What are NFTs and are they a terrible idea?

A digital collage that’s worth $70 million (apparently)

Tech and Art aren’t fields that intersect very often but a technology called NFTs have made a big splash in both recently. The auction of several pieces of digital art, as well as Twitter CEO Jack Dorsey’s first tweet, have been widely reported. Many see NFTs as a win-win for digital artists who struggle to get compensation for their work and wealthy millennials who want to collect a part of the digital milieu. However, there have also been concerns raised about how sensible all this money flying around is as well as the hidden impact on the climate caused by an influx of crypto transactions. And that’s just from the people who aren’t struggling to understand how this novel technology works.

So how does it work then?

Let’s start with the definition of fungible:

Adjective: (of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable

Think about pound coins. If you and I have a pound coin each and we swap neither of us has lost or gained anything; we are in, effectively, the same position we were at the start. This is because pound coins are fungible. The same is true of cryptocurrencies like Bitcoin and Ethereum. NFTs are tokens on the Ethereum blockchain with additional information added so that they are non-fungible; we can’t swap our NFTs without changing what we each have.

Searches for NFTs have Sky Rocketed in recent months (Google Trends)

That additional information can be used to indicate that the NFT corresponds to some digital asset. This can be anything that exists online but is most commonly digital art (gifs, songs, etc.) or tweets. Ownership of these items could be managed by a central exchange but the trustless, decentralized nature of crypto blockchains means people have faith that their ownership is secure and will be universally agreed upon.

Because the assets are digital, the owner doesn’t get anything. In most cases, the original artist retains the right to sell prints of their artwork and reproduce it. Other netizens can, of course, copy the artwork and for the most part, do what they like with it. Owning the artwork might confer the right to use the artwork as a profile picture but most people would get away with doing that anyway.

Positives and Proponents

Some people have heralded the arrival of NFTs as a step forward for the art world. Digital artists find it quite hard to get compensated for their work; most people resort to selling physical prints or using Patreon or Kofi to generate income. NFTs offer artists a new way to monetize their talent and consumers a way to financially support their favorite artists but get something for it. Collectors still spend a fortune on artwork from their favorite painter despite the fact thousands of other people own prints from museum gift shops.

It’s similarly true that, whilst being hilarious on Twitter might get you a lot of likes and internet clout, it’s hard to turn that into cash. Even platforms that offer content monetization like YouTube, often have opaque rules for how compensation is calculated and take a substantial cut of profits.

Criticism

Others see holes in the bold new vision for the digital world NFT evangelists present. The first type of criticism is, as you might expect, financial. NFTs are a speculative asset, meaning people are speculating that the money they spend will be worth more in the future. This is, of course, not guaranteed; many predict that NFTs will not ‘catch-on’, the current bubble will burst like the crypto ICO bubble of 2017, and lots of people will be out of pocket.

There is also a fair amount of Social Criticism. The ‘Proof of Work’ computation involved in adding transactions to the Ethereum blockchain requires a significant amount of power. Ethereum uses the same amount of power per year as Libya and one NFT can require the same power consumption as an EU citizen over a two-month period. Critics see NFTs as another example of the planet’s future being compromised so people can make a quick buck.

Some people see NFTs as a facet of some kind of Gen Z internet nihilism. Much like the Gamestop Short Squeeze earlier this year, NFTs are a way to poke fun at an established and exclusive way of making money by taking big risks and using technology. This time it's art dealing instead of the stock market.

Compromises and Middle Grounds

Whilst the days of using NFTs to trade art for millions of dollars might be numbered there are plenty of lower-stakes alternative uses which seem more sensible. One idea I've seen floated around a lot is using NFTs to facilitate trading cards in the digital era; instead of using easily duplicated physical cards blockchain could be used to confirm you really own that shiny Squirtle. It’s not quite Pokemon, but there is already a set of NFT backed William Shatner themed trading cards. Similar ideas have been suggested for ownership or items in games like Fortnite or digital real-estate on Minecraft servers.

On the climate front, there is some potential too. Some cryptocurrencies operate on the far less expensive ‘Proof of Stake’ system where participants must stake some of their own wealth as an incentive to not misbehave. Even within the current system, the climate impact can be reduced by using renewable energy. Several artists have indicated that they would give climate-friendly systems priority when deciding how to sell their NFTS.

My Thoughts

I’m not convinced that million-dollar NFT sales are here to stay but I do like the idea of the digital artists I like being able to more easily make a living. I don’t think the technology is stupid but in my opinion, it’s more suited to trading cards and video games.

Joe Rackham

(P.S Email me if you want to buy the NFT for this article, I think £10k is a fair place to start the bidding war)

Sources

NFTs are the latest get-rich-quick scheme for the ‘cryptosphere’ https://www.ft.com/content/2757d760-c29e-4834-8636-7601adbacf47

NFTs Are Hot. So Is Their Effect on the Earth’s Climate https://www.wired.com/story/nfts-hot-effect-earth-climate/

NFTs, explained https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq

THE CLIMATE CONTROVERSY SWIRLING AROUND NFTS https://www.theverge.com/2021/3/15/22328203/nft-cryptoart-ethereum-blockchain-climate-change

After @jack’s NFT tweet, the race is on to tokenise collectible farts https://www.wired.co.uk/article/future-of-nft

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