LUME. Creatives in Web3 Age

Artist Emmi sat in a café, scrolling through her phone thoughtfully. She had been selling her art for years through traditional means – through galleries and commissioned works. She found herself thinking about the same problem more and more often: how could she make a more sustainable living from art? Then Emmi came across smart contracts. They allowed her to attach a piece of art to a digital contract that would ensure she would automatically receive a share of every resale of the piece. No negotiations, no sending invoices – just a clear, programmed model that took care of her rights. Emmi decided to try it out. She created her first digital series of works and attached a smart contract to it, which guaranteed her a 10% royalty on every resale. Sales were slow at first, but soon one of her works changed hands – and an automatic payment was made to her account without her having to do anything. This encouraged her to go even further in her experiments. However, the more Emmi learned about the subject, the more she realized that smart contracts are not risk-free. Implementing them requires consideration, understanding and preparation for potential pitfalls. Smart contracts open up a new way of earning Smart contracts are programmed agreements that automatically execute agreed-upon terms on the blockchain (Soon, 2024). This means that the artist does not have to negotiate separately how to receive payments or worry about how their works move through the market. The technology does it for them. One of the most significant advantages is the possibility of earning from the increase in the value of the work also in the so-called secondary market. Traditionally in the field of fine arts, when a work of art is sold, its ownership is transferred to the new buyer, and the artist no longer benefits from possible future resales. With the help of smart contracts, the artist can set an automatic royalty in the terms of the contract, which is paid to him for each new sale. In this way, he receives a share of the increase in the value of his work in the long term. (Murat et al. 2024, EU Blockchain Observatory and Forum 2023, EU Blockchain Ecosystem Developments 3, 2024.) A new kind of protection Payment security is also something that Emmi, like many other creative professionals, is used to stressing about. Invoices get stuck, payments get delayed, and you have to ask for them repeatedly. Smart contracts eliminate this worry: when pre-agreed conditions are met, payment occurs automatically without intermediaries or separate approval. Additionally, smart contracts offer a completely new level of protection for digital works. Blockchain technology allows a work of art to be registered in a way that its origin can always be verified. This reduces piracy and makes counterfeiting virtually impossible, as every transaction is permanently recorded and publicly visible. This is especially important for artists who sell digital works and want to ensure that the authenticity and ownership of their work can be easily verified. Overall, smart contracts can offer creatives like Emmi a new way to manage their rights and revenues without being tied to traditional and often rigid contractual models. The possibilities are attractive, but as with any new technology, there are also challenges and risks that need to be understood before full-scale adoption. (Murat et al. 2024, EU Blockchain Observatory and Forum 2023, EU Blockchain Ecosystem Developments 3, 2024) …and a new kind of vulnerability One of the first things Emmi learned was that once a smart contract is stored on the blockchain, it cannot be changed as easily as a traditional contract. Once a contract is made, it is really made. If you wanted to change the terms, for example by increasing the royalty, you would probably need a completely new contract (EU Blockchain Ecosystem Developments 3, 2024). This meant that even a small error in the contract code could be costly. In the traditional world, contracts can be renegotiated, but in a smart contract, the code is the law – and it is implemented exactly as it is written. The error can also be in the code. For example, in 2016, an attacker exploited a vulnerability in the code of the DAO organization’s smart contract to transfer about 3.6 million ether (ETH), which at the time was worth about 50 million US dollars (The DAO, 2024). The role of smart contracts in terms of traditional legal frameworks is uncertain. Smart contracts do not always fit into traditional legal frameworks, and in many countries it is not yet clear how disputes are resolved. This made their use riskier, as the security of the traditional legal system is not always available and it is not even necessarily known which country's legal protection would be used. In blockchains, there are also no guarantees that everyone will act fairly. The changing roles of cultural producers Smart contracts are associated with the idea of reducing the role of intermediaries. Traditionally, art sales have involved multiple actors – galleries, agents and other intermediaries – who take a share of the proceeds. When a smart contract manages payment transactions directly between buyer and seller, the artist can receive a larger share of the sales proceeds without having to negotiate commissions or fees. However, it is unlikely that the intermediary layer will disappear completely. Technological change will bring new job roles – also for cultural producers. They can develop new services that support the interaction between artists and audiences. Artists like Emmi need help in implementing these tools, and cultural producers can be key actors in helping them build sustainable and innovative revenue models. Choosing a blockchain platform and minimizing the risks of smart contracts may become new tasks (see Soon 2024). Traditionally, creatives have outsourced technical and commercial processes to intermediaries in order to focus on their creative work. While Emmi may find it challenging to find a physical gallery for her works, finding digital marketplaces may be easier. However, just as in the physical world, reaching the right audience in the digital environment is a key challenge. Perhaps the smart contract managers of the future will know marketplaces so well that they can help creative content creators find the right environment for their work. They can also draft smart contracts in such a way that their terms optimize the artist’s earning potential. Is it worth trying? Smart contracts offer many benefits to creatives, especially in terms of automated payments and resale revenue. However, their use still comes with many challenges, especially legal ambiguities and security risks. Therefore, before moving to smart contracts, it is important to ensure that the content of the contracts is properly programmed and that users understand the potential limitations of the technology. Smart contracts are not a solution to all problems, but they can offer creatives new and interesting revenue models, especially in the digital environment. They are best suited to situations where revenue is based on secondary markets, automatic payments or the management of digital works. Technology can be a powerful tool, but only when used consciously. For creatives, smart contracts can offer new revenue opportunities – but using them requires understanding, care and a bit of healthy skepticism. Perhaps the advice for Emmi and others like her could be: be cautious. It would be best to use only verified and proven contract templates and start small. Feel free to test low-risk use cases on reliable platforms and ensure the quality of the contract. Technology doesn't have to be scary – when understood and used correctly, it can be a powerful tool for building the future of art and creative work. SOURCES EU Blockchain Ecosystem Developments 3 (2024). EU Blockchain Observatory and Forum raportti.https://blockchain-observatory.ec.europa.eu/publications/eu-blockchain-ecosystem-developments-3_en Smart Contracts Report (2023). EU Blockchain Observatory and Forum. European Comission. https://blockchain-observatory.ec.europa.eu/news/smart-contracts-report-2023-03-13_en Soon, M. (2024). Älysopimusalustat ja niiden eroavaisuudet. Norhcrypto blogi 10.7.2024. https://www.northcrypto.com/learn/blog/alysopimusalustat-ja-niiden-eroavaisuudet The DAO (2024). Wikipedia. https://en.wikipedia.org/wiki/The_DAO?utm_source=chatgpt.com Tunc, M., Cavusoglu, H. & Zheng, Z. (2024) Resale Royalty in Non-Fungible Token Marketplaces: Blessing or Burden for Creators and Platforms?. Information Systems Research. https://doi.org/10.1287/isre.2023.0035 Blogin on kirjoittanut Euroopan unionin osarahoittaman LUME - Luovat web3-ajassa -hankkeen projektipäällikkö Katri Halonen Metropolia Ammattikorkeakoulusta.