27 January 2016

What Bitcoin can do for the music industry


Thanks to technology, the way we consume music has changed dramatically in the past 20 years. This digital era determines our music intake through audio hardware, enhanced media formats and on-demand streaming services.

According to Nielsen’s Music 360 study in 2014, Americans streamed 164 billion on-demand tracks across audio and video platforms, up from 106 billion in 2013. In addition, the pace of weekly streams also increased – for the week ending 9 November 2014, total streams for one week surpassed 4 billion for the first time. Since its launch on 30 June 2015, Apple Music has signed up 10 million paying users in slightly more than 6 months.

The rise of digital streaming is predicted to continue in 2016. This has led to a growing number of individuals and companies which have started exploring the possibility of partnering the music industry with Bitcoin. Bitcoin is an online cryptocurrency which employs cryptography to enable its system of digitally created and traded tokens. Cryptography is an invaluable tool used to protect information in computer systems. To add blocks to the ‘blockchain’ – a ledger that records every transaction that has ever occurred using Bitcoin, timestamping each transaction and assigning a unique ID – computers must solve cryptographic problems.

How does this relate to the music industry? Three companies, PeerTracks, Bittunes and Ujo Music each posit that they have discovered a business model utilising blockchain technology that will free musicians from the overbearing influence and pressure from music labels and streaming services. These start-ups believe in a future when an artist can create a song that will be stored on a blockchain with its own ID, similar to bitcoin today.

Phil Barry, of Ujo Music, is adamant that the blockchain will be able to help artists who work with major music companies by offering transparency which will lead to increasing confidence and reducing contract and royalty disputes. He cites the recent controversy over Sony’s leaked contract with Spotify as an example.

PeerTracks’ CEO Cedric Cobban sees the ultimate goal as enabling “new ways of monetising music” without being forced to “rely on royalties coming from the sales of digital files”. To that end, PeerTracks has introduced MUSE, a blockchain that will be an open, global ledger specifically built for the music industry to manage both copyrights and the payment mechanism. MUSE also has the ability to allow artists to create “Notes”, a limited edition, cryptographic token which functions as a VIP pass into the artist’s career, allowing them to crowdfund and also to know who their most engaged fans are.

Bittunes takes a slightly different approach. Coupling Bitcoin, the latest technology in digital payment systems with peer-to-peer file sharing, they attempt to deal with the music piracy problem, according to managing director Simon Edhouse. “In this way, with a carrot and not a stick, artists will be rewarded fairly”. Bittunes denominate all transactions in both USD and Bitcoin, with the USD amount floating up and down following the fluctuations in the Bitcoin exchange rate.

Some hold a more pessimistic view for the future of Bitcoin. One of Bitcoin’s most prominent developers, Mike Hearn, recently released an announcement that he has quit Bitcoin. Citing the breakdown of its fundamentals and its community as a core aspect of its failure, Hearn laments a system that is “completely controlled by a handful of people on the brink of technical collapse.”

Hearn details a financial system with highly unpredictable fees that were rising fast, which was unable to move your money and also allowed buyers to retract payments they’d made after walking out of shops by pressing a button, making it easier for fraudsters to get their goods and leave the merchant with nothing (a feature which has since been disabled).

The digital music industry should take heart though. Should Bitcoin collapse, blockchain technology could still be applied effectively to help solve long-standing problems within the industry of the lack of transparency and dishonesty.

Wei Tien Sng is a CapX contributor.