Before we begin, a fair warning: there's going to be a lot of bubble bursting, so if you dislike popping sounds, I suggest you move to a less controversial topic. Otherwise, sit tight and enjoy the tale of "irrational exuberance" taking over the world in the form of Non-Fungible Tokens (NFTs).
There’s no way to begin the NFT story without first discussing the latest developments with Bitcoin and its near-1000% ascent over the last several months, which caused many a staunch critic to utter all kinds of expletives and admirers to “neener-neener” the hell out of Twitter.
Bitcoin’s been bobbing on market waves for over ten years now, but this time it’s different. This time the billionaire class not only took heed of the “digital gold” and started stacking it, not only multinational investment banks have opened crypto trading desks, research projects and began to offer crypto derivatives, but governments (governments!) of the world are incorporating Bitcoin in their policies. To me, to us at TRASTRA it all screams a major precursor to mass adoption.
We don’t doubt that the future of finance will be digital. Whether it’s cryptocurrencies that are pegged to physical notes, like the U.S. dollar or the Japanese yen, or a global monetary asset like gold or silver, it will be a norm to pay for things with crypto. However, what’s happening right now with the latest Bitcoin frenzy is partially a result of pandemic-era downtime, where people with expendable income (or gambling problems) have little else on which to spend their money. In these circumstances, the fear of missing out is a potent force that pushes us towards get-rich-quick schemes that involve mechanisms few of us actually comprehend and know how to utilize. Throw in some GameStop-Reddit-style investing, and voilà! You’ve got the frenzy currently taking place with Bitcoin and its ilk – though, let’s be honest here, crypto is a point of privilege amid a global pandemic with rampant job loss and mile-long lines at food banks.
For those more fortunate, crypto has become the go-to investment opportunity. Right now, there’s no reason to buy fancy clothes. You can’t go on luxurious vacations, or dine at extravagant restaurants, so people are looking for places to park their cash. The price movement is wild: seeing how much you can make on these investments can quickly become addictive, and next thing you know, you’re all in.
But the losses, the fear of a looming crypto bubble that could go pop at any moment are also very real, kind of like the stock market in the late-’90s. Back then, everyone got greedy: venture funds were backing start-ups with no revenue and no business plan. Bankers were getting rich on companies that were going public but had no business doing so. New investing websites were springing all over the place, allowing moms-and-pops to invest in tech start-ups. And when the frenzy ended with the astonishingly loud dot-com bubble pop, $5 trillion had disappeared from the market within two years. Fast-forwarding to today, enter NFTs.
Making Sense of NFTs
If you’re reading this, you probably don’t need an in-depth exposé on what the so-called non-fungible tokens are for two reasons. You either convinced yourself already that you know what NFTs are or had given up trying to understand them all together. Both excellent choices. Young crypto-buck Nic Carter in his Medium article tried explaining why NFTs are hard to explain. It didn’t bode well for this writer. “The reason proponents have a hard time explaining NFTs is because NFTs aren’t a singular concept, – Carter writes. – They’re a bundle of related concepts. NFTs are a cluster of superficially similar but functionally heterogeneous entities, in much the same way that “crypto asset” or “blockchain” are too semantically diffuse to be considered a single taxonomic element.” Get it? I know, I don’t.
From my standpoint, the only thing you need to know about NFTs is that they are, essentially, a path to a digital media project that for now can only be plotted on the Ethereum blockchain and can’t be hung on your wall since they reside on the internet.
So, if you feel like spending real money on something you can barely explain, there are some hot commodities in this space. One example is “NBA Top Shot,” which are like cryptocurrency trading cards merging into a form of digital art-slash-collectibles (don’t try and make sense of it, trust me). Apparently, some are worth $250,000 each. Or a series of 10,000 unique pixelated characters called CryptoPunks currently selling for between $35,000 apiece to a laughable few that are hoping to fetch more than a billion dollars for it later on. Some investors in this space believe that it’s definitely a long bet to buy these NFTs, but if it proves to be a hit, owning one of the CryptoPunks could end up being like owning the Mona Lisa. Again, don’t judge.
NFTs Claim to Fame
NFTs major claim to fame is that it supposedly finally succeeds in imposing scarcity on a technological world. Pop goes the bubble: twenty years ago, when the first generation of DRM technologies hit the market, one of the benefits they touted was that consumers could be sure that they were getting genuine content from the source with DRM-packaged files. Nobody remembers this because nobody cared.
What do NFTs do that DRM doesn’t do? Not much. The only exciting thing here is that NFT schemes make public the identities of people who paid money to be put on a coded path leading to digital objects so that those people have help from the NFT platform in exercising bragging rights. Do people actually own these digital objects? Far from it (pop!). NFTs, like many DRM schemes, create digital simulacra of ownership of creative works; and just like DRMs, NFTs fall short of emulating actual ownership.
The winner of that auction at Christie’s, who goes by the pseudonym Metakovan, no more owns that $69 million pile of bits by the digital artist Beeple than I own the eBooks that I got from Amazon. I can read them on Kindle, but not on Kobo or Nook. I can’t resell, give away, or rent them; even if I were to hack the DRM, I’d be violating Amazon’s terms of service.
Metakovan can view the Beeple artwork on any device that will display JPEGs. But in a sense, he can’t alienate the work either because it’s already available to everyone in precisely the same format as it is to him. He can’t lend or rent the NFT because the NFT platform doesn’t support those operations. He can resell the NFT, but then he doesn’t get to keep all the resale revenue; commissions go back to both the artist and the NFT platform and/or auction house. It’s not clear whether he can give the NFT away (i.e., resell it for $0) or leave it to his children to inherit.
So why are NFTs awesome?
Because they are infinitely cool. For instance, have you ever heard of Metaverse? It’s a virtual extension of our world where plots of virtual land are purchased and traded, and digital homes and businesses are built. How cool is that?! There is a market for digital assets such as fashion and accessories, and users can live and interact in a Metaverse through their digital avatar. “Mars House,” the world’s first digital home, is an excellent example of how the virtual economy seeps into the real one. The digital creation has recently sold for more than $500,000. The new owner paid digital artist Krista Kim 288 Ether (equivalent to $514,557.79) for the virtual property, which the buyer will receive in the form of 3D files to upload to his or her Metaverse.
How cool is Kings of Leon’s decision to release their new album “When You See Yourself” in the form of a NFT becoming the first band ever to do so? The band has dropped three types of tokens as part of a series called “NFT Yourself.” One is a special album package. The second type offers live show perks like front-row seats for life, and the third type is just for exclusive audiovisual art. All three types of tokens offer art designed by the band’s longtime creative partner, Night After Night. The smart contracts and intelligence within the tokens were developed by YellowHeart – a company that wants to use blockchain technology to bring value back to music and better direct-to-fan relationships.
And that’s the most brilliant aspect of NFTs. Forget the weirdness of clumsily executed memes. Forget “scarcity.” There’s nothing “scarce” about imminently copyable and ultimately unnecessary digital art. Think artist-viewer solidarity. Think of the potential societal impact of cryptocurrency and blockchain technology as a whole that has the power to change our perception of art, technology, and each other in deeply profound ways.
For art lovers, the most optimistic scenario for NFTs might be that they will give artists the economic clout that they lack in the internet’s most recent iteration. Digital artist Mat Dryhurst has been making these sorts of arguments on his podcast with Holly Herndon. Graphic designer David Rudnick, who has sold NFTs, recently tweeted: “I fully respect the view of those who want nothing to do with the space, but the idea of assets on the blockchain isn’t going away. There is a small window to try to establish some norms or values that might have real value moving forward. Doing nothing now lets the predators define it.”
But despite the optimistic argument that NFTs are democratizing access to a wider audience and ultimately to greater welfare for the creative class, all they have done so far is create a few more individual winners, not change the rules of the game. Does it mean anything to the average struggling artist that Grimes is now $6 million richer?
Technologists like to talk about Web 3.0. Let’s hope that whatever the future internet holds is better for creators than Web 2.0 has been, with its economics of virality and attention. And NFTs look more and more like the strong antidote to the way venture capitalists are used to buying into people’s feelings and wallets.