By now the NFT craze has crashed into the mainstream (and maybe that means it’s already over). When Non Fungible Tokens appeared on my internet I was confused and skeptical. After doing a little bit of reading and research I am less confused, but still highly skeptical.
Non Fungible Tokens - or NFTs - are unique blocks of data encoded into the blockchain of a cryptocurrency. These unique blocks are distinct from regular crypto “coins” in that they cannot be traded like for like. A dollar is fungible. If you and I exchange dollars, we have not gained or lost any value. Dollars are fungible, BitCoin are fungible, Etherium is fungible, and so on.
NFTs are considered unique which is confusing as all crypto coins are, strictly speaking, unique cryptographic signatures. NFTs are unique in that they are encoded into a block chain once and only once and they do not represent a proof of work for a block of transactions. They are more like a digital signature or an autograph.
I find cryptocurrency a bit hard to comprehend. The mechanics are quite complex. I found the following video on YouTube to be a pretty good explainer without diving into the complex math involved.
In addition to stumbling over the mechanics of cryptocurrency I’ve never understood the why - as in “why do we need this”. I have never understood the problem which cryptocurrency attempts to solve. Proponents crow about cryptocurrency being decentralized but the main benefit of that seems to be to avoid scrutiny and law. Real currency is backed by the might of a government. Cryptocurrency seems to be a gentlemen’s agreement between parties who don’t trust anyone.
When the metadata represents a work of digital art, the NFT functions like a unique signature on that work of art. This is likened to an artist signing each of a run of 20 prints or photographs. In principle the prints can produced forever, and may be bought and sold, but the signed prints are prized by collectors.
By nature digital art is abundant and usually free. It often exists on the web and is freely passed around as creating a perfect copy is trivial and costs nothing. “Signing” a work of digital art introduces a level of authenticity and pedigree to something which is intrinsically ephemeral. By “minting” an NFT to“sign” their digital art, artists are able to sell their digital art at auction. Backed by the general hysteria around cryptocurrency, this market for NFTs has exploded and, just like the real fine art market, a very small number of influential people are getting very rich.
And now the bad news
The complex math which makes crypto currency and NFTs work require ever increasing amounts of electricity. There is no workaround for this, it’s built into the system. Each transaction gets more complex and requires more computing power. As usage of crypto currency and NFTs grow, this means more transactions, which means more and more computing power. Staggering amounts of power.
And while there are continuing promises to move to an alternative ways for crypto currency to work, these promises never materialize. It’s a budding ecological disaster.
Proponents of NFTs and cryptocurrency in general will point out out that all crypto currency transactions amount to only a tiny fraction of the world’s energy usage, omitting the fact that a tiny percentage of everything is a tremendous number.
They will also point out that hey - oil industry is worse and maybe you should start eating vegan if you care so much - but I don’t find this entirely convincing. That there are other terrible things in the world doesn’t mean we should dive headlong into something that is merely bad. We can work on more than one thing at a time.
These arguments rely on the assumption is that crypto currency and NFT markets are a good thing, worth the expense. I’m not sure yet.
I admittedly do not “get” cryptocurrency. Money exists. It’s fine. I use it every day.
The the “authenticity” of an NFT isn’t guaranteed. True, an NFT is part of a verifiable chain of transactions encoded into a block chain. There’s nothing which guarantees any value which has been transferred to the buyer. Embedded contracts within an NFT haven’t faced any true legal scrutiny. With a traditional art purchase you at least have the painting when you’re done.
With an NFT, we only have the gentlemen’s agreement that this NFT means anything. Nothing prevents a ne’er do well from minting an NFT from your last Instagram post. Nothing prevents a legit creator from just deciding to make more NFTs and saturating the market. NFTs are not immune from counterfeiting.
Value and values
One of my favorite digital artists Rafaël Rozendaal jumped on the NFT train. This is what prompted me to read more into this topic. At first I was worried. Would I have to break up with Raf and take his book of haiku to the Goodwill? On his podcast, he and his friend Jeremy have talked at length about NFTs and his motivation for experimenting with them. They just barely discuss the ecological impact of cryptocurrency but I did find them slowly changing my mostly negative opinion. They talked a lot about large internet platforms like YouTube. For years now YouTube has bade billions of dollars from the work of creators who are often paid pennies (literally) for their efforts. The NFT marketplace allows individual creators to sell directly to their fans and to circumvent the rent-seeking model of YouTube, Twitter, Instagram, and the others.
The explosion of NFT sales indicates that there is a pent-up demand for digital creations that has never been addressed or even acknowledged by the traditional art marketplace. In this way NFTs can be a bit more democratic than traditional art markets. This opens the door for internet memes to be “collected” and in a way recognized for their cultural worth.
Rafaël and Jeremy are also much more comfortable with the nebulous value ascribed to an NFT. As artists, they are aware that value in art is highly subjective, so they don’t react with fear and uncertainty about the flexible interpretation of an NFT’s value. They also point out that more value is created overall because more types of creative expressions can now be collected and purchased than before. Again, this is more democratic.
Does all of this newly created, democratically achieved, economic value outweigh the environmental costs? I’m not sure. I am more intrigued than repulsed. The production of an NFT is less environmentally costly than shipping a painting across the country for a show. Perhaps the market for NFTs is naturally small, like the traditional art market. Perhaps it’s self-limiting. But, perhaps also, NFTs become the replacement for a paper receipt and half of earth’s computing power becomes committed to creating tokens.