I have been casually following the story about non-fungible tokens (NFTs) but had little idea what they were other than that an NFT was some form of digital work that one could own. The radio program On the Media had an entire show where they talked about it and that rekindled my interest and gave me some idea about this new world of speculation.
Host Brooke Gladstone discussed NFTs with Anil Dash, one of the people who in 2014 developed the idea that led to NFTs. Dash says that he and an artist friend Kevin McCoy did this as a blockchain-backed means for artists to assert ownership over their digital work. Dash now says that that initial goal of creating ownership rights for artists seems to be in danger of falling by the wayside, to be replaced by the kinds of speculative behavior that we have seen before with bubbles.
The system of verifiably unique digital artworks that we demonstrated that day in 2014 is now making headlines in the form of non-fungible tokens, or NFTs, and it’s the basis of a billion-dollar market. Head-spinning prices are now being paid for artworks that, just a few months ago, would have been mere curiosities. Last week, Kevin Roose, a technology writer for The New York Times, offered a digital image of his column for sale in a charity auction, and a pseudonymous buyer paid the equivalent of $560,000 in cryptocurrency for it. McCoy has just put up for sale the very first NFT we created while building our system. Capturing an animation called Quantum, it could go for $7 million or more, Axios reports.
if you liked an artwork, would you pay more for it just because someone included its name in a spreadsheet? I probably wouldn’t. But once you leave aside the technical details of NFTs, putting artworks on the blockchain is like listing them in an auction catalog. It adds a measure of certainty about the work being considered. By default, copies of a digital image or video are perfect replicas—indistinguishable from the original down to its bits and bytes. Being able to separate an artist’s initial creation from mere copies confers power, and in 2014 it was genuinely new.
But the NFT prototype we created in a one-night hackathon had some shortcomings. You couldn’t store the actual digital artwork in a blockchain; because of technical limits, records in most blockchains are too small to hold an entire image. Many people suggested that rather than trying to shoehorn the whole artwork into the blockchain, one could just include the web address of an image, or perhaps a mathematical compression of the work, and use it to reference the artwork elsewhere.
We took that shortcut because we were running out of time. Seven years later, all of today’s popular NFT platforms still use the same shortcut. This means that when someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it. And worse, they’re buying a link that, in many cases, lives on the website of a new start-up that’s likely to fail within a few years. Decades from now, how will anyone verify whether the linked artwork is the original?
This somewhat tongue-in-cheek article explains what an NFT is and how it works.
“Non-fungible” more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different.
NFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.
You can copy a digital file as many times as you want, including the art that’s included with an NFT.
But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.
Here is one example. It consists of a memorable video segment that I originally saw some time ago on John Oliver’s Last Week Tonight when he was talking about cryptocurrencies. He had a clip showing a New Yorker named Carlos Matos who was flamboyantly promoting a cryptocurrency called BitConnect and spoke (and even sang) at their 2017 annual conference in Thailand about how much money he had made, that his $25,610 investment had grown by $100,000 in just a matter of months.
His wife kept warning him that this seemed to be too good to be true and that it was a scam but he refused to listen. She was right. It turned out that Bitconnect was a $2.5 billion Ponzi scheme that was shut down by the government. Matos claims that he was not part of the fraud but was one of the people who in the early stages of any Ponzi scheme do make some money and become enthusiastic promoters. He lost all his money later and his wife divorced him but is now trying to make some money by selling his viral video as 28 NFTs, each one dealing with one segment of his speech. He gave an interview about his experience.
Any form of digital content can be made into an NFT. Anyone can make something that they created into an NFT that is then put out for sale. I could, for example, make this blog post into an NFT and offer it for sale. (If you interested in buying it, drop me an email with your offer. The bidding starts at $100,000) My claim to be the creator of this content and thus entitled to be the original owner of the NFT and thus entitled to sell it is likely indisputable but that is not always true. In the case of the Matos BitConnect video, for example, is he, as the performer, the creator, or is the person who took the recording the creator? I suspect that as prices skyrocket for NFTs, there are going to be many legal challenges as to who the original owner is and has the right to sell it.
You may wonder, as I did, why anyone would pay to own a piece of digital content that you can see for free on the internet any time you want, like the Matos video. As far as I can see, NFTs are very similar to other forms of collectibles, except that they are in digital form. People buy expensive paintings even though all of us can see photographs and other reproductions of the same works for free. It is the ownership that is of value. What blockchain technology does is to provide authenticated ownership of digital items, and that item can be bought and sold just like any tangible collectible like paintings, stamps, and Beanie Babies. Blockchain ensures the provenance of the digital item.
The incredible prices being paid for some NFTs boggles the mind, with people paying hundreds of thousands of dollars for cat memes and the like. Why do they do this? Perhaps it is because it is not easy to get one’s hands on a Monet. Other collectibles can be equally difficulty to procure. But the internet makes things easy to buy. The world of technology keeps spawning new items for people with lots of disposable income to spend on collectibles of various forms, and the intrinsic value of the item has become immaterial. As one of the people promoting NFTs and who sold 100 images of a rock that he got from Clipart from Windows 95 says:
“[W]e saw that we’re like damn, like, that’s so stupid. It’s going to move. That’s like the kind of thing in crypto. Sometimes it’s like the dumber the investment, the better it is.
[T]he community is around sort of flexing and what they are flexes at to say. I just spent $2 million on a pet rock. The more useless thing you can throw your money at like the bigger status symbol it is.”
I don’t get it but then, I never get it.
Which NFTs will have lasting value and which ones will turn out to be bubbles remain to be seen.
I for one have no desire to be part of this world but I can see people being drawn to them in the hope of making a lot of money quickly. It seems to me to be driven by FOMO all over again, the next big thing until a new one comes along and the money starts chasing after that.