoff, who’s held a number of executive roles across music, multimedia, and technology.
Senderoff and Zach Katz — who co-founded Beluga Heights Records and previously headed BMG’s U.S. operations — run Raised in Space Enterprises (RISE), a Ripple-backed company that aims to discover, invest in, and guide transformational tech startups in music. “Ghazi is absolutely right,” Senderoff says — but cautions at putting the cart before the horse. “Now, it becomes about the timing of those forms of technologies and the progression of those interledgers that all the big blockchains are working to create and be involved in. That just needs to catch up.” Senderoff says that people will see major advancements in the conversation around this topic, as well as the execution of some of these puzzle pieces, within the next two to five years. “It’s not too ambitious or too forward thinking,” she says.
“Currency is just one tiny little aspect of [crypto]… It’s about changing how we interact in a business setting.” — Grammy-winning artist RAC, who has his own crypto token $RAC
Letting artists peek under the hood
It’s also not just about payment rails. “That’s like saying the Internet is only good for email,” says Grammy-winning artist RAC, who’s been a crypto fan for years now. “Currency is just one tiny little aspect of it… It’s about changing how we interact in a business setting.”
Contracts and other sensitive information pertaining to an artist’s career could be stored on a blockchain. As Katz explains, the modern creator expects more from the people and teams responsible for handling and promoting their music. Transparency has become a hot-button word in recent years as more and more artists have opted for going indie out of distrust of major music companies.
“As a modern day creator, I’m going to expect a full sense of transparency,” Katz says. “I’m going to want to know that no central agency or organization can manipulate that information, so there has to be a sense of the irrefutable, transparent, and immutable.” Thanks to that, a lot of indie players are starting to play with blockchain applications. “If they start having success with it and unlock certain benefits to creators, then the majors may want to replicate that and lean in for the sake of being competitive — but in our view, this is probably a 2023 conversation,” Katz says.
Blockchain could help artists finally understand where and how their money comes in. Imagine a neatly organized portal that automatically updates all of an artist’s revenue streams — merch, touring, licensing, streaming royalties, performance royalties. That doesn’t currently exist, thanks to the complications within multi-ownership of music works. But it could be five years or so down the line — or shorter, with blockchain adoption.
“You have 12 different revenue streams, you open up one portal, and, boom, there they all are in real time,” Katz says enthusiastically. “They’re completely reliable and nobody could have messed with them. That’s your entire world. But in order for that to happen, we’re looking at a scenario where literally every single player within your ecosystem — your music publisher, your record label, Spotify — at one particular point, turns on one light switch and all of them jump on this one framework. That’s why it’s challenging. If two of the 10 people you’re dealing with jump on but the other eight don’t, you’re going to have partial information. People want to do it, and creators will start demanding it. It’s really just a conversation of sequencing and timing.”
Allowing fans to invest in artists directly
So, what’s first then? Katz and Senderoff argue that the easiest on-ramp for crypto to be understood and blockchain to be utilized for mass adoption is through digital collectibles and NFTs, which really just hold assets and information despite being depicted as a “token.”
NFTs are special because “they cannot be copied and are easily tradable,” explains Vasja Veber, CEO of a start-up called Viberate, a fan-assisted music analytics platform. Senderoff adds that the auditability is worth praising as well: If a fan buys art via a NFT, they know it’s authentic because they can see where it came from and how many owners it’s had so far.
NFTs are about “getting to own or access things that I, the fan, otherwise wouldn’t,” explains Katz. “I’m getting to be a part of something that has a sense of scarcity around it, a sense of exclusivity — whether it’s a piece that I own and can wear as a social badge of honor to demonstrate my fandom, or it’s an access pass or passport into a set of exclusive experiences.” With NFTs, the music industry could even create a kind of merch royalty. Because of the smart contracts and rules that can be coded into a NFT, the original creator of whatever art or asset is stored on it can get paid a piece of the value that was exchanged, “which is a massive benefit for creators,” says Katz. He urges people to think of a band t-shirt, which is normally bought through a one-time, direct-to-consumer payment. After that exchange, the original creator doesn’t see a dime. “But imagine I created something with my name or likeness on it — or with my creativity in it — and I got a piece any time it exchanged hands. That calls for a much more expansive, more long-term career.”
NFTs are already starting to become more popular amongst artists, particularly in the EDM community. Deadmau5 partnered with Worldwide Asset eXchange (WAX) in December to release their own limited series of NFTs carrying digital collectibles. Outside of the electronic world, Portugal. The Man seems to be the first mainstream act to create its own NFT. The band launched its $PTM coin in January to give fans access to an archive of live footage and outtakes that will be regularly updated.
RAC’s adventures in crypto started in digital collectibles with what he refers to as “audiovisual dioramas.” In applying scarcity to these art pieces — by creating a fixed amount of numbered collectibles — he says the market determines the value, which he believes is better than Spotify determining the value. “I think it’s a profound change, and it’s one that I welcome,” he says. He adds that he’s “tired of trying to get on playlists on Spotify” as a crucial step to earning a living. The first NFT that RAC created broke the record on a platform called Super Rare; it held a 30-second loop that sold for $26,000.
“There’s something to this,” he says. “There’s something to applying markets to culture and art.” He adds: “This thing could keep getting traded into oblivion for the rest of my life and I’ll keep getting 10 percent.” While he’s seen some high price tags in the digital collectible world, he says it runs on a spectrum — like trading baseball cards versus buying the Mona Lisa.
When RAC had just finished his third LP and was figuring out how to release it, there were plans to make vinyl but not cassettes. He decided to partner with a crypto-driven marketplace called Zora to create a $TAPE token that was linked to a limited-edition cassette tape. They created 100 tapes, the starting price was $20, and people could buy and sell these tokens that represented the physical product. If a purchaser decided to redeem their token, they were sent a cassette in the mail, and the quantity then dropped from 100 to 99, for instance. “On the first day, we went from $20 to $950.” A couple of months later, even if it was for a brief moment of time, $TAPE was valued at $4,800, which made it the most expensive cassette tape in history.
“When you let markets determine the value of things, you get closer to what they’re really worth,” he says. “And I’m not going to sit here and say the cassette’s worth $950. It kind of fell back down when some people at the top were like, ‘Oh, I’d rather get some money instead of a cassette, so they sold it and the price went down, back up, and then eventually settled around $200. At the time, I was like, ‘Okay, $200 for a cassette tape. Maybe that is the value of it.’ If I came out and said, ‘Hey guys, I’m selling a cassette for $200,’ people would be like, ‘You’re insane. How dare you?’ But that’s what the market decided.”
Veber says that, in theory, an artist could also transfer the copyrights for their discography onto a NFT. Whoever then owned the token could collect royalties for the underlying tracks. “This could streamline the transfer and trading with catalogs between publishers or even enable artists to crowdfund their production by issuing NFTs that random people could buy,” explains Veber. “The artist would get the money for the new album and token-holders could then recoup their investment and make profit from royalties.”
But again, the mainstream scene is years away from that, given the complexities of music belonging to multiple rights-holders. “The only way it can be done sooner is if the artist is fully independent and completely owns one hundred percent of their publishing and there are no other parties,” says Senderoff. Albums and songs are often created by multiple songwriters and producers. When one other party with different representation enters the mix, that calls for mass adoption and the use of an interledger. As for literally investing in an artist à la buying stock in a company, Katz says that will only happen if and when major music companies are willing to take at least a piece of what they own and put it into the marketplace. Right now, Katz points out, catalog sales are red-hot and the value of copyrights is too high for that to happen.
So, yes, NFTs can technically be tied this to music rights, but music rights are incredibly encumbered. On the other hand, if you’re an artist who’s created a pair of digital sunglasses that your fans can wear as filters on Snapchat or Instagram, and you’re selling those for one of your artist tokens, which cost five dollars to buy at the beginning, the process is far less complicated. “You created something that doesn’t need to be physically distributed or physically created,” says Katz. “Nobody else has their hands into the pot of that asset. There’s no record label or publisher trying to get money from that. They can’t. You created a completely new asset class that you’re now monetizing. And because of crypto getting paid directly.”
Banishing ticket scalpers from the concert business
When in-person concerts and tours eventually return, NFTs could also play a role in live events. “Bookings can be done by using smart contracts that would execute payments automatically and instantly as soon as contractual obligations are met,” says Veber. “This means that you could book your wedding DJ, digitally sign the contract and put crypto funds into escrow on the blockchain. Once the DJ does her thing and you are satisfied, the funds are released to her without using the bank or any kind of financial intermediary.”
Additionally, NFTs can hold tickets, which becomes more interesting when you apply this concept to the secondary market of resellers. Adam Alpert, who manages The Chainsmokers and serves as CEO of Disruptor Records, partnered with The Chainsmokers and executive Josh Katz to create a blockchain-powered ticketing company called Yellowheart in 2018. Alpert says Yellowheart’s mission is to eradicate scalping and bad players in the secondary ticketing market and put the power back into the hands of fans and artists, but there’s also room for venue promoters and the resellers themselves to benefit. “What Yellowheart does is it writes the rules for a concert’s tickets in a smart contract,” says Alpert. “So, it can say, ‘This is how many seats there are. These are the rows and seat numbers. This is how much the seats cost. This is what they can be resold for. This is how many times they can be resold. This is how old you need to be to buy these tickets.’ Any kind of information that can be governed by a smartphone or computer. And most importantly, you can dictate where the money goes.”
Yellowheart can rule that a certain concert has a face-value worth of $50 a ticket on the primary market — and that the venue promoter and artist are okay with it being resold for a maximum of $100. The organizer can then decide how that extra $50 is split up. “Maybe that $50 goes to the artist, maybe it’s split up between the promoter and the artist, or maybe the artist wants any money above face value to go to charity,” Alpert explains. The average reseller with a last-minute change of plans may see this as a win as well: While they may not be able to benefit from insane markups, they get to make money back in a legitimate way.
The Yellowheart team spent most of 2019 developing its tech. They planned on launching in 2020 before Covid-19 got in the way. Now, they’re just waiting for live events to return, but the Ticketmaster-owning Live Nation has already invested millions. “The secondary market is a ten billion dollar market — if not more,” says Alpert. “That money is the biggest elephant in the room of the music business… Venues, promoters, and ticket-sellers all want to solve this together. There are [random] people — not promoters, not venues, not artists — that are getting this money.”
Yellowheart is also looking into NFTs that hold digital collectibles. An artist can create a piece of digital art that is specific to a tour or show date. “One of the most simple ways of thinking about it is like a digital ticket stub,” says Alpert. “You bought your ticket on Yellowheart and you have this ticket stub to, let’s say, The Chainsmokers at Madison Square Garden in October of 2021 for seat five in row six. You’re the only one that has that and you own the rights to it.” The same idea could apply to a one-night-only poster or t-shirt with a certain city and date on it.
Demystifying streaming and incentivizing fans
There’s no streaming platform more blunt about its ambitions than the blockchain-based Audius, which wants to turn passive streaming into an intimate relationship between artists and fans.
While Audius has not launched monetization yet, there are a lot of developments in the works. Currently, it’s free to use, but that’s because it’s in a strictly promotional phase — with around two million monthly users, 250,000 tracks, and 50,000 artists, making it the biggest consumer platform built on a blockchain so far. “Not only will there be the ability to pay for the music that you’re consuming, there will also be the ability to essentially crowdfund projects by your favorite artists, there will be the ability to participate longterm in the growth of an artist on the platform, and there will be the ability to pay an artist a customized streaming rate based on how they feel their art should be valued,” says Head of Partnerships Clayton Blaha.
There will always be some ad-supported free version of Audius, but Blaha says the paid version will be highly customizable. “Many artists will say, ‘All of my old music is free, but now that I have 10,000 followers on Audius, it’s now 20 cents to stream my new EP forever.” RAC, who’s already on Audius, has never been a fan of traditional streaming platforms’ fixed-rate model. In his mind, a musician should be treated like a painter or a photographer, both of whom get to set their own prices for their art. These applications of crypto are “giving artists power again,” says RAC.
Blaha also points out that money generated by Audius streams goes directly to the artist. “90 percent goes immediately to the artist in real time. 10 percent goes to the people that support the network, which allows artists to have flexibility in growing their career in ways that have never existed because of so many inefficiencies in streaming’s payment systems.” Blaha encourages interested parties to liken the situation to old-school album sales. “When you would go to a record store to buy a Journey album, it was much more likely that Journey would see the upside of that. They sold a bunch of records, so they made a bunch of money. That’s how the music industry used to work. Now, if you stream a hundred artists on Spotify, none of whom are Drake, Drake still gets paid because of the pro rata system within all DSPs. For me, I started my morning listening to Grover Washington, listened to a bunch of Cumbia, and then was playing Gunna. I want to give my money to those people, because they’re the ones who made me feel good.”
He adds that there will probably be something like an “Audius Premium” subscription. In that situation, artists would be able to assign content to their premium tier of superfans. Audius’ crowd-funding component, on the other hand, is rooted in the idea that there’s a certain amount of pride and “social capital” that comes from finding an artist early on in their career.
“Maybe an artist opts into a mechanism where they say, ‘Commit five dollars now and you’ll get a percentage of the revenue that this song generates for the next two years on this platform,’” He says. If the fan is invested, they’re more likely to tell all their friends about this new music: “Fans have never been compensated for that behavior in the past.”
Audius also launched its own token, $AUDIO, in October. It’s a “governance token” that gives users access to different features. For now, the platform is just giving tokens away to encourage activity. But eventually, users will be able to buy them to unlock different features. Holding those tokens could also allow the user to vote in the creation of new features for the community. “Because we’re totally decentralized, Audius is owned by the people that make it valuable, which are people that commit their music, people that commit their fandom, and people that want to build onto the platform… The token allows us to incentivize them to do so.”
While this may be a lot to digest, Blaha insists the Audius team doesn’t want anyone to ever have to think about crypto when they’re using Audius. “We want it to be more like a consumer platform that you just interact with because it’s so fun and you love the music on there. Suddenly, you look at your your Audius wallet, and you’ve done all of this healthy network behavior that’s compensated you without you knowing it.” Blaha admits that Audius is more than a streaming player: “It’s a totally new music industry with a fan component that’s never been facilitated.”
“It incentivizes community,” adds Mike Power, who manages Kenny Beats, a songwriter, producer, and musician who joined Audius in January with three exclusive tracks. In the last year, Kenny Beats has invested a lot of time and effort into incentivizing community. Without touring to focus on, they turned to other alternative platforms like Twitch and Discord. “Kenny started his beat battle on Twitch. Every Monday, he asks an artist friend to come in to provide a sample. That sample’s then distributed to anywhere between 5,000 and 20,000 kids. They have a couple hours to make a beat. That same artist will come back in and judge the beat battle with Kenny. And he’s had everyone from Timbaland, to Mike Dean, to Charlie Puth, to Baauer… It’s really empowered artists to create and push through in this difficult time. And a platform like Audius just pushes them to be more involved. On top of that, it streams at a higher rate than [the likes of] SoundCloud and Spotify.”
Who’s standing in the way?
The tech is all there. But ultimately, all of the potential applications for crypto in music have to pass the same hurdle: acceptance from the juggernaut of the music industry.
Senderoff points out that the music business still has yet to agree on basic concepts like copyright terms and communication between music publishers and Performance Rights Organizations (PROs). “If within in a room where a song is created, we don’t even properly set out the splits in the right way — and then we therefore don’t add features, we don’t negotiate with lawyers with more leverage to change those splits — it’s all messed up,” she says. “You can never get to the technology piece because you’re still in the piece of what happened in the studio, which is a human piece.”
“The music industry has failed to innovate forever, and its failure has nothing to do with lack of technology,” adds Katz. “There are a gazillion different ways for the music industry to modernize every single thing that we’ve been talking about if it wanted to. The tech companies are coming along and saying, ‘Hey, we’re seeing all your pain points. You guys are so outdated in the way you report, for example. What do you mean artists are getting paid every six months? What do you mean an artist has to trust the music company that pays them?’”
Katz says it’s not just about the technology existing; there has to be a plan of adoption. “You’re asking people to change their behavior. The problem with innovation is lack of incentives. Let’s have an honest conversation. Why would a music company want to pay somebody every single day when, if they can hold onto the money for six months at a time, they can earn interest on that money? Why would they want to modernize?” Many crypto advocates are placing faith in indie artists and smaller companies or industry figures — and if they’re successful in getting enough players on their side, the giants might not have a choice but to come on board.