Bitcoin has become a household name around the world with a market cap that surpassed $1 trillion, but the blockchain revolution extends well beyond its posterchild currency. The same technologies could help democratize the art and music industries, helping artists regain control over a wide range of creative works—including new crypto innovations.
Let’s take a look at some ways that blockchain technology and cryptocurrencies are taking over mainstream art and music culture.
NFTs Are Redefining the World of Pop Art
Most crypto enthusiasts are familiar with CryptoKitties—unique digital representations of kittens created with non-fungible tokens, or NFTs. Since its launch in 2017, rare CryptoKitties have been sold for up to US$170,000, making them a unique form of high-value pop art. The success has also led to many other crypto art projects using NFTs to verify their authenticity.
NFTs are especially useful for digital artists that have historically had trouble protecting their intellectual property online. After all, digital art becomes much less valuable when multiple copies are made and shared online. NFTs enable digital artists to safely sell their works online while enabling anyone to authenticate the original creator of the art.
For example, Async.art launched in February 2020 and has processed over $5 million in bid volume and over $1 million in artist sales. The unique platform enables anyone to purchase both Masters and Layers where a Master is a 1/1 edition art piece and layers are individual components that make up the Master images.
Blockchain technology could also play an important role in tracking the ownership of offline fine art. For example, artists may be able to sell art globally without using an auction house or gallery that reduces their profitability. Royalties can also be added to digital artwork, enabling artists to receive a percentage of sale profits every time the artwork is sold.
Powering Up Crypto Gaming & Collectibles
Crypto-powered gaming platforms have embraced the same non-fungible tokens to create unique playing experiences. For example, Gods Unchained is an online trading card game where players earn card packs to build a deck of rare cards using NFTs. These players can compete in tournaments for financial rewards – sometimes multiple five-figures.
Panini America, the world’s largest licensed sports and entertainment collectibles company and the exclusive trading card manufacture for the NFL, NBA and others, has also launched a blockchain-powered platform where sports fans and collectors can buy, sell and store their blockchain trading card assets—some being sold for more than $70,000.
These trends are likely to continue as trading cards transition online and gaming companies embrace the blockchain for rare in-game items. With games like World of Warcraft demonstrating the potential for massive in-game ecosystems, NFTs and other blockchain-related technologies could play an important role in the future of gaming.
Blockchain Is Leveling the Playing Field for Musicians
The music industry has experienced a lot of change over the past couple of decades. After Napster’s rise to fame in 2000, it became evident that music was beginning to shift from physical CD sales to downloads. Rising landline and cellular internet speeds over the following decade led to the rise of the streaming music services that we use today.
While streaming music has led to a meteoric rise in recorded music revenue, the share of that revenue going to artists has dwindled over time. Streaming providers typically keep 30% of subscriber revenue, record labels take another 50% to 60% and artists are often left with just 10% or 15% of the share (based on the artist’s share of total streaming hours).
The result is a world where top artists and labels make a fortune, but even mid-level artists cannot make a living wage. For consumers, the lack of a living wage could translate to less variety in music over time. Less popular music genres and indie artists inherently receive less revenue than they did through radio or physical CD sales in the past.
Blockchain technologies could significantly improve the financial inclusivity of the music industry. By cutting out the middleman, blockchain-based music streaming services could divert nearly all revenue to artists rather than gatekeepers. For example, OPUS is a decentralized blockchain-based music sharing platform that pays artists 90% of revenue.
Crypto Tax Implications to Remember
The IRS has become increasingly interested in cryptocurrencies over the past few years. After sending out two rounds of warning letters, the agency added a crypto question to the top of Form 1040 forcing users to disclose any transactions. The IRS has also been active in building up its crypto expertise for auditing transactions on the blockchain.
The IRS considers cryptocurrencies to be property, which means that taxpayers owe tax on any increase in value upon sale—even when it’s exchanged for another cryptocurrency. For example, someone that purchases $10,000 worth of ETH and sells it for $15,000 a few months later would owe capital gains tax on the $5,000 increase in value.
The taxation of NFTs depends on their substance and use case. If you purchase a digital art NFT, you will likely have to pay taxes based on how art is taxed (e.g., a collectible tax). If you purchase real estate NFTs, the transaction would be taxed like real estate and you may be able to use certain real estate-related deductions to reduce your taxable gain.
Crypto tax software, like ZenLedger, can help simplify the tax reporting process by automatically aggregating transactions across wallets and exchanges, computing capital gains and losses, and auto-filling popular IRS forms. At the same time, the platform’s accurate cost basis calculations ensure that you’re never overpaying taxes.
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The Bottom Line
Cryptocurrencies have transformed the financial industry over the past few years, but the same technology could reshape other industries as well. In particular, blockchain technologies are democratizing the mainstream art and music culture by opening the door to new mediums—such as digital art—and ensuring artists are fairly compensated.
Crypto traders, investors and enthusiasts should ensure that they’re accurate and up to date with their taxes in order to avoid any costly problems down the road. ZenLedger can help automate the process and simplify tax time.