How Blockchain and NFTs Can Change The Creative Industries

The current communication model in the creative industries stagnates because of its own shortcomings, while not being fully interactive, it remains hierarchical and mediated. This research contributes to a deep understanding of the features of new decentralized technologies, and in particular, non-fungible tokens (NFTs), and gives an overview of ​​their potential positive impact on the communication process in the creative industries.

The term ‘non-fungible’ is used in economics to denote the possession of unique objects and to describe things that cannot be replaced by others because they have a set of unique properties. A ‘token’ as a unit of account is a record in a distributed blockchain that is controlled by a computer algorithm of a smart contract, in which the values of the balances on the accounts of token holders are recorded, making it possible to transfer them from one wallet to another. Thus, non-fungible tokens (NFTs) refer to cryptographic tokens that represent digital files, images, audio, video, video game collectibles, and other creative products. Unlike cryptocurrency, which requires all tokens to be identical, each collected NFT token is unique or limited in quantity.

The academic literature lacks a concrete and systematic review of the current state-of-the-art non-fungible tokens, and their implications for communication in creative industries, a limitation that was the primary driver for conducting this research. In particular, I try to address this by answering the following questions: (i) What are the potential and benefits of distributed ledger technologies, blockchain, and NFTs for creative industries? (ii) How has their emergence and spread in recent years transformed the principles of communication?

Creative industries: approaches to definition and communication models

The concept of creative industries has been used since the 1990s and marks the broad wave of the digital era. It usually refers to a variety of economic activities which involve the generation or use of knowledge and information and include art, design, music, film, fashion, etc. The term is often associated with the cultural industries [6] or the creative economy [7].

Considering different approaches to defining creative industries, the researchers distinguish four groups. The first approach is that the spectrum of creative industries is composed of specific sectors of creative industries. This approach is supported by researchers who put the creative industries on a par with other industries [6; 12]. The second approach considers the creative industries as a group of certain occupations - this approach is reflected mainly in the concept of the ‘creative class’, in which the sphere of creative industries is associated with professions and fields of activity [4]. The third approach is the approach of holistic urban development, which includes the concept of ‘creative city’ proposed by C. Landry [8]. The fourth approach views the creative industries as an important part of the broader economic system, supporting the new economy and composed of a constellation of workers, firms, institutions, infrastructures, communication channels, and other active components [14].

Modern researchers emphasize that creative industries should not be viewed simply as a sector of the economy or an isolated area, because there are forms and practices with which creative industries are inextricably linked, such as creative networks, linkages, creative spaces, and events [11]. Today, art, design, music, video, and other products of the creative industries, as well as the process of their creation, are often present in digital forms and spaces, greatly simplifying the interaction of industry actors. However, the situation opens the door to new complexities and opportunities for shenanigans. Part of the interaction is still the shadow activity, and there are no generally accepted industry standards. Established in recent decades, the communication model remains indirect and beneficial only to third parties, remaining problematic and dishonest to content creators and their audiences. The ability to remove an intermediary and to create direct open interaction between all actors appears with the proliferation of new distributed ledger technologies such as blockchain in recent years.

Blockchain: the possibility of direct and open communication

New technologies which are now widely used in creative industries, becoming a means to directly foster creativity, while contributing to the life and culture of society as a whole, as well as to find ways to overcome obstacles and solve specific industries’ problems [9]. Primarily the distributed ledger technologies (DLTs), which had a strong influence on the industries lately, are here to rescue them.

Conceptualized by a person, or group of people, using the name Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency Bitcoin, blockchain is considered one of the DLTs, a distributed append-only time-stamped data structure that contains an ordered list of various records and these records are connected together through links called chains [17;18]. It allows for a peer-to-peer network where non-trusting members can verifiably interact with each without the need for a trusted authority [1].

Blockchain which is expected to reshape human social activities, and communication specifically, is on the way to mass adoption. According to Accenture, an application of the diffusion of innovations theory suggests that blockchains attained a 13.5% adoption rate within financial services in 2016, therefore reaching the early adopters phase that year. It has been seen as an emerging technology that enhances decentralized computation in 2018 [13]. In 2020, research and advisory firm Gartner listed blockchain as one of the top ten strategic technologies. Currently, interest from market leaders contributes to the adoption of DLT technology, especially to the development and widespread of NFT-related solutions.

The phenomenon of non-fungible tokens: genesis, features, and standards

A token as a unit of account is a record in a distributed blockchain and is controlled by a computer algorithm of a smart contract, in which the values ​​of the balances on the accounts of token holders are recorded, making it possible to transfer them from one wallet to another.

Non-fungible tokens were originally created as special token standards to support the use of blockchain in computer games, which include the Ethereum ERC-721 standard (which is representing non-fungible digital assets) and the more recent ERC-1155 standard (which offers ‘semi-fungibility’). The first prototypes of NFTs were experimental assets created on the Bitcoin network in 2012 named Colored coins. The pioneer of NFTs based on the Ethereum blockchain was the CryptoPunks project. At the end of 2017, an online game that allows users to breed digital cats - the CryptoKitties startup gained great popularity, opening the way to a wide audience of NFTs: for the first time, a popular non-financial application was deployed on the basis of blockchain, the community realized the potential of NFTs, and their supply grew significantly in the following years: in 2018 and 2019, more than 100 projects were presented.

In 2021, the NFTs ecosystem grew at an unprecedented rate. According to the report from NonFungible.com with NFTs industry statistics, the market of non-fungible tokens surpassed $250m in 2020, up nearly 300% from the previous 2019. Of all NFTs segments, virtual worlds and artworks occupied the most part, but computer games were ahead in the number of transactions (almost 50% of NFTs transactions in 2020 were associated with them), and collectibles were not far behind. The most used platform for hosting NFTs is OpenSea, a universal platform that allows users to trade NFTs, create them, view data on them, and check statistics. Another popular marketplace for buying, selling, and creating NFTs, is Mintbase which excels in covering niche NFTs categories such as music, photography, and news. Rarible and Zora platforms won great success among fans of crypto-art since they are not curated and in order to upload the art-NFTs on them, users only need to register and pay the transaction fee to mint a token. Forby, the communication of creative industries is increasingly moving into the digital space. For example, many digital artworks are already placed in online collections of virtual worlds. The first blockchain-based virtual world - Cryptovoxels has several art galleries where users can buy art in the form of NFTs. As the virtual reality space becomes more popular, displaying digital art and the direct communication it offers is becoming more and more familiar.

Non-fungible tokens as a new communication paradigm for creative industries

Discussing the use of communication models in the social sciences, including economic, cultural and creative fields, researchers identified their three advantages. First, they perform an organizing function, giving the opportunity to understand how a particular system works. Second, the communication models serve an explanatory function, indicating in a simplified way how the system operates. Third, models allow us to predict the outcome of actions and events [2]. The evolution of these communication models can be distinguished into three main stages. In the first stage, the emphasis was clearly on linear one-way communication, and the main term was manipulation. This type of communication is common in Western culture (Aristotle, Lasswell, Shannon and Weaver, Berlo). The communication models developed in the second phase were largely aimed at addressing some of the previous shortcomings, conceptualizing communication as a two-way process, the interaction between the communicator and the receiver (Schramm, Gerbner, Riley and Riley), and the third model (Barnlund, Kripendorff, Kincaid, Derwen, Clark and Delia) sees communication as interaction in specific socio-cultural contexts through shared meanings.

The emergence of distributed ledger technologies changed the landscape drastically, as the advantages they propose for changing the communication paradigm in social fields and hence in creative industries have already manifested themselves in recent years [15], locally transforming an indirectly hierarchical model.

First and foremost, DLTs have created the possibility to eliminate intermediaries from the communication process, allowing content creators to connect directly with their audience and honestly monetize their work. Thus, it became possible to automatically pay royalties, fairly distributed in accordance with the contribution to the creative process of each of the participants. There are no more third parties in the face of labels, large distributors, or art portals, restricting the rights of creators of digital goods. This improvement is to lead to a more diverse and transparent industry.

Due to blockchain technology, it became possible to create large distributed databases of digital rights, allowing participants in the creative industries to interact with each other and with materials protected by copyright, as well as with all their own metadata. It is now possible to manage tokenized rights with the deployment of smart contracts that actually manage them and maximize their value. In addition, open blockchains are distributed, so each actor can now see the exact time of creation of each digital object and the number of interactions with it, what income it brings, and who gets what percentage, which makes communication across industries direct and potentially fair.

Moreover, NFTs open up new monetization opportunities for artists. If in the traditional art world, content creators usually did not receive a percentage of secondary sales, thanks to NFTs, today a digital artist can receive them in a fully automated way. What’s more, blockchain platforms are designed to make the experience interactive and profitable for the audience as well, rewarding users not only with exclusive content and lower prices, but by offering all kinds of incentives e.g. for compiling personalized collections, for contributing to increasing the database of artists, venues, or events, etc.

Conclusion

Crypto enthusiasts see a future where content creators will be paid fairly and the value of digital items will grow. Taking into account all the advantages that DLTs offer, following the widespread of the NFTs phenomenon and the increase in the number of users of crypto platforms for trading digital objects, today it seems like a very real prospect. Blockchain is close to solving the main industries' problem of the dominance of the hierarchical structure of communication and the mediated relationship between the actors.

Only a small breakthrough is needed in a long-expected understanding that the creative industries are capable of honesty towards content creators, transparency, and hence even more impressive prosperity that they have shown recently.

Nevertheless, some issues still remain unsolved. For example, there are still no official public registers of copyright, and no global standards of licenses, since different rules apply in different regions. Also, for the audience and consumers, it is still more common to use familiar major services, and many representatives of the creative industries have yet to meet the basic advantages of blockchain platforms and thus understand the benefits that NFTs can offer them.

The topic of the potential of non-fungible tokens in the context of ongoing communication transformation in creative industries is open for further research.

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