I’ve (Almost) Changed My Mind About NFTs
The real questions you should be asking about non-fungible tokens, according to a crypto enthusiast.
The zeal surrounding NFTs confuses me.
Why would anyone beyond the Jay-Zs and oligarchs of this world — invest in an NFT? And how can an NFT possibly be seen as an investment?
CryptoPunk #9998, a drab, pixelated character with white hair and the appearance of green eyeshadow, sold for $530 million — and that’s only one of several recent million-dollar NFT sales.
In the following article, I attempt to answer my own questions about NFTs, including:
- How are NFTs different from fine art?
- Do they make sense as a blockchain-based technology?
- Are NFTs “open source”?
- Are they just a bubble?
For those not yet swept up in the fervor of non-fungible tokens, here’s what you need to know.
Disclaimer: The following is not investment advice. It was written for informational purposes only.
Question #1: How Are NFTs Not Just Worse Fine Art?
The world of high-flying NFTs is much like the IRL art world.
Not only are the garish and simplistic paintings and sculptures of high contemporary art considered, much to my surprise, to be good, but their values have a few more zeros than anyone in their right mind would suppose.
Rabbit by Jeff Koons is now worth $65 million. Really?
CryptoPunk #3100 is worth $7.67 million. Really?
Most NFTs (except, of course, Beeple) appear to be a digital parody of the art world, defined by pieces more ironic than impressive. See anything by Bored Ape Yacht Club for context.
But now, instead of oil tycoons sending their proxies to Sotheby's, a sea of celebrities and faceless, Ethereum-rich usernames dominate the new, blockchain-based artworld.
But For the Artist, NFTs are Different
My mother, a painter, never made more than $40,000 a year.
This had nothing to do with skill, and everything to do with the nature of the art world. The rare paintings that she did sell sold for a fraction of their value.
If a painting she sold for $300 went on to be worth $1,000,000, she would make nothing on its resale.
By contrast, if my mother had made NFTs, she would have automatically acquired a part of every resale.
NFT’s aren’t just digital art: They are blockchain-based smart contracts.
Not only does this mean that someone can own a specific image — thereby creating digital scarcity — but an artist can earn commissions off a work later.
Related Reading: “Why Women Don’t Invest in Cryptocurrency”
Question #2: Do NFTs Miss the Point of Blockchain?
My biggest issue with NFTs was philosophical: At surface value, NFTs seem to be a bad application of blockchain technology.
The power and value of the Mona Lisa and the Doge meme are in their omnipresence. Wouldn’t locking an image or piece of content away prevent it from achieving its true value?
The NFTs — Open Source Code Comparison
70% of the web is built on open-source code.
Why? As anyone can use, read, and fix it, open-source code is far superior to code generated by an insular company.
Open source is, by nature, free. Gone are the days when developers had to create or license boilerplate pieces of code (think: webserver frameworks, compilers, editors, and commonly used tools).
NFTs Don’t Restrict Art The Way You Think— But They Arent Open Source
Contrary to popular opinion, NFTs don’t mean that you lock an image away from public view — as many art collectors do with their private collections. The fact that NFTs exist on a blockchain can allow another artist to ‘fork’ an NFT, building upon an original story or graphic while giving credit.
Many, including Naval Ravikant on The Tim Ferriss Podcast, liken NFTs to open-source code for this reason.
Imagine if you could produce Star Wars-based content without violating Disney’s copyright infringement policy? How much more valuable would the franchise be if everyone could get involved?
Making stories, characters, and art public domain has huge potential — but the NFT/open-source comparison misses the magnitude of the open-source movement.
Open source code expects nothing — not even credit — in return. By the nature of tracking who made it, NFTs do not. Let's not forget that NFTs exist on a blockchain, which requires fees. They cannot be completely free.
Forget Not About Blockchain Fees
As someone who has been in the cryptocurrency space for years, a common mistake I see in blockchain-based companies is forgetting that blockchain requires a lot more energy than a centralized database.
For most applications, a Sequel database makes more sense than a blockchain.
The two applications of blockchain for which the benefits outweigh the negatives (slow speed and fees) are cryptocurrency and record-keeping (think: supply chains with different entities or real estate transactions).
This isn’t to say that NFTs shouldn’t exist, but most images and content shouldn't be non-fungible tokens.
Question #3: Are NFTs Are “Just a Bubble”?
Pyramid scheme, fad, bubble… there are many terms that crypto, blockchain, and NFT skeptics use to describe the decentralized ecosystem.
Though I have never thought of cryptocurrency as a bubble but rather a game-changing innovation that will challenge centralized institutions everywhere, I have wondered whether NFTs are the newest tulip bulb craze.
Out of Bubbles Comes Lasting Change
If I had invested every time a Boomer called something a bubble, I would be a very rich (and temporarily very overleveraged) lady.
Yes, we are in an NFT and crypto bubble — the same way that we had the dot com bubble in the late ’90s. Just as Amazon, eBay, Oracle, and Adobe survived the dot com bubble, some of the greatest innovators of the next few decades will emerge from this period of rapid growth.
The “Value” of NFTs Is Determined by Their Community
To quote Naval Ravikant on Twitter, “The token is backed by a social contract from its creator and a surrounding community.”
With all blockchain-based technologies, there is a point at which the rubber hits the road — meaning that these things enter the “real world.”
- An NFT has value because it represents a social contract, as do most things we think of as “having value.”
- A dollar has value because it is a globally accepted unit of exchange and reserve currency.
- A Van Gogh painting has value because we agree that he was an Impressionist master.
Bitcoin has value because the community agrees that a trustless, decentralized, and non-government-backed currency and store of value is useful.
In other words, it is possible for an NFT to become worthless — most of them are or will be, just as more paintings aren’t worth anything. NFTs are a means of producing digital art that supports a larger community and its creator and are subject to the same whims.
NFTs Are Not for Everyone
Like most things, NFTs are neither “good” nor “bad” — though they certainly aren’t for everyone. Most likely, like the Dot Com Bubble, most NFTs will be considered poor investments in a few years.
Perhaps NFTs will be considered a red herring compared to the massive financial opportunity that cryptocurrency and blockchain-based record-keeping represents.
One thing, however, is for certain: technology is coming for all centralized industries long left untouched — from fine art to gaming to real estate. No matter what side you’re on, expect change.
