What Are Royalties in NFTs? Earning Passive Income as a Creator

What Are NFT Royalties?

NFT Royalties are automatic payments made to creators every time their NFT is sold or transferred on a marketplace.

Royalties are programmed into the NFT’s smart contract, ensuring the creator continues to earn from secondary sales.

Why NFT Royalties Exist

NFT royalties exist to:

Reward creators for their work beyond the first sale
Encourage long-term engagement and fairness in the market
Enable passive income for artists and content creators
Provide transparency and automation through blockchain

They make the NFT ecosystem more sustainable for creators.

How NFT Royalties Work

Creator mints an NFT and sets a royalty percentage (e.g., 5–10%)
NFT is sold on a marketplace
Smart contract automatically deducts royalty from resale price
Royalty is sent directly to the creator’s wallet
Process repeats for every subsequent sale

No intermediaries are needed, and transactions are fully transparent.

Core Components of NFT Royalties

Component	Role
Royalty Percentage	Defines creator’s share from resale
Smart Contract	Automates royalty payment
Marketplace Integration	Ensures royalties are applied on sales
Creator Wallet	Receives royalty payments
NFT Token	Contains metadata and royalty rules

NFT Royalties vs Traditional Art Sales

Feature	NFT Royalties	Traditional Art
Payment Automation	Automatic via smart contracts	Manual, often none for resales
Transparency	On-chain, verifiable	Limited
Income Duration	Unlimited on resale	Usually only first sale
Enforcement	Built into blockchain	Relies on legal contracts

Advantages of NFT Royalties

✅ Continuous passive income for creators
✅ Encourages creation of high-quality digital assets
✅ Fully automated and transparent
✅ Works globally without intermediaries

Risks and Challenges

⚠️ Some marketplaces may not honor royalties
⚠️ Smart contract bugs could affect payments
⚠️ Enforcement depends on blockchain support
⚠️ Not all blockchains support royalty standards

Best Practices for NFT Royalties

Set a reasonable royalty percentage
Use audited NFT smart contracts
Choose marketplaces that respect royalties
Monitor resale transactions regularly

Frequently Asked Questions (FAQ)

Do royalties apply to all NFT sales?
Yes, but only on marketplaces that enforce them.

Can royalty percentages be changed later?
Typically no, they are fixed in the smart contract at minting.

Who receives the royalty?
The original creator’s wallet, as defined in the smart contract.

Are NFT royalties automatic?
Yes, they are enforced by the blockchain and smart contracts.

Conclusion

NFT royalties provide creators with ongoing income from secondary sales, ensuring fairness and sustainability in the digital art and collectibles market. They are a key feature that differentiates NFTs from traditional assets and reward creators in a decentralized, transparent manner.