NFT stands for “non-fungible token”. The “token” part refers to an NFT being a token whose ownership is recorded on a blockchain. Pretty much all cryptocurrencies, from bitcoin to your favorite shitcoin, could be called tokens in this sense. Each token has exactly one owner, and ownership of the token can be transferred from one wallet to another via a transaction on the blockchain.
What sets an NFT apart from a cryptocurrency is the “non-fungible” part. Cryptocurrency tokens are fungible; one bitcoin is the same as any other bitoin (according to the protocol, at least), in the same way as one US dollar holds as much value as any other US dollar. Fungibility is the property of two units of something being exactly interchangeable.
NFTs are not fungible. One is not the same as any other. Each has some piece of data attached to it, and each is recorded separately on a blockchain as an individual token. You can think of an NFT as a unique cryptocurrency which has a supply of 1 and can’t be divided.
Depending on the protocol used to produce an NFT, the data attached to it might be completely independent of its identity, even. It may be possible to produce two NFTs with the exact same data attached to them (again, depending on the protocol used), but even so those two NFTs will be independent and not interchangeable.
Before getting into why NFTs are interesting, I want to first address some common criticism I see of them online (aka, in my twitter feed). The most common, and unfortunately least legitimate, criticism has to do with the environmental impact of NFTs. While the impact on energy usage and the environment when talking about bitcoin is a topic worth going into, bitcoin doesn’t support hosting NFTs and therefore that topic is irrelevant here.
Most NFTs are hosted on ethereum, which does have a comparable energy footprint to bitcoin (it’s somewhat less than half, according to the internet). However, ethereum is taking actual, concrete steps towards changing its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS), which will cut the energy usage of the network down to essentially nothing. The rollout plan for Ethereum PoS covers the next couple of years, and after that we don’t really have to worry about the energy usage of NFTs any longer.
The other big criticism I hear is about the value and nature of art and what the impact of NFTs are in that area. I’m going to talk more about this in this post, but, simply put, I don’t think that the value and nature of art are immutable, anymore than the form of art is immutable. Perhaps NFTs will change art, but change isn’t bad in itself, and furthermore I don’t think they will actually change it all that much. People will still produce art, it’s only the distribution mechanism that might change.
Real, Useful, Boring Things
Most of the coverage around NFTs has to do with using them to represent collectibles and art. I’d like to start by talking about other use-cases, those where NFTs are actually “useful” (in the dull, practical sense).
Each NFT can carry some piece of data along with it. This data can be anything, but for a practical use-case it needs to be something which indicates ownership of some internet good. It cannot be the good itself. For example, an NFT which contains an image does not really convey the ownership of that image; anyone can copy the image data and own that image as well (intellectual property rights be damned!).
A real use-case for NFTs which I’m already, if accidentally, taking advantage
of, is domain name registration. I am the proud owner of the
mediocregopher.eth domain name (the
.eth TLD is not yet in wide usage
in browsers, but one day!). The domain name’s ownership is indicated by an NFT:
whoever holds that NFT, which I currently do, has the right to change all
information attached to the
mediocregopher.eth domain. If I want to sell the
domain all I need to do is sell the NFT, which can be done via an ethereum
Domain names work well for NFTs because knowing the data attached to the NFT doesn’t actually do anything for you. It’s the actual ownership of the NFT which unlocks value. And I think this is the key rule for where to look to apply NFTs to practical use-cases: the ownership of the NFT has to unlock some functionality, not the data attached to it. The functionality has to be digital in nature, as well, as anything related to the physical world is not as easily guaranteed.
I haven’t thought of many further practical use-cases of NFTs, but we’re still in early stages and I’m sure more will come up. In any case, the practical stuff is boring, let’s talk about art.
Art, Memes, and All Wonderful Things
For many the most baffling aspect of NFTs is their use as collectibles. Indeed, their use as collectibles is their primary use right now, even though these collectibles procur no practical value for their owner; at best they are speculative goods, small gambles, and at worst just a complete waste of money. How can this be?
The curmudgeons of the world would have you believe that money is only worth spending on goods which offer practical value. If the good is neither consumable in a way which meets a basic need, nor produces other goods of further value, then it is worthless. Obviously NFTs fall into the “worthless” category.
Unfortunately for them, the curmudgeons don’t live in reality. People spend their money on stupid, pointless shit all the time. I’m prepared to argue that people almost exclusively spend their money on stupid, pointless shit. The monetary value of a good has very little to do with its ability to meet a basic necessity or its ability to produce value (whatever that even really means), and more to do with how owning the shiny thing or doing the fun thing makes us stupid monkeys very happy (for a time).
Rather than bemoan NFTs, and our simple irrationality which makes them desirable, let’s embrace them as a new tool for expressing our irrationality to the world, a tool which we have yet to fully explore.
A Moment Captured
It’s 1857 and Jean-François Millet reveals to the world what would become one of his best known works: The Gleaners.
The painting depicts three peasants gleaning a field, the bulk of their harvest already stacked high in the background. The wikipedia entry has this to say about the painting’s eventual final sale:
In 1889, the painting, then owned by banker Ferdinand Bischoffsheim, sold for 300,000 francs at auction. The buyer remained anonymous, but rumours were that the painting was coveted by an American buyer. It was announced less than a week later that Champagne maker Jeanne-Alexandrine Louise Pommery had acquired the piece, which silenced gossip on her supposed financial issues after leaving her grapes on the vines weeks longer than her competitors.
I think we can all breathe a sigh of relief for Jeanne-Alexandrine.
I’d like to talk about why this painting was worth 300k francs, and really what makes art valuable at all (aside from the money laundering and tax evasion that high-value art enables). Millet didn’t merely take a picture using paints and canvas, an exact replica of what his eyes could see. It’s doubtful this scene ever played out in reality, exactly as depicted, at all! It existed only within Millet himself.
In The Gleaners Millet captured far more than an image: the image itself conveys the struggle of a humble life, the joy of the harvest, the history of the french peasantry (and therefore the other french societal classes as well), the vastness of the world compared to our little selves, and surely many other things, each dependant on the viewer. The image conveys emotions, and most importantly it conveys emotions captured at a particular moment, a moment which no longer exists and will never exist again. The capturing of such a moment by an artist capable of doing it some justice, so others can experience it to any significant degree far into the future, is a rare event.
Access to that rare moment is what is being purchased for 300k francs. We refer to the painting as the “original”, but really the painting is only the first-hand reproduction of the moment, which is the true original, and proximity to the true original is what is being purchased. All other reproductions must be based on this first-hand one (be they photographs or painted copies), and are therefore second and third-hand.
Consider the value of a concert ticket; it is based on both how much in demand the performance is, how close to the performance the seating section is, and how many seats in that section there are. When one purchases the “original” The Gleaners, one is purchasing a front-row ticket to a world-class performance at a venue with only one seat. That is why it was worth 300k francs.
I have one final thing to say here and then I’ll move onto the topic at hand: the history of the work compounds its value as well. The Gleaners conveys an emotion, but knowing the critical reaction of the french elite at its first unveiling can add to that emotion.
Again, from the wiki entry:
Millet’s The Gleaners was also not perceived well due to its large size, 33 inches by 44 inches, or 84 by 112 centimetres. This was large for a painting depicting labor. Normally this size of a canvas was reserved for religious or mythological style paintings. Millet’s work did not depict anything religiously affiliated, nor was there any reference to any mythological beliefs. The painting illustrated a realistic view of poverty and the working class. One critic commented that “his three gleaners have gigantic pretensions, they pose as the Three Fates of Poverty…their ugliness and their grossness unrelieved.”
Now scroll back up and see if you don’t now have more affinity for the painting than before you knew that. If so, then the face value just went up, just a little bit.
The Value of an NFT
With this acknowledgement of why people desire art, we can understand why they would want an NFT depicting an artwork.
A few days ago an NFT of this image sold for almost $500k:
Most of the internet knows this image as Disaster Girl, a meme which has been around since time immemorial (from the internet’s perspective, anyway, in reality it was taken in 2007). The moment captured is funny, the girl in the image smiling as if she had set the fire which blazes in the background. But, as with The Gleaners, the image itself isn’t everything. The countless usages of the image, the original and all of its remixes, all passed around as memes on the internet for the past 14 years, have all worked to add to the image’s demand. Disaster Girl is no longer just a funny picture or a versatile meme format, it’s a piece of human history and nostalgia.
Unlike physical paintings, however, internet memes are imminently copyable. If they weren’t they could hardly function as memes! We can only have one “original” The Gleaners, but anyone with a computer can have an exact, perfect copy of the original Disaster Girl, such that there’s no true original. But if I were to put up an NFT of Disaster Girl for sale, I wouldn’t get a damned penny for it (probably). Why was that version apparently worth $500k?
The reason is that the seller is the girl in the image herself, now 21 years old and in college. I have no particular connection to Disaster Girl, so buying an NFT from me would be like buying a print of The Gleaners off some rando in the street; just a shallow copy, worth only the material it’s printed on plus some labor, and nothing more. But when Disaster Girl herself sells the NFT, then the buyer is actually part of the moment, they are entering themselves into the history of this meme that the whole world has taken a part in for the last 14 years! $500k isn’t so unreasonable in that light.
Property on the Internet
I don’t make it a secret that I consider “intellectual property” to be a giant fucking scam that the world has unfortunately bought into. Data, be it a physical book or a digital file, is essentially free to copy, and so any price placed on the copying or sharing of knowledge is purely artificial. But we don’t have an alternate mechanism for paying producers of knowledge and art, and so we continue to treat data as property even though it bears absolutely no resemblance to anything of the kind.
Disaster Girl has not, to my knowledge, asserted any property rights on the image of herself. Doing so in any real sense, beyond going after a handful of high-value targets who might settle a lawsuit, is simply not a feasible option. Instead, by selling an NFT, Disaster Girl has been compensated for her labor (meager as it was) in a way which was proportional to its impact on the world, all without the invocation of the law. A great success!
Actually, the labor was performed by Disaster Girl’s father, who took the original image and sent it into a photo contest or something. What would have happened if the NFT was sold in his name? I imagine that it would not have sold for nearly as much. This makes sense to me, even if it does not make sense from a purely economical point of view. Disaster Girl’s father did the work in the moment, but being a notable figure to the general public is its own kind of labor, and it’s likely that his daughter has born the larger burden over time. The same logic applies to why we pay our movie stars absurd amounts even while the crew makes a “normal” wage.
Should the father not then get compensated at all? I think he should, and I think he could! If he were to produce an NFT of his own, of the exact same image, it would also fetch a decent price. Probably not 6 figures, possibly not even 4, but considering the actual contribution he made (taking a picture and uploading it), I think the price would be fair. How many photographers get paid anything at all for their off-hand pictures of family outings?
And this is the point I’d like to make: an NFT’s price, like in all art, is proportional to the distance to the moment captured. The beauty is that this distance is purely subjective; it is judged not by rules set down in law by fallable lawyers, but instead by the public at large. It is, in essence, a democritization of intellectual property disputes. If multiple people claim to having produced a single work, let them all produce an NFT, and the market will decide what each of their work is worth.
Will the market ever be wrong? Certainly. But will it distribute the worth more incorrectly than our current system, where artists must sell their rights to a large publisher in order to see a meager profit, while the publisher rakes in the vastly larger share? I sincerely doubt it.
Another interesting mechanism of NFTs is that some platforms (e.g. Rarible) allow the seller to attach a royalty percentage to the NFT being solde. When this is done it means the original seller will receive some percentage of all future sales of that NFT.
I think this opens some interesting possibilities for content creators. Normally a content creator would need to sell ads or subscriptions in order to profit from their content, but if they instead/in addition sell NFTs associated with their content (e.g. one per episode of their youtube show) they can add another revenue stream. As their show, or whatever, begins to take off, older NFTs become more valuable, and the content creator can take advantage of that new increased value via royalties set on the NFTs.
There’s some further interesting side-effects that come from using NFTs in this way. If a creator releases a work, and a corresponding NFT for that work, their incentive is no longer to gate access to that work (as it would be in our current IP system) or burden the work with advertisements and pleas for subscriptions/donations. There’s an entirely new goalpost for the creator: actual value to others.
The value of the NFT is based entirely and arbitrarily on other’s feelings towards the original work, and so it is in the creator’s interest to increase the visibility and virality of the work. We can expect a creator who has sold an NFT for a work, with royalties attached, to actively ensure there is as little gatekeeping around the work as possible, and to create work which is completely platform-agnostic and available absolutely everywhere. Releasing a work as public-domain could even become a norm, should NFTs prove more profitable than other revenue streams.
While the content creator’s relationship with their platform(s) will change drastically, I also expect that their relationship with their fans, or really their fan’s relationship with the creator’s work, will change even more. Fans are no longer passive viewers, they can have an actual investment in a work’s success. Where fans currently shill their favorite show or game or whatever out of love, they can now also do it for personal profit. I think this is the worst possible externality of NFTs I’ve encountered: internet fandom becoming orders of magnitude more fierce and unbearable, as they relentlessly shill their investments to the world at large.
There is one good thing to come out of this new fan/content relationship though, and that’s the fan’s role in distribution and preservation of work. Since fans now have a financial incentive to see a work persist into the future, they will take it upon themselves to ensure that the works won’t accidentally fall off the face of the internet (as things often do). This can be difficult currently since work is often tied down with IP restrictions, but, as we’ve established, work which uses NFTs for revenue is incentivized to not tie itself down in any way, so fans will have much more freedom in this respect.
It seems unlikely to me that art will cease to be created, or cease to be valuable. The human creative instinct comes prior to money, and we have always created art regardless of economic concerns. It’s true that the nature of our art changes according to economics (don’t forget to hit that “Follow” button at the top!), but if anything I think NFTs can change our art for the better. Our work can be more to the point, more accessible, and less encumbered by legal bullshit.
That crypto cat is out of the bag, at this point, and I doubt if there’s anything that can put it back. The world has never before had the tools that cryptocurrency and related technologies (like NFTs) offer, and our lives will surely change as new uses of these tools make themselves apparent. I’ve tried to extrapolate some uses and changes that could come out of NFTs here, but I have no doubt that I’ve missed or mistook some.
It’s my hope that this post has at least offered some food-for-thought related to NFTs, beyond the endless hot takes and hype that can be found on social media, and that the reader can now have a bigger picture view of NFTs and where they might take us as a society, should we embrace them.