While it is true that NFT royalties can be easily distributed, it is misleading to think that royalties are a native feature of NFTs. Royalties are often cited as a major reason why artists should mint NFTs of their work. NFTs, also called non-fungible tokens, are a special type of cryptocurrency where every token is unique and represents a piece of content or data, usually embedded in a URL in the token's blockchain smart contract code.
Smart contracts are the core technology behind NFTs, but this is typically overlooked by most people and is the reason why NFTs are so misunderstood. NFT marketplaces use their own smart contracts to handle the payment processing side of NFT trading, part of which can compensate the NFT's original creator.
As The Block reported, the NFT marketplace Sudoswap recently set its royalties to 0%, sparking massive debate in the community about the pros and cons of royalties. Right now, it is the payment processor (the NFT marketplace) that enforces and processes royalties, not the NFT's token contract. While early NFTs had functionality for buying/selling in their token contracts, this was not included in the adopted ERC-721 token standard, the compatibility standard all NFTs are built from today. Because of that, a seller who does not want to pay the royalty fee can simply sell the token on another marketplace that doesn't participate in royalties, completely defeating the purpose of minting the work as an NFT for the royalty payments.
A New Standard Is Needed
Royalty payments have been a business staple for a very long time, and they are often enforced by legal contracts and distributed over regular time intervals, but this comes with the problem of trusting a third party to reliably distribute the royalties. Implementing automated royalties into smart contracts would eliminate this problem entirely. However, this is almost impossible to practically implement under the current NFT token standard, and is why royalties are facilitated by NFT marketplaces like OpenSea. This leaves the artist in a tough spot. They could restrict which marketplaces are allowed to sell the token, making it far less desirable to buyers, or they could sell the token for a lot more at creation.
One compromise solution would be "transfer fee royalties", where the transfer function is modified to charge a flat fee in stablecoins or cryptocurrency as part of its native functionality. While inconvenient, it would ensure that no matter where the NFT is sold or transferred the artist always gets paid a flat fee, and because the royalty is enforced by the token's contract nobody could bypass it by selling the token on another marketplace. Other solutions may be viable as well, but until one is adopted the royalty problem will persist, and artists won't mint their work as NFTs.
NFT royalties are currently provided for by NFT marketplaces, as this is the simplest and most straight-forward approach, but this means royalties are not guaranteed. Right now, there is no reliable way to enforce a royalty system that can't be bypassed by the seller or that doesn't restrict the NFT's movement on the blockchain. A fully automated royalty system that is enforced by the token itself may remain elusive for NFTs for some time, but that won't stop blockchain developers from trying to find a solution that works for everyone.