TLDR: The intellectual property (IP) industry is a mess of missed monetization opportunities. It is caused by outdated, costly, lawyer-assisted processes. It’s a field that is just waiting to be disrupted/disintermediated by blockchain technology. Story Network is a general-purpose Layer 1 that reimagines the IP system from the ground up. The Story testnet is currently live.
Imagine that legendary comic book artist Jack Kirby (1917-1994), creator of action heroes such as Spiderman and The Hulk, would have owned his intellectual property. In his heydays, it wasn’t uncommon for artists to get paid by the page, which was also the case for Kirby. Decades later, he was still struggling financially, while Marvel Comics literally made billions of his creations…
This is not to say that in Kirby’s days there were no better deals to be made. But the point stands that having to deal with intellectual property is hard, back then or now.
To illustrate this, let’s fast forward to a current artist in the same position as Kirby back in the 1930s.
The Headache for Creators
Imagine being a beginning singer/songwriter. How do you make money online from your craft? You want your music on streaming services, which are notorious for paying low revenues. And to be included on streaming platforms, you have to deal with a middleman called a distributor taking a cut.
A bigger source of revenue, potentially, is licensing deals. Who knows if a popular YouTube creator would want to use their work? Or a brand, for a commercial? Nice potential extra income.
Enter the licensing headaches. How do you license the track properly? You need a contract, a clear understanding of what rights you are giving away, and some knowledge about typical pricing. Without the proper legal knowledge, you and your counterparty might walk away from the deal, overwhelmed by all the hassle.
And that’s even assuming that the other party is of good will. It’s all too possible that some influencer will use your song without permission. If you chance upon this copyright infringement, then what? Pursuing legal action would be costly and exhausting. Hiring a lawyer would mean thousands of dollars upfront, far more than you’d likely ever make from the stolen use of your song.
In short, the current intellectual property system seems designed for big players – people who can afford lawyers, complex licensing negotiations, and fees at every turn. For creators like a beginning singer songwriter, the system is a maze of outdated, expensive processes.
Moving Intellectual Property on the Blockchain
To a trader or investor, the above story screams: illiquidity. There is currently just no liquid market for intellectual property. Story Protocol wants to bring this market to the blockchain. IP assets, such as music, inventions, and brands, are super valuable but difficult to sell or borrow against.
Enter Story.
Story Protocol promises:
“What Bitcoin and Ethereum were for money, Story is doing for intellectual property.”
In other words, Story wants to make it easier for creators to:
- Register their Intellectual Property (IP, an idea or creation) so that everyone knows it belongs to them. On Story, this process can be achieved in only minutes instead of months.
- Find and license IP, which means creators can easily let others use their work while making sure they get paid for it. Story streamlines royalty distribution.
In order to achieve this, one of Story’s components is the Programmable IP License (PIL) pillar. It is based on Cosmos SDK and compatible with the Ethereum Virtual Machine. PIL is a universal contract that translates any IP into code. Of course, each on-chain license is tied to an off-chain, human-readable version.
Each IP is represented by an NFT (the IP Asset) and associated with an IP Account, which is a version of a Token Bound Account. These types of accounts give NFTs agency, which is what they need here. They need to be able to fend for themselves, so to speak.
View it as a special smart contract for creators. It makes the rules for using someone’s IP super clear and easy to follow, but it’s also flexible. Like a digital version of a contract that can automatically do things like pay the creator every time someone uses their work. Disputes will ultimately be settled in the real world, but Story offers a Dispute module that offers a first line of defense.
In order for this complexity to be handled efficiently, Story has built a new Layer 1, called Story Network, which processes all information and transactions. The complexity of IP and its derivatives is high, as you’ll read below.
IP Monetization
Monetizing IP typically involves licensing it in exchange for royalties. You can imagine a graph data structure of derivative works that can be tied back to a single IP. Let’s again make the starting point a song: it becomes the seed from which countless branches sprout.
The song may be covered by other artists, each cover representing a direct node in the graph. These covers might spawn different versions—acoustic renditions, live performances, or remixes.
Next, the song could be licensed for use in various media: it finds its way into a commercial, where advertisers use it to capture attention, or a part of a movie soundtrack. Songs can also be licensed for political campaigns.
The song could then be sampled by another artist in a new track, further adding complexity as new rights are negotiated and royalties divided. Branching further, the song could inspire merchandise like band t-shirts.
At each node, the complexity compounds: contracts must be negotiated for the licensing, with producers, artists, and media companies sharing a stake. Merch manufacturers, advertising agencies, streaming platforms, and even user-generated content platforms like TikTok all contribute to the intricate value flow of the original song, creating a vast web of interconnected works.
In other words: there is work to be done for blockchains like Story. The need for processing capabilities for such data graphs explains why Story built their own L1.
Let’s build on the example of the singer/songwriter. Suppose he or she uploads the song to Story Protocol with licensing terms that allow permissionless minting for a $250 upfront payment and 15% royalties.
A documentary maker pays the $250, which goes to the singer/songwriter, and mints a Licensing Token to create a derivative IP Asset for a feature film. The filmmaker burns the token to register an IP Asset that represents the movie, and the singer/songwriter collects 15% of the royalty tokens from the movie’s IP Account. If the movie becomes successful and a TV studio wants to base a series on it, this process can continue. Royalty tokens will accrue to both the filmmaker and the original singer/songwriter.
Testnet and Token
Story Protocol has raised a total of $140 million in funding. This amount was accumulated across multiple rounds, with the most recent being an $80 million Series B led by renowned names such as 16z Crypto and Polychain Capital.
Story’s testnet Iliad went live in the final week of August 2024. Users can toy around with Sepolia testnet ETH and mint an NFT.
Conclusion
An on-chain version of an IP industry could do more than just disrupt existing players. It could add value and, in a sense, create a new industry. Tokenizing IP unlocks a new market in the same way that NFTs did. Before NFTs, there were no tradeable profile pictures: the industry didn’t exist. Of course, intellectual property as an industry is much bigger than profile pics. It’s gigantic, arguably it’s the largest asset class in the world. Tokenizing this asset class might be one of the true revolutions that crypto could give to the world.
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
