23 February 2021

The Protocol Approach to NFTs

What does a protocol for creative media ownership on the internet mean for creators?

Zora Protocol extends one of the most common standard for non-fungible tokens, called ERC-721. This standard is very simple, containing the minimum functions needed for ownership and token transfer. Its simplicity has made it easy to extend and build on, and it has become the most popular standard for NFTs. But its influence on the cryptocurrency ecosystem has also been dictated by what it doesn’t have: functions for buying and selling the token. 

Because ERC-721 lacks these important capabilities, platforms like Foundation and Nifty Gateway have been able to create closed marketplaces for tokens. Much like uploading your music to different distribution channels — Bandcamp, Spotify, iTunes — creators have had to mint tokens to each separate marketplace, or worse “commit” to just one.

We’ve long thought this makes no sense. NFTs are said to provide provable uniqueness and scarcity, but this isn’t true when creators sell the same work on more than one marketplace. The value of the work splits in two, because there’s no longer just one of it. Worse, the fragmentation of these different marketplaces is already creating a new series of walled gardens, each with their own rules. If you start publishing media to one of them, you’re likely to get locked into that particular network — yes, walled gardens are possible, even in crypto. And because these markets are owned by third parties, they can change how much of a commission they take on top of your work at any time. This is exactly the same type of problem prevalent in Web 2.0, and it’s the reason we started Zora. A protocol, not a marketplace: open, permissionless, and permanent.

Our approach to is to invert the standard model of goods and marketplaces. Instead of building a marketplace around tokens and selling tokens you own, we built the marketplace into the token protocol instead. The tokens themselves can accept bids and offers. We all know that whoever owns the marketplace owns the commission. But when you mint a token using Zora, because the marketplace is literally in the token you own, you are the owner of that marketplace. If you sell your work to someone who sells it to someone else, you make a commission on that future sale as well. We call this fee Perpetual Equity, and you can set it each time you mint a work. 

Moreover, baking the marketplace into the protocol itself means your token is re-sellable anywhere, via any platform, curator, or market. can publish to any platform or market. Buying and selling is direct and unmediated, and value accrues to the work itself, not the marketplace. We think that ERC-721 should have had these features to begin with.

Let’s break down how this changes the dynamic.

  1. You can mint your media without the Zora.co website. If you want to sell your work on SuperRare, Rarible, Foundation or Nifty Gateway, you have to mint there directly. Nifty Gateway even mints tokens “for” users, so they never become the full owners of their own work. With Zora you can mint anywhere that integrates with the protocol, just like any standard should work. We are already seeing community platforms and experiences being built like zora.fm, aurra.gallery, nfttok.com and zora.gallery

  2. You can buy and resell anywhere. Other marketplaces are the primary place to buy and resell tokens minted on those marketplaces. In contrast, Zora is creating a universalized ownership protocol for all creative media.

  3. You choose where the data is stored. We think it’s important to have perpetual control over the media hosting of your own work. It’s like being a webmaster: if you mint a token, you should be the one to decide where that media is hosted, and update it if the location changes. We’ve built this into the Zora standard. When you mint via marketplaces and services, they decide where your media is hosted, and you don’t get the ability to update it. If you can’t update hosting, is it really yours?

  4. There are no fees at the protocol level. Zora is an Ethereum-native standard. It’s a protocol, not a marketplace, so the only fees are those required to run the Ethereum code itself. We don’t charge them or control fees whatsoever.

  5. Zora protocol is fully open source. The entire protocol, bid pool, and marketplace model of the Zora protocol is open source and verified on Etherscan.

  6. The protocol guarantees uniqueness. When a token is minted on Zora, the protocol runs a check against the media that is being published. Unless the file is verifiably unique, meaning the data is not the same any other tokens that have been minted, it can’t be published. This reduces the incentive to publish of identical “editions” of works, and ensures every work is verifiably different.

  7. Your creations can survive outside of any platform. This is the most radical part of what we’re doing with Zora. Until, creative media has always been published on platforms, socialized through platforms, and consumed on platforms. By building a standard, we’re changing that. Your work can exist without platforms, with ownership registered to the blockchain. New services, platforms, and apps can build on top of it, but your work will always exist independently of it. The Zora protocol privileges creative media over services and gatekeepers.

  8. Zora is oriented toward permanence. Zora enables a token’s owner to update the hosting location of media, meaning that a Zora token can outlast any given data storage solution, any given platform. Zora protocol will be around as long as Ethereum itself.

  9. Perpetual equity is truly perpetual. Built into the protocol is perpetual equity: a creator share set at the time of minting. This means that every time your work is sold in the future, you receive that specified royalty. This share can never be changed by future buyers, meaning you’ll never need to negotiate, and you’ll always be in your power.

NFTs are the entrypoint for creative media on the web. But if creative media is to realize its value for creators, it needs strong guarantees that only a protocol-based approach can offer. Zora is the protocol for media permanence. Zora is the protocol for perpetual equity. Zora is the protocol for open markets. Zora is the protocol for creative ownership.

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