Non-fungible tokens

I teach a course on the history of financial market fraud. And one of the themes of the course is that the fraud cycle is a leg of the financial and business cycle, that the longer the business and financial cycle goes on, the more people's sense of disbelief erodes and they begin to believe things that are too good to be true toward the end of it. Crypto is a wonderful example of that.

Imagine you have a wife and your wife is getting drilled by everyone and you can't do sh!t. But you have the marriage certificate. That's NFT.

Non-fungible tokens (NFTs) are the newest cyberspace scam and type of woo.

NFTs allegedly take the form of a piece of art, video, or audio that is "minted" in such a way as to make it completely unique: a piece of media is converted to a crypto asset through some swanky blockchains, and suddenly it's worth thousands of dollars.

In reality, an NFT is just a crypto-token that may contain the address of a piece of art — the token is not the art itself. Essentially, they're cryptocurrency trading cards; they can also be compared to gold certificate scams. The term "non-fungible" refers to how one NFT cannot be traded for an identical NFT (unlike how, for example, 1 Bitcoin or a US dollar bill can be exchanged with a near-identical coin or bill, with no meaningful difference), which makes them "unique" and purportedly inflates their supposed value. Basically, it tries to make digital assets "scarce" or "unique" but fails miserably on that regard.

NFTs have a dark underbelly to them, involving pollution and scamming. It doesn't help their case that most NFT series are ugly, boring and repetitive. When even Anil Dash, one of the creators of the technology, has disowned it, then you know it’s just a bunch of woo.

History
NFTs as we know them now — digital assets that are uploaded to a blockchain — entered the digital realm in 2014, on the website Counterparty. Counterparty hosted digital trading cards from properties such as Yu-Gi-Oh and Pokémon, and later the "Rare Pepe" series,  which had been modeled on rare trading cards. This cemented the comparison between trading-card culture and NFT culture, with the markets functioning in a similar manner. In 2017, Rare Pepes joined the Ethereum blockchain, a move that spread the popularity of NFTs to all corners of the internet. Other projects like Cryptopunks and CryptoKitties contributed to the rise in popularity of NFTs.

As cryptocurrency also grew in popularity, more attention was put on what one could do with one's fancy new Bitcoins and Ethers and whatnot. Numerous sites for making and trading crypto now exist, and it's never been easier to get on the blockchain; these factors in tandem, plus the virality of NFT series like Bored Ape Yacht Club have exploded interest in NFTs. They were a very lucrative business, considering that rich people will pay for anything when it's deemed to be rare. Everyone from the likes of StoneToss to Kings of Leon to the media team behind the Macy's Thanksgiving Day Parade put out NFTs. Mainstream companies selling toilet paper, potato chips, and light beer latched onto the NFT hype with their own bizarre NFT offerings.

The NFT market crashed spectacularly in 2022. NFT market analysis firm NonFungible stated in their report for the third quarter of 2022 that the overall market had suffered a 75 percent drop in volume of dollars exchanged, and the total volume of resale profit declined by about half in the same period. This resulted in a half billion dollar overall loss for the quarter, "not enough to make NFT trading a profitable business..." Dumbass pop star Justin Bieber's prized Bored Ape NFT, that he acquired for US$1.3 million in January 2022, was reported to be worth about US$70,000 less than a year later.

I still don't understand what an NFT is
Welcome to the club. The basic process of an NFT, from creation to purchase to ownership, is like this: someone makes a piece of art, or alternately, makes a base with a hundred or so visual assets and then randomizes them into a limited series. The artist then must purchase crypto tokens that correspond to the blockchain that they want to use to mint the pieces; Ethereum is the most common, but some NFTs have sold on the Bitcoin or Binance blockchains. The artist then must place their crypto into a "hot wallet", which is just a digital wallet for one's crypto, and afterwards they are able to upload their art to NFT marketplaces and personal NFT collections. Minting an NFT, like minting a coin, gives it a unique signature, similar to how coins have letters on them to indicate what state they were minted in. This helps to make each piece digitally unique, which creates the sense of value.

When a buyer purchases an NFT, all they really get from it is a receipt of sorts that states that it belongs to them now, as opposed to belonging to the artist. NFT owners don't get ownership of the file itself, in any form: ownership only allows for limited, noncommercial use of the NFT in image form, or whatever format it is in. However, the question of ownership has led to two main problems: theft and copyright.

Here is an (simplified) example of how this works.


 * 1) You go to an art museum and take a photo of an artwork with your phone camera.
 * 2) You go to a notary to obtain a certificate about the picture on your phone. Note that the certificate will only state that the photo was on your phone at a certain point in time. It does not state anything about the artwork itself or where the photo has been taken.
 * 3) You sell this picture file from your phone along with the certificate.

The important point here is: The notary did not check (nor state in the certificate) anything about the actual artwork, if you actually took the photo in the museum or if you were allowed to take the picture in the first place. Also it does not certify that the artwork is still in the same museum. Most importantly, it does not state anything about the copyrights or ownership of the artwork in question.

Copyright
Copyright with NFTs is a bit iffy right now. Currently, the noncommercial status of most NFTs protects those who hold the copyright. However, the fact that copyright is still held by the original artist despite the buying process being supposedly a transfer of ownership is odd, and begs the question of what one actually owns when one buys an NFT. The answer is: unless the collection explicitly outlines it in their TOS, you own a hyperlink. That’s it. You don’t have any rights to the image, and you don’t even get a copy of the image. You just have a hyperlink to the listing on the NFT marketplace, which could break if the website it links to goes down. And some NFT marketplace sites don’t even host the images themselves, instead using cloud servers hosted by Amazon, Google, and other Big Tech companies; therefore meaning there are two potential points of link-breakage.

Theft
With all things that become popular on the internet, there are trolls and those who go against the stream. The lucrative nature and image-centric format of NFTs mean that, surely, if it's just an image, then I can just download it from the net and skip the whole anonymous transfer of fake money, right? Yes — but NFT artists don't want you to know that. Many websites that host NFTs have disabled the ability to right-click save images, but that hasn't stopped people from going into their developer settings and simply re-enabling it. A long and bloody Twitter war has spawned over the right-click controversy, with the pro-NFT side complaining about lost revenue and using "right-clicker" as a pejorative, and the pro-right-click side boiling down to, "It's just a JPEG, bro." In reality, one person saving an NFT doesn't decrease its Ether value, and deters only the NFT-obsessed crypto bros from deciding whether or not to buy a given piece. Of course, saving the image does somewhat destroy the concept of minting and 100% uniqueness, but only in a social and not physical (digital) sense.

Additionally, artists across the web have spoken out about having their art stolen and made into NFTs. DeviantArt now has a feature that will alert users if their art has been stolen and uploaded to the blockchain, following an incident where a dead artist's work was stolen and minted as NFTs.

The drawbacks
This is not just a tweet! I think years later people will realize the true value of this tweet, like the Mona Lisa painting.

Someone paid $5,000 for this?
Most NFT series, including those mentioned previously, are more-or-less glorified makers: make a base, add a few assets and colors, and randomize the shit out of it until you have 10,000 Twitter avatars. In order for effective randomization and mass-production, the pieces have to be made to be very simple and interchangeable, which drives home the point that it would be far more worth it to pay an independent artist $50 for a commission, instead of paying an anonymous seller 1/8 of an Ethereum for something you could do yourself on DollDivine.

The high equivalent value of crypto naturally creates incredibly expensive pieces, with the most expensive ever 'sold' going for $532 million. The piece in question, Cryptopunk #9998, has its own story, being that it wasn't so much sold as it was transferred between three different wallets, all owned by the same person. The whole thing indirectly proved the fickle nature of crypto and the extent to which the market overinflates its value. Once the hype (marketing) disappears, so will the value. It's basically a pump and dump scheme.

Environmental impact
During unprecedented temperature increases, sea level rise, the total loss of permanent sea ice, widespread species extinction, countless severe weather events, and all the other hallmarks of total climate collapse, this kind of gleeful wastefulness is, and I am not being hyperbolic, a crime against humanity.

Blockchain tech, in addition to taking up a lot of computation power, also creates a lot of atmospheric carbon emissions. When crypto or NFTs are mined, the process of this being a computer solving a computation, a small charge called a "gas fee" is added to the cost of the mining. More complex/difficult computations require more time and processing power, which in turn costs more in fees. Higher Ethereum prices, NFTs, and the rising popularity of NFTs have all contributed to more and more complex computations being done on the daily, resulting in more fees and greater power drawn from energy grids, resulting in more emissions.

While blockchains themselves are what are responsible for these emissions, the current controversy and craze over NFTs has shifted the blame to them alone. Some parties have proposed finding ways to make NFTs greener, while others have posed just throwing the whole mess out, blockchain and all. Most claims of “eco-friendly NFTs” are essentially greenwashing, similar to the concept of "clean coal".

Scamming
NFTs exist so that the crypto grifters can have a new kind of magic bean to sell for actual money, and pretend they’re not selling magic beans.

Given the lack of regulation within the cryptosphere and the irreversibility of transactions on the blockchain, the same sorts of scams common to cryptocurrency have also appeared within NFT communities. Scams targeting the NFT community include traditional low-tech social engineering attacks and sophisticated hacks by rogue project organizers.

Initial offerings of NFTs almost always make promises of vague and/or virtual deliverables at some indefinite point in time. There is no benefit to the NFT creators to actually deliver anything since an NFT that fails to deliver makes as much cryptocurrency as one actually delivers something beyond the initial NFT. Such cut-and-run behavior of NFTs is known as a rug pull (or rug or rugged), showing that NFTs are just a way of transferring cryptocurrency from (the buyers) to lesser fools (the garbage art producers), i.e. scams.

Nazi symbolism
As if all the above weren't enough, the "Bored Ape Yacht Club" (BAYC), a popular, celebrity-endorsed NFT project, promotes Nazi imagery through their tasteless NFTs — though there is some doubt about this. Their logo is a modified version of one of the logos used by the Schutzstaffel. Who could have predicted that an enterprise built around libertarian-flavoured grifting would attract such clientele?

Regardless of whether BAYC is a Nazi front group or not, the nature of how anyone can mint an NFT attached to any sort of imagery has naturally led to other NFT collections with more overt Nazi imagery and dogwhistles. For example, there were Hitler NFTs on OpenSea, and a German livestreamer got into hot water by promoting an NFT collection that included characters wearing red armbands with Swastikas.

web3
At its core web3 is a vapid marketing campaign that attempts to reframe the public’s negative associations of crypto assets into a false narrative about disruption of legacy tech company hegemony. It is a distraction in the pursuit of selling more coins and continuing the gravy train of evading securities regulation.

A subject that will often come up in the discussion of NFTs is the idea of a supposed This is not to be confused with the series of standards published by the W3C that aimed to make the internet more easily accessible by machines (also known as the ), but rather is a nebulously defined concept that has been described by Elon Musk as "more marketing than reality". In the technical community, web3 is considered to be a fraud whose purpose is to hype the underlying cryptocurrencies.

This is indeed accurate, as when examining promotional content involving web3, one comes quickly to the conclusion that "web3" as a concept is little more than a replacement to do what the word "Blockchain" did back in 2018: serve as a promotional buzzword for investors to increase the amount of money given to a startup, without having any specific idea of what this set of features would entail.

web3 claims to create a more decentralized internet based on the blockchain with token-based economics. Some visions are based on (DAO). Decentralized finance is part of web3, where users exchange "currency" without bank or government involvement, combined with self-sovereign identity allegedly allowing users to identify themselves without relying on an authentication system. Many remain skeptical of these claims, and for good reason.

Technology that solves no problems
Spend any time reading comments from people who aren't fawning over NFTs and one quickly realizes that it is a solution in search of a problem. As previously noted, these tokens do not confer ownership of the actual digital file, since the blockchain does not save the actual digital thing. There are a number of wild claims one can easily find online, especially while perusing articles about NFTs and games. As usual, such claims fully ignore reality and are easily debunked by anyone with a passing knowledge of computers.