Non-fungible tokens

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It is really difficult for the average person to fully conceive of how useless NFTs are. We're primed for reason. If people are making so much noise about this technology-- if it IS technology, at all-- then surely it does SOMETHING... right?
(The answer is, no. It does absolutely nothing.)
—Holden Shearer[1]
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.
—Random joke going around[2]

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.[3]

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. 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 and/or boring and repetitive. When even Anil Dash, one of the creators of the technology, has disowned it,[4] then you know it’s just a bunch of woo.

History[edit]

One of these costs $250. Money well spent. Note: the leopard print ape with the bone necklace could be considered a racist stereotype.[5][6]

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,[7][8][9] 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.[10]

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 are 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 have put out NFTs. Mainstream companies selling toilet paper, potato chips, and light beer have latched onto the NFT hype with their own bizarre NFT offerings.[4]

I still don't understand what an NFT is[edit]

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[note 1] 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.[11] 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,[note 2] 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[edit]

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 essentially 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.[12] 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.[13]

Theft[edit]

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,[14] 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.[15] 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.[16]

The drawbacks[edit]

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.[17]

Someone paid $5,000 for this?[edit]

Most NFT series, including those mentioned previously, are more-or-less glorified PicrewWikipedia 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.[18][note 3] 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[edit]

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[19]

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.[20] 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.[19][21]

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.[20] Most claims of “eco-friendly NFTs” are essentially greenwashing, similar to the concept of "clean coal".[19]

Scamming[edit]

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[21]

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.[4] Scams targeting the NFT community include traditional low-tech social engineering attacks[22] and sophisticated hacks by rogue project organizers.[23]

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.[24] 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 foolsWikipedia (the buyers) to lesser fools (the garbage art producers), i.e. scams.[24]

Nazi symbolism[edit]

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,[note 4] celebrity-endorsed[25] NFT project, promotes Nazi imagery through their tasteless NFTs[6][26] — though there is some doubt about this.[27][28] 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, there were Hitler NFTs on OpenSea,[29][30] as well as a Nazi Swastika on an NFT.[31]

web3[edit]

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"[32]

A subject that will often come up in the discussion of NFTs is the idea of a supposed web3.Wikipedia 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 WebWikipedia), but rather is a nebulously defined concept[33] that has been described by Elon Musk as "more marketing than reality".[34] In the technical community, web3 is considered to be a fraud whose purpose is to hype the underlying cryptocurrencies.[35]

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:[36] 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 organizationsWikipedia (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.[37][38]

Technology that solves no problems[edit]

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.

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 artstyle. Importing these assets into a game with a completely different artstyle can, at its most positive, produce whiplash, and at it's most negative results in the dilution of the artistic expression visible in these games.

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.[39]

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. The big problem here is that 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. It's also interesting to note that 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.[40]
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[41] 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.

NFTs are proof of ownership Wrong. They confer zero rights to whatever they point to. The person holding the token does not own the image, video, text or music to which the token might point to. Not only that, creating a copy of the NFT is as easy as one click.[42]
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 or Microsoft stores. Second, it actually costs money to mint a NFT, so it's entirely possible for actual artists to lose money if they can't manage to 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.[43]

Basically, NFTs do not favor artists, it favors whoever is better at convincing people to join their pump and dump scheme.

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.

Notes[edit]

  1. used in the loosest sense here
  2. usually as a profile picture on Twitter to show your followers how cool you are
  3. This is a practice known as Wash tradingWikipedia, a form of financial fraud which has been illegal in the United States since 1936.
  4. Popular amongst NFT enthusiasts, anyway. Nothing about NFTs is popular outside their ecosystem

External links[edit]

References[edit]

  1. Holden Shearer on Twitter, 9 January 2021.
  2. Link to Twitter
  3. "How NFT minting works – an initial guide to NFTs", AZ Big Media
  4. 4.0 4.1 4.2 Anil Dash, NFTs Weren’t Supposed to End Like This. The Atlantic, 2 April 2021.
  5. The most offensive characters in WWE history: The WWE has a nasty history of offensive, stereotypical wrestlers. by Connor Casey (08/27/2017) Sporting News.
  6. 6.0 6.1 Ryder Ripps, Bored Ape Yacht Club is Racist and Started by Neo-Nazis. gordongoner.com, January 2022.
  7. Oliver Roeder, People Are Paying Thousands Of Dollars To Own Pictures Of Pepe The Frog. FiveThirtyEight, 6 March 2018.
  8. Meme Collectors Are Using the Blockchain to Keep Rare Pepes Rare by Corin Faife (January 27, 2017, 12:02pm) Vice.
  9. Pepe the Frog’s Creator Nuked a $4 Million NFT Collection Over Copyright: Matt Furie has wrested control of Pepe from neo-Nazis and Alex Jones. Now he faces the blockchain, while selling NFTs for millions himself. by Ekin Genç (August 20, 2021, 6:00am) Vice.
  10. "The History of Non-fungible Tokens", Medium
  11. "What Is NFT Minting?", SoFi
  12. "Your million-dollar NFT could break tomorrow if you’re not careful", The Verge
  13. Status by NFT Thefts on Twitter
  14. "Right Click, Save As", Know Your Meme
  15. "Artists report discovering their work is being stolen and sold as NFTs", ABC
  16. "DeviantArt is now using AI to spot people selling stolen art as NFTs", Vice
  17. Jack Dorsey tweet NFT once sold for $2.9 million, Now might fetch under $14,000 by Meghan Bobrowsky (17 Apr 2022, 07:16 PM IST) The Wall Street Journal via 'Live Mint.
  18. "Why this CryptoPunk NFT sold for $532 million. Sort of", CNet
  19. 19.0 19.1 19.2 Everest Pipkin, Here is the article you can send to people when they say “but the environmental issues with cryptoart will be solved soon, right?” Medium, 2 March 2021.
  20. 20.0 20.1 "What Is the Environmental Impact of NFTs?", the Motley Fool
  21. 21.0 21.1 David Gerard, NFTs: crypto grifters try to scam artists, again. davidgerard.co.uk, 11 March 2021.
  22. Andrew Wang, The NFT Scammers Are Here. The Verge, 21 September 2021.
  23. Samantha Hissong, ‘A Huge Scam’: Fans Who Bought Tekashi 6ix9ine-Backed NFTs Are Pissed. Rolling Stone, 17 December 2021.
  24. 24.0 24.1 Line Goes Up – The Problem With NFTs by Dan Olson (Jan 21, 2022) YouTube.
  25. Paris Hilton and Jimmy Fallon Go Ape for Printouts of NFTs
  26. BAYC is of the most intricate hidden trolling campaigns in history created by very intelligent 4chan-related trolls who have hidden lots of nazi and alt-right innuendoes across the collection I've gathered enough proof to confirm it. Ultimate extensive thread by Fedor Linnik (3:56 PM · Jan 5, 2022) Twitter (archived from 6 Jan 2022 10:10:36 UTC).
  27. How Seriously Should We Take This Bored-Ape Conspiracy Theory? + More Questions About the Week’s Art News by Ben Davis (January 11, 2022) Artnet News.
  28. Breaking down the conspiracy theory about Bored Ape Yacht Club’s Nazi ties by Thom Waite (12th January 2022) Dazed.
  29. OpenSea Sure Has a Lot of Hitler NFTs for Sale: Hitler-themed NFTs on major marketplace OpenSea have thousands of likes and have thousands of dollars in trading volume. by Jordan Pearson (October 6, 2021, 9:05am) Vice.
  30. What’s With All the Hitler NFTs? Will Robots Put Street Artists Out of Work? + Other Questions I Have About The Week’s Art News by Ben Davis (October 13, 2021) Artnet (archived from October 13, 2021).
  31. German streamer under fire for promoting NFT giveaway featuring a swastika by Aaron Alford (Jan 18, 2022) Inven Global.
  32. Stephen Diehl, Web3 is Bullshit (December 4, 2021) stephendiehl.com.
  33. Jack Dorsey Stirs Uproar by Dismissing Web3 as a Venture Capitalists’ Plaything, Bloomberg:

    Web3, the still hazy term for blockchain-based

  34. Elon Musk: metaverse isn’t ‘compelling’ and Web3 ‘more marketing than reality’, The Verge
  35. Nicholas Weaver, The Web3 Fraud. usenix,org, 16 December 2021.
  36. Cryptocurrencies: Last Week Tonight with John Oliver (HBO), YouTube
  37. My first impressions of web3. moxie.org, 7 January 2022.
  38. Ron Miller, The irrational exuberance of web3. TechCrunch, 14 December 2021.
  39. GB 'Doc' Burford, look what you made me do: a lot of people have asked me to make NFT games and I won’t because i’m not a fucking dumbass. now let me tell you why only a dumbass would get into NFT games., Medium, 7 November 2021.
  40. Lachlan Keller, Earnings for Axie Infinity players drop below Philippines minimum wage. forkast.news, 16 November 2021.
  41. Shanti Escalante-De Mattei, Thieves steal gallery owner's multi-million dollar NFT collection. Artnews, 4 January 2022.
  42. Aleeza Howitt, Knockoff NFTs are the best blockchain art. Medium, 29 September 2021.
  43. Tracy Wang, NFT Project Bored Ape Yacht Club Spawns ‘Left-Facing’ Copycats. Coindesk, 30 December 2021.