It's Friday night, so you go to a bar. You want a drink and the bartender wants to sell you a drink: a market is made! Beyond that, the service is really up to the bartender.

You, the patron, reward the bartender with a gratuity for her service.

Good service? High tip. Bad service? Low tip. Recognize this is purely a social construct.

There are no rules for tipping, although there are some social norms and violating them is uncouth. But nobody is enforcing how much you tip.

Whatever amount you tip, you'll develop a reputation.

Example: the Dude walks into the bar, orders his White Russian which runs $10, and (after digging past his Ralphs card) hands the bartender $40. "Keep the change, dude."

I had the bartender's curiosity, but now I have her attention.

Next White Russian? Bartender makes it a double, on the house. Bar starts to get busy? The Dude is served first.

Does the bartender need to serve the Dude so well after his tip? Of course not. It's a social construct. You get what you give.

Another example: Jackie Treehorn walks into the bar, orders a $10 vodka soda, and hands over $10. Maybe ok, maybe not. Maybe the bartender just shrugs and proceeds with their evening.

Or maybe the bartender spits in Jackie's next drink. "Friends like these, huh? I'll show him." Or maybe the bar starts a policy to automatically calculate the bill with a 15% gratuity included!

The point here is that there are sticks, carrots, and neutral approaches to reinforcing societal standards.

~~~

When it comes to NFTs, the cat is out of the bag: you can buy and sell tokens with zero royalties. Royalties are therefore not structural in nature, but social.

I think artists have three approaches going forward: sticks, carrots, and neutral approaches.

The first path is one of punishment. Buy or sell the NFT on a royalty-free marketplace? I will punish you. I will brick the metadata, I will exclude you from future utility, deny allowlists, and/or alter the metadata of your token with a big, shitty, novelty mustache on your Tantric Tamarin. A very Hobbesian world indeed.

The second path is one of encouragement. I will see which of my current holders paid royalties on the secondary and add only them with the original minters for future utility. I might incentivize royalties through gamification mechanics like royalty payment leaderboards or raffled utility for holding and/or rewarding royalties.

Lastly, there is the neutral path: this is happening, I cannot control it, so it's time to play the best hand from the cards I've been dealt. XCOPY took this path recently by buying back a chunk of Right Click Saves and removing royalties from the collection, effectively retroactively withholding supply. Furthermore, he said he would withhold a percentage of the supply in future releases.

In part two, we’ll explore potential solutions on royalties and options therein.

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DISCLAIMER: The content posted here does not, and is not intended to, constitute financial advice. Readers should work with a financial advisor to determine whether cryptocurrencies and NFTs are applicable to or appropriate for their particular situation.

Furthermore, there are risks involved in making any investment in cryptocurrencies/NFTs. None of the information presented herein is intended to form the basis of any offer or recommendation or have any regard to the investment objectives, financial situation, or needs of any specific person, and that includes you, my dear reader. Caveat lector!