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.