They are imaginary, resting on a social convention and people’s faulty understanding of technology. They have an outsized environmental impact (or rather the blockchains most NFTs rely on do, although that’s improving.)
And they add nothing, except a huge financial bubble, and yet another a way for organized crime to launder money.
But let’s explain NFTs so that we both know what we’re talking about. An NFT is a number. Nothing more, nothing less.
It’s not a graphic or an image. It’s not a contract (although it can be tied to one, and on certain blockchains include one.) It’s not a transfer of rights, or a copyright, or ownership of some asset, virtual or otherwise. It can include aspects of all of the above, but at it’s core, an NFT is a number.
Imagine an artist printing a limited run of an image. It’s a picture of a crow, title “The President Lost in the Snow,” because that’s what artists do (except if they want to be cool and minimalist, in which case the picture is titled “A Bird”.)
But back to our artist.
The picture is a simple photocopy. One original, which the artists burns in order to create demand for the copies, and a thousand photocopies, each numbered from 1 to 1000, and signed by the artist.
What the artist has created is an NFT. No tech needed, no blockchain in evidence. It’s still an NFT.
NFT – Non-Fungible Token. Something that takes something common and easy to duplicate, like a photocopy or a computer image, and makes it unique by assigning it a number. As such, NFTs aren’t a new invention. They’re as old as lithography. NFTs take something common and make is unique in order to increase its perceived value.
Note the word perceived.
We humans are sucker for perceived attributes. Why else would we watch sports? Is there anything inherently valuable in twenty-two grown men chasing a leather ball?
If so, why these twenty-two, the ones on TV, and not the ones playing soccer in your front yard?
It’s the fact that a lot of other people consider soccer, or football, or synchronized swimming (or politics for that matter) important that makes it important.
Yes, I’m counting politics in the realm of imaginary importance. There is nothing fundamentally special about the title of “president” or the person holding it, except our belief that others will obey them, which makes us scared not to obey them. It’s a social convention that works because people believe it works, and that puts social pressure on everyone to believe that it works. It’s a prefect circular reference, or a Catch-22, depending on your view.
Same with NFTs.
Some people believe that they have value, and as other people see reports of this, they start to believe the same thing. (Compare this to Bitcoin – does Bitcoin have a value? No, there’s nothing to it, other than the expectation that somewhere down the line, someone will buy your Bitcoin for some other form of value-holding substance, from Buicks to bucks…)
The value is a learned through a social contract (basically a shared belief about how the world works) rather than anything inherent in the NFTs.
Let’s compare this to sports cards. You know, those images of sports stars that you buy in randomized packs. Or get when you buy gum or cigarettes (yes, that was a thing, thankfully it no longer is.)
Do sports cards have any real value? Well, from a practical standpoint, you could burn them and generate some heat on a cold winter’s day.
That doesn’t make them worth, say, 156 years of working at McDonald’s? Some people think so (the ones doing the buying.) Others don’t (the ones not interested in sports cards.) Either way, a sports card’s value is not defined by any of its physical properties, but by the rarity and desirability.
Reminds you of something?
NFTs are a way of buying virtual sports cards. You can download a copy of Beeple’s 5000 days (there is a low-res one on Wikipedia). But owning the NFT gives you bragging rights. And something that is valuable because other people consider it valuable.
Which is the very definition of a bubble. The Dutch Tulip Mania of 1636-37 is a prime example, where a tulip bulb, at its height, could buy you the equivalent of 25 thousand kilograms of butter (50 thousand pounds).
Maybe that tulip bulb was worth all the butter in the world. Maybe the Beeple NFT is worth $69 million.
Then again, maybe we’re all crazy.
That was the end of this post, if I’ve ever seen one. But I’ll throw in a caveat, prompted by The Creative Penn Podcast. If you haven’t listened to it, Joanna Penn is a tech optimist, and an NFT optimist, about to mint her own NFTs for her books.
She’s also very persuasive, and has an excellent eye for interviewees (or ear, as the case may be.) And I do think she has some excellent points.
For example, there’s a movement toward NFT-based shared worlds, with free stories and infinite-chain royalties. Basically, give away a free story (or more likely a lot of them, if you become the loremaster of a project), and sell the rights to write more stories in that world.
Or sell NFTs for the characters, giving people the right to use those characters in their own stories. And every time they do, and sell something based on your creation, you get a percentage.
Sounds good. Will it work?
Well, it depends on how popular your works become. It depends on how popular the blockchain their on becomes. It depends on a hundred different factors, most of which I have no significant knowledge of.
And that scares me. I’m not nearly as optimistic as Joannna.
But I am willing to wait, and learn, and if I don’t jump onto the bandwagon as an early adopter, maybe I’ll be able to get on as early majority.
Until then, I’m viewing NFTs as sports cards. Which I don’t collect either.