Non-fungible tokens

People once paid cryptocurrency for crappy art like this. It's now free on Wikimedia Commons.

I, the crown prince of Nigeria, offer you Scams

Hook, line, and sinker

Matthew Lesko The Big Pitcher Fortune-telling Bright Side Gold Matthew Yglesias

Totally sounds legit!

Advance fee fraud Vulture fund Bernie Madoff Banking crisis Dinar revaluation Joe Exotic v - t - e

“”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.

—Jim Chanos, 2021

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

—Random joke going around, 2022

“”Are NFTs dead?

—Business Insider, 2023

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

One of these costs $250. Money well spent. Note: the leopard print ape with the bone necklace could be considered a racist stereotype.

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. By September 2023, 95% of NFTs were worth 0 Ethereum.

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 (a term used in the loosest possible sense here) 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. 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.

—Sina Estavi, after purchasing an NFT of Jack Dorsey's first tweet for $2.9 million… He later found that he couldn't get more than $14,000 for it a year later.

Someone paid $5,000 for this?

WTF?!?

Most NFT series, including those mentioned previously, are more-or-less glorified Picrew 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.

—Everest Pipkin

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.

—David Gerard

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 greater fools (the buyers) to lesser fools (the garbage art producers), i.e. scams.

Nazi symbolism and racism

It's like they weren't even trying to be subtle.

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? The founders of BAYC were revealed to be Wylie Aronow ("Gordon Goner") and Greg Solano ("Gargamel").

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.

In August 2023, a group of NFT investors sued auction house Sotheby’s, claiming that celebrity-endorsed BAYC tokens were “misleadingly promoted” by celebrities including Paris Hilton and Justin Beiber. The investors are sad that the price of the ugly JPEG images has collapsed since the hyped auctions two years earlier.

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.

—Stephen Diehl, "Web3 is Bullshit"

A subject that will often come up in the discussion of NFTs is the idea of a supposed web3. 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 Semantic Web), 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 decentralized autonomous organizations (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.

In 2022, journalist Zeke Faux, who is well-versed covering cryptocurrency, purchased a Bored Ape NFT. He found the experience both complicated and fear-inducing (due to the repeated warnings about possible theft of his money). Given that Web 2.0 shopping usually seamless and usually without risk, this was not a good omen for any shopping on web3.

While the alleged Nazi referencing is disputed, the use of a type of racist stereotyping known as simianization, that is portraying racial minorities as non-human primates, is more obvious.

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.

Claim	Reality
NFTs will allow resale of digital items, such as skins from games	The technology for selling your own digital goods already exists and the most prominent example is the Steam Marketplace. An older example is Second Life, which allows users to upload and sell custom skins and models for Linden Dollars. Since the tokens are likely to be bought and sold via a marketplace, the only real difference would be "but it's a NFT!", which means it only inherits the problems and none of the supposed solutions it provides.
NFTs will let you keep your items after a game shuts down	In theory, this is true. In practice, it's pointless. If the only place where ownership of the item matters is no longer functional, the token is likely to lose all its value as well.
NFTs will allow you to use the same item on different games	This is something that can be done without NFTs: In Simcopter, a 1996 game, you can fly in any of your SimCity 2000 cities. Might and Magic 2 is an even older example, as the game was released in 1988 and allowed players to import their characters from Might and Magic 1. Furthermore, through unofficial mods, skins from one game could be ported to another game, provided that someone would take the effort of converting the models in question. Sites such as Nexus Mods and Steam Workshop have countless characters, vehicles, and other items sequestered from other games and ported over to popular titles such as The Elder Scrolls: Skyrim and Grand Theft Auto V among others, which in turn can be ported over to other games if the author allows. It's important to note that, in order for anything from game A to be useful in game B, game B has to be developed with the data from game A in mind, preferably from the start. Simply yelling "I HAEV NFT" won't magic a Pokémon card into working on a Yu-Gi-Oh game, or any other game that doesn't use Pokémon cards. It doesn't matter what the NFT proponent uses as an example, "But it'll let me use X on any game"; if there is no code to make X work, it won't work, period. And that's not even touching possible copyright problems that the actual digital asset might have, such as a Spiderman skin. In addition, there is practically no incentive for developers to actually create this supposed universally supported content. Many games have their own assets and music that aim to create a specific art style. Importing these assets into a game with a completely different art style can, at its most positive, produce whiplash, and at its most negative result in the dilution of the artistic expression visible in these games, though this is less of a crucial issue as it ultimately depends on the player whether they prefer a more purist experience or if they don't mind a spaghetti mishmash of assets in one game for the heck of it. Furthermore, due to how NFTs work, "the same item" means literally nothing. If one game decides that an NFT represents an art asset, another game can just decide that said NFT represents a completely different asset. There is also practically no incentive for any developer or publisher to support the use of NFTs originating from collections they themselves did not create. The ultimate goal of any company is to make money, and developing assets related to NFT collections you don't own or aren't selling yourself is only gonna cost said company money in the long run.
NFTs let you earn money by playing	True, as can be seen with the game Axie Infinity, among others. As before, this isn't something NFTs invented. Entropia Universe launched in 2003 and had a similar feature. Also similar to Entropia Universe, every NFT "play2earn" game needs an initial monetary investment from players to get starting items. However, people should picture a pyramid scheme when they are advertised an opportunity to make easy money. The game stops being something one would play for fun and becomes a job. Axie Infinity became a hit in the Philippines because, at first, it was an easy way to earn more than the local minimum wage. In less than a year, however, newer players' gains dropped below minimum wage, and the highest earning veterans all have players working for them: they lend some of their monsters and get a cut of any profits the players make, again like a pyramid scheme.
The decentralized nature of NFTs means you'll never risk losing your tokens	While the blockchain is decentralized, the marketplaces where the tokens are put up for sale are not. Scams are absolutely rampant in the cryptoverse. NFT theft is a thing, and don't be surprised if you come across someone saying this is a good feature. This argument is largely directly copied from when it was used to justify Bitcoin, and the exact same counterargument applies. The only thing that a cryptocurrency can actually confirm is that a transaction is syntactically accurate, not semantically. To put it another way: In the real world, if you try to transfer your entire life savings to an unknown address, the bank is supposed to prevent you from doing that and offer you the ability to chargeback the transaction. With crypto, as long as the transaction is properly worded, it will go through, because there is no prevention mechanism. There is also practically no undo mechanism: once a transaction is on the blockchain, it remains there, even if it was a scam, except if you can somehow convince the whole blockchain to rewind to before the transaction.
NFTs are proof of ownership	Wrong. In the real world, there's more to the concept of ownership than an entry in a database. For example, there's nothing stopping anyone from making a NFT of Jeff Bezos' airplane, as long as they pay the gas fees. Yet, if you actually try to go and take the plane for yourself, you will get stopped from doing so and get in trouble, no matter how much you try to explain you are the rightful owner of the plane because you have the NFT. The blockchain has no way of asserting ownership in the real world by itself.
NFTs are good for artists, it lets them sell their work as limited pieces	This is wrong on many levels. For starters, one of the most important things about computers is that any data stored within, whether in RAM or ROM, can be copied an infinite number of times, so any digital asset can be sold an infinite number of times and it's the reason why "Only 10 units left" doesn't exist in digital game stores such as Steam, PlayStation Store, or Microsoft Store. Second, it actually costs money to mint a NFT, so it's entirely possible for actual artists to lose money if they can't sell their tokens. Third, there are many thieves minting tokens from art that is not theirs, with a common response being "you snooze you lose" and blaming the artists for not joining the NFT cult. Adding to that, copycats and clones pop up every day, such as left looking Bored Apes. Basically, NFTs do not favor artists; it favors whoever is better at convincing people to join their pump and dump scheme. (In short, morally-bankrupt charlatans.)
NFTs are no different from collecting cards; NFTs are a way to create digital collections	It's true that you can collect NFTs, but that's where the comparison stops being relevant. Physical things, be they cards, game boxes, toys, exist in a finite number. While possible to reproduce, these reproductions may very likely come with signs not present in the original piece. For instance, you could print your own Super Mario 64 box, but artificially aging the box won't produce the same result as simply letting the box stay in place for 25 years. Meanwhile, the NFT can be likened to owning a spreadsheet cell that has a link to an image. Said link can go offline, thus erasing the "owned" item, since the cell cannot be edited to point to a new site, due to the nature of blockchain. Not only that, the only unique aspect is the NFT itself within the specific blockchain it was minted on. Back to the spreadsheet analogy, each blockchain could be likened to a separate file, such as eth.xls, tezos.xls, cardano.xls. The NFT that exists on cell B33 on eth.xls might be completely unique in that file, but there's nothing stopping it from also existing on tezos.xls.

In summary

“”The world went ape for digital drawings of primates in 2022. In 2023, we got bored.

—Chris Stokel-Walker, New Scientist, December 2023

In a particularly bizarre and amusing legal proceeding, the United States Securities and Exchange Commission whacked the NFT seller "Stoner Cats 2 LLC" for US$1million because they earned US$8.2 million selling NFTs used to finance "Stoner Cats" videos. At least the NFT holders got six videos out of the project, premised around the study of house cats exposed to medical marijuana.

In 2023, the market for NFTs completely collapsed, and most of the things are now worthless. Market analysts say that some 95 percent of NFTs held by investors are now worth nothing at all.

External links

• Web3 is going just great - a timeline of blockchain/web3 failures and scams
• A 2h long video of Folding Ideas' explaining in a very concise manner how NFTs are just a "bigger fool scam"