What Waves’ custom blockchain tokens platform offers the music industry

  • Peer-to-peer technology has already disrupted the music industry, since the launch of the first file-sharing networks over 15 years ago. But peer-to-peer platforms based on cryptocurrency technology arguably offer even greater advantages for indie artists.

    There’s a lot of buzz about the blockchain — the decentralised peer-to-peer ledger of transactions pioneered by bitcoin — and its potential benefits for all kinds of industries. Cut out the middleman, goes the theory, and you can eliminate inefficiencies and sidestep the gatekeepers who would otherwise hold the keys to profitability and success. That’s as true for the entertainment industry as it is for finance, but though we’re hearing more and more about FinTech, there’s been very little about EntTech.

    Filesharing and blockchain

    The music industry, which has already been turned upside-down by peer-to-peer technology such as Napster and, more recently, BitTorrent, is the perfect candidate for such disruption. A recent report highlighted at least four of the ways in which blockchain technology might benefit musicians. It could act as a networked database of music files; it could offer fast and frictionless royalty payments; it could bring transparency to the payments process; and it could provide artists with new sources of capital.

    To date, little of such a vision has been realised. That’s partly due to the emerging nature of blockchain technology; like any new technology, it doesn’t appear fully-formed and enterprise-ready. Bitcoin is just eight years old, and does only one thing well: transfer money. Newer platforms perform more of the tasks that would be required to realise the benefits, but none has yet gained traction in this area. But that might be about to change.

    The Waves platform

    As a product itself of the decentralised and crowdfunding world, the Waves platform is well-placed to address the inefficiencies of the music sector. Waves is a custom blockchain tokens platform: users can create their own tokens, representing whatever they want, and send them to each other peer-to-peer. Moreover, they can trade any token directly with any other token — something that might sound trivial, but that is highly significant for such mainstream applications. It was a vision that caught the interest of almost 6,000 investors, who deposited around 30,000 bitcoins to make it a reality. Given prices at the time, that made it the 6th largest crowdfunded project ever.

    So how would it work in practice?

    Consider a scenario for a band who have had some local success but have not attracted the interest of a major music label and lack funds to record their album. We’ll call them the BlockHeads.

    Crowdfunding and distribution

    The BlockHeads crowdfund the money they need to book a studio using the Waves platform. They use their social media presence to reach out to investors. The user experience for investing is a lot like it is for Kickstarter and other popular variants. Fans buy tokens representing pounds sterling or any other currency they want — dollars, Euros, bitcoins — via an approved gateway, using a credit card or bank transfer. (There is no need to restrict investors to one country if the demand is there; blockchain platforms are borderless by nature.) These can then be used to purchase tokens for the BlockHeads’ forthcoming album, BlockMaster. Because Waves is decentralised, there is very little overhead and no fees to pay an administrator, so fans’ money goes further. And since one currency can be converted to another in the background via token-to-token trading, it doesn’t matter whether they spend pounds, bitcoin or Yuan.

    The BlockHeads use the money collected — cashed out for Sterling via the same gateways — to record their album at a local studio. They can now distribute it to every holder of BlockMaster on the Waves network by sending a download link to each address that owns one or more token. Note that these may or may not be the original buyers; unlike traditional crowdfunding, stakes are transferrable and can be sold or given to other investors, allowing early buyers to exit their investment if they wish. Again, they can sell them for whatever currency they want — or even for a stake in another crowdfunded project.

    Equity stake and revenues

    Moreover, there is scope to reward investors further in the future. As new albums are sold, the BlockHeads can distribute a slice of revenues to token holders, in proportion to the number of tokens they hold — just like dividends from holding shares. This kind of action is trivially straightforward using a cryptocurrency asset exchange like Waves. If the BlockMaster album does really well, this will raise the value of those original crowdfunded tokens, which would then change hands on the Waves platform at higher prices — much as regular shares typically trade at a multiple of their price/earnings ratio. If they wanted to, the BlockHeads could buy back their own BlockMaster tokens, at prices subject to supply and demand, thereby allowing them to keep a larger proportion of their future royalties.

    It’s a far cry from the traditional model of being picked up by a big label — or even going down the regular grassroots/indie route. But there’s no doubt it’s coming. The technology is ready and the music industry is crying out for change. It’s just a matter of time.

    For more information about the Waves platform, see www.wavesplatform.com.


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