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A Regulator Asks My Advice on Blockchains for Musicians
Here's what I said
When I got the email, I thought it was from a scammer. I am an advisor to the government treasury of [name of country deleted]. . .
Hey, I know this drill. You’re going to tell me I have a ten million dollar inheritance just waiting for me. All you need are a few details about my bank account.
But—surprise—this was actually a real government advisor, dealing with the regulation of blockchains, tokens, NFTs, and other such thorny matters. He had read my recent predictions on the future of NFTs in the music business, and had some follow-up questions.
Be forewarned: It’s always dangerous asking me for advice, because I might actually respond.
And that’s exactly what I did. I thought that you, dear readers, would want to hear what I had to say. I’m sharing it below word-for-word.
And I’ve added a postscript describing what I actually think will happen in music tokenization over the next 12-24 months.
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My Comments in Response to a Regulator’s Request for Advice on Blockchains for Musicians
“I have some opinions on the subject you mention [government policy on music non-fungible tokens].
“We are at a key point in the evolution of blockchain applications in the arts. What artists desperately need is some basic legal protections without a lot of paperwork and bureaucracy. If we can do this, tokenization of music has the potential to become a breakthrough development, empowering artists in a way that has never happened before.
“There are many advantages to music blockchains, but let me focus on one. I envision money for recordings going directly from fans to musicians, via smart contracts on an Ethereum-based system, with no record label or band manager touching it. All the 'shady accounting' of the music industry disappears immediately. Trust is ensured by the blockchain, not unreliable intermediaries. Overhead is removed. More money goes to creators—maybe a whole lot more.
“Under this scenario, musicians now set the rules, and also benefit from them. Fans, for their part, have opportunities for closer relationships with musicians than ever before. In an ideal situation, musicians and fans both share in the financial benefits of creativity and artistic success. How cool is that?
“But if tokens are treated as identical to stock securities, with too much bureaucracy and red tape—much like a stock IPO—this will kill the opportunity. Only large corporations will be capable of meeting all the complicated requirements, and thus musicians will still be beholden to huge music companies, maybe even more than now.
“In my past life, I actually did an IPO on the New York Stock Exchange. That took months of preparatory work, and we needed to hire Morgan Stanley and Merrill Lynch to help us fulfill all the requirements. Even after all the paperwork was done, I still had to spend weeks on the road, flying around to large cities in Europe and US to complete the deal. It cost a tremendous amount of time and money to do all this.
“I fear that regulatory bodies will impose similar requirements on token issuers. How many musicians can afford to hire an investment bank just to release an album?
“On the other hand, regulatory bodies have a necessary role in ensuring the honesty and safety of financial instruments. Musicians and fans need (and deserve) that protection.
“So what's the answer?
“My dream is a system of forms and disclosures—with simple boilerplate language—that a musician can read and sign before selling tokens to a fan. It shouldn't take more than 30-60 minutes to do all this. The fan would also receive a disclosure, preferably something in easy-to-understand language that fits on a single page—maybe like the terms and conditions when you sign up on a new web platform.
“The disclosure would make clear that buying ownership tokens in a recording comes with some associated risks. But these should be summarized in a couple of paragraphs or a few bullet points. The regulatory bodies shouldn't try to remove all risk (investments are always risky), but merely make people aware of its presence and nature.
“If rules get much more stringent than this, the opportunity will disappear. Or (just as bad) only huge corporations will be able to tokenize music. That would be a tremendous setback, in my opinion. It's unlikely that another opportunity of this scope will come along again in my lifetime. I’d hate to lose this one.
“I hope this helps. Thanks, in any event, for asking my opinion.”
After sending this, I got an appreciate response from the regulator—and I’d like to think I may have had some small influence on this serious matter. We’re certainly at a crossroads, and the tokenziation of music will either become a genuine opportunity for artists, or will crash and burn as a speculative bubble.
Before signing off, let me share another email response—this was sent to someone who writes about NFTs for a newsletter. Here was my answer to his question about what will actually happen in this area over next 12-24 months.