Innovation

Are NFTs Dumb, a Scam, or Secretly Useful?

Non-fungible tokens for art can seem a lot like Tulipmania. But distinct digital tokens have real use cases for things like online address management.

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NFTs: so hot right now. You might have heard so much about these eye-popping auctions for weirdo jpegs on the internet that you're pretty sick of them by now. For those still on the bubbly side of the hype cycle, "non-fungible tokens" can seem like the solution to online art monetization. For everyone else, NFTs seem mostly like a high-tech way to part a fool from his money.

And lots of money is changing hands. One market tracker reports some $500 billion in all time NFT sale volume shuttled through top markets like Cryptopunks, Hashmasks, and Makersplace. But this is a superstar market. Most NFTs go for nothing at all, while a few supernovas go superviral (and strike it super rich).

Beeple, the closest thing we have to an enfant terrible of the NFT art scene, set the record when he sold a collection of digital grotesques for (of course) $69 million through a Christie's managed auction. This wouldn't be the art world if a record-setting event wasn't marred by allegations of self-promotion and possible scamming: The proud purchaser of EVERYDAYS: THE FIRST 5000 DAYS, was revealed to be the Beeple- and crypto-investor MetaKovan, who had a financial interest in pumping up the price of Beeple works and NFTs more generally.

But with numbers like these, it is no wonder so many have rushed to cash in literally and metaphorically on this hot new trend. And these days, the money is cheap.

Taco Bell sold some NFTs. So did Grimes, some $6 million worth. Professional attention seeker Logan Paul took a break from his Pokéhustle to issue a few million worth of NFTs. The worlds of sports, sneakers, and music have all dabbled in some NFT magic to try to build some buzz and a buck. Weeks after the craze kicked off, even New York Times technology columnists are trying to pawn off their scribblings as some kind of new blockchain bling.

How does an NFT work, anyway? What did MetaKovan actually purchase for that $69 million in real world money? Nothing is stopping me or anyone else from right-clicking on that rather unremarkable blur of five thousand images, saving it, and sharing it with the world. How can you say to "own" an inherently non-rivalrous property?

What MetaKovan and the new class of proud NFT owners "own" is the "T" part of the acronym. They own a cryptographic token. The token is unique—hence "non-fungible"—and associated with a specific and verifiable piece of data. The token can't be divided, duplicated, or destroyed (although the owner could easily lose it). Basically, people are buying a digital keyfile that is associated with the artwork or piece of music or property title in some digital space that is supposed to tell the world: "I own this."

It does seem stupid. But then again, a lot of things that other people spend their money on seem pretty stupid. If there can be no disputes in matters of taste, there can certainly be boneheaded delivery methods to satisfy them.

One of the biggest problems with NFTs so far is that they have been fairly logistically unworkable. They've actually been around for a long time, arguably since 2013 or so, but have failed in each iteration in part for the following inherent problems. How can you tell if the person who sold you an NFT for some work has the "right" to do so? Perhaps that Beeple that you "bought" is just some copy, and the "real" NFT holder has yet to sell. Who verifies which is "real"?

Maybe you say: Well, look at whichever NFT was purchased first. But suppose an NFT pirate simply got there first (there are whole marketplaces that allow people to "sell NFTs" for anyone else's content). The "real" Beeple was still working through the process with Christie's. What you bought was some sketchball copy. Looking further ahead, what is to stop Beeple or any other artist from re-issuing the same work at a later date, thereby possibly devaluing your investment? It all starts to look very silly.

These conceptual concerns pale in comparison to existing and common failures in execution, however. In a lot of cases, the NFT you just shelled out good money for might end up merely "proving" that you own a broken link. NFTs need to point to something. Usually, this is in the form of a URL that leads to a JSON metadata file. If whoever is hosting the URL goes out of business or just decides not to host that file anymore, well, tough luck. That association with a broken link is what you "own." It's already happening, and it will probably accelerate as the NFT buzz dies down and more of these marketplaces start to wind down.

NFT skeptics will almost certainly get to enjoy their schadenfreude. But this does not mean that the concept of an NFT is utterly useless. In many ways, the ongoing NFT mania is just the latest iteration of a cyclical cryptocurrency craze. First, there were altcoins in 2013-2014. Then, there were initial coin offerings in 2017. Now, NFTs are having their day in the sun.

Yes, there was a lot of stupidity and a lot of scamming going on during each of those manias. But there was real innovation that got kind of ignored amidst the gold rush, too. Developments in altcoins lead to real improvements in privacy technologies in the form of privacycoins. The initial coin offering boom resulted in "decentralized finance," or DeFi, which is still being worked through and is now seeing integration with the Bitcoin network. NFTs, while maybe nonsensical for art, can have real value in resolving longstanding issues in online identity and address space.

Here's one example of a non-stupid NFT: Urbit addresses. Urbit is one of the several contenders in the race to build a more decentralized computing infrastructure. In order to access Urbit, you need something called an Urbit ID. Urbit IDs are NFTs. They are unique, indivisible, persistent, and freely traded on NFT marketplaces like OpenSea.

But unlike NFTs for art, Urbit IDs empower holders with a real function: accessing and participating in the Urbit network. It's a key to an activity and environment, not just an ephemeral trophy establishing that you spent money on some GIF associated with some IPFS link at a point in time.

NFT IDs can provide a more decentralized way to manage address spaces. As the telecommunications theorist Milton Mueller's Ruling the Root describes, there are entire global multistakeholder organizations that have been created to manage online identity and address space disputes for things like top level domains (e.g. ICANN). Any central authority introduces the potential for control and therefore conflict; consider the brouhaha over the U.S. relinquishing authority over the management of the Domain Name System (DNS).

With Urbit addresses, there is no "ICANN" tasked with adjudicating such resolutions over identity and addresses. Addresses were spawned, randomly granted to early users, and now trade on secondary marketplaces. When you purchase the Urbit ID, you get the cryptographic key that establishes and protects your identity with the Urbit system. It's self-authenticating. Other examples of NFTs that manage address space include the Ethereum Name Service (ENS) and Handshake, which provide ICANN-like functions through a blockchain, and Decentraland, which manages property titles in a digital world as NFT assets.

In other words, the usefulness of an NFT will depend on exactly what that "T" allows the holder to access. Does the token unlock some useful online function or property, like with an Urbit ID? Or does it just point to a rando JSON file owned by some NFT marketplace? If it's the latter, you might want to save your money for some old-fashioned real art that you can at least hang in your living room.

One good sign that a craze is winding down is that it gets the Saturday Night Live treatment. If last week's Janet Yellen rap video is any indication, NFTs may very well be on the cultural way out. But even if you never hear the term "NFT" again in the next few months, it's a good bet that non-fungible token architecture will stick around as a way to manage address space online, this time with fewer lolcats.

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  1. Dumb

    1. Stupid^2

  2. “use cases”

    No one who have ever said this seriously is worth listening to.

  3. This market is obviously too hot due to the abundance of cash concentrated in the hands of the rich. Human lives should be more valuable than jpgs. Biden’s intellectual mind has precisely determined that the best way to combat wealth inequality and a volatile marketplacee is a tax on the rich and those money grubbing jerks who live off capital gains!

  4. You know you are getting old when none of this made any sense,

    1. I don’t think it offers as much predictive power as you think it does.

  5. Unless you’re a business not much point in buying a NFT for art. Owning digital art only matters if you want to use it in a commercial form. Otherwise exclusivity doesn’t matter. It doesn’t affect your enjoyment if other people save copies of art you paid for.

    1. It doesn’t affect your enjoyment if other people save copies of art you paid for.

      It does if that pisses you off.

      1. Good point, not everyone is me. That being said. It still doesn’t matter even if it pisses you off, because the way these are designed, having the NFT didn’t stop anyone from making copies. The most you can hope for is to maybe have the work taken down by a public forum, if they decide to recognize your token as proof of ownership.

  6. Do you know what else NFT stands for?

    1. Not Fucking There?

    2. NovemberFoxtrotTango?

  7. So NFTs are “supposed to tell the world: ‘I own this.'” It’s worth examining how this has been done, scams faking ownership, and how tech can improve the process. E.G., AFAIK every county has a real property registry. Auctions often require documentation of provenance. Often only a bill of sale (or receipt) is used to show it.

    Fraudsters have created artwork and sold it as some dead artist’s work. Some buy an authentic item (say something like a hat John Wayne wore in a movie) then buy hats exactly like it, selling the fakes as authentic, based on that single receipt.

    I see some value in a property title registry, backed by distributed block chain software, so you don’t buy a fake John Wayne hat, and changes in ownership are documented. Still it requires people to maintain computers running that software to ensure that provenance.

    As for what’s happening with NFTs, I learned from my father something is only worth what someone will pay. They don’t seem of value to me. But it reminds me of another auction scam, whereby someone working for them bids up the price (for one of many dubious reasons, one being they own many of those items and don’t want the market to fall).

    1. I’m not sure you can even call it scams faking ownership in the case of NFTs, as no real world ownership is implied. I mean, I could sign a copy of Harry Potter and then sell it and I wouldn’t be faking ownership. I am just selling my particular copy of the book and if I can find someone who wants my autograph on a book I had nothing to do with, more power to me.

      Similarly, if someone creates an NFT with the text “Harry Potter” then digitally signs it, there isn’t any implied ownership being transferred of the real world Harry Potter. Just a particular oddball token with a certain phrase and a total rando’s signature.

  8. lolz. it’s the new glass foot full of beach air.

    my gramps could never wrap his head around giving me .25 for the Elevator Action machine in his burger joint in Kansas either.

    1. Totally sweet game, btw.

      1. it was.

  9. “They are unique, indivisible, persistent”

    Yeah, unique, indivisible, persistent, and worthless.

    1. NFT printer go brrrrrrrr

  10. when you buy physical art you have PHYSICAL evidence of it and THAT has worth.

    nfts have no physicality and no worth

    bitcoin is more akin to buying stock…nfts claim the same blockchain securities but they don’t actually have them…google search the numerous people who have LOST their nfts value because it’s no longer available to them…many people have bought nfts only to have them disappear because they were suspected of being fraudulent! nfts are nothing like bitcoin and are absolutely the dumbest investment.

    bitcoin only has value today because of its securities AND wide usage.

    and I can download a copy of your nft image anytime so whats the actual value? a REAL artpiece can be digitally scanned but it will never BE the painting…not the same with nfts images…my digital copy could be just as good or better than what some moron paid millions for. sure I can’t sell mine but all it takes is a simple click and neither can the nft owner.

    they aren’t secure by any means…

  11. In fact, now everyone can earn cryptocurrency. It’s not something unrealistic. You just have to understand right away that it’s not that easy to do if you don’t know exactly how to do it best. I already managed to do it only because I turned to professionals for help in time. For example here https://safetrading.today/traders/free/ you can find a list of telegram channels, I hope I was able to help.

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