From NFT to NFA
The evolution of non-fungibility
On a balmy summer’s day in 2007 (note: author’s interpretation of historical weather patterns is based on artistic and narrative licence), a man named Mike Winkelmann embarked on a life-changing project, although he did not know it at the time. Having majored in Computer Science, and having more than just a flair for digital sketches, he set out to produce a new digital creation every day, come hell or high water.
The dedication to which he pursued this project no doubt at first surprised the people around him. But as Winkelmann honed his craft, he began to expand his message beyond one of simple artistic creation; it became a form of meta-commentary on the state of the world in which he lived — the political landscape, the shifting sands of social morality, and the ever-accelerating pace of technological consumption.
The life of a struggling artist is an oft-romanticised one, but those who live it will likely tell you that this is something of a folly; while it can indeed be noble to pursue one’s passions with abandon, the daily reality of fiscal responsibilities, sustenance, and adequate shelter for oneself and one’s dependants is no kind mistress. As a result, many abandon the once-dreamt-of nirvana where their passion becomes their mainstay of financial maturity, opting instead for the stability of a 9-to-5 (or, as is often the case these days, an 8-to-6). No doubt there are many older and more pragmatic once-idealistic artists, writers, musicians — you name it — that dread the invention of time travel that might bring them face to face with their younger selves and put them in a position where they have to explain why they gave up on ‘the dream’.
Fast forward 14 years and Mike Winkelmann, known as Beeple in the digital art world, holds the record for the most expensive piece of digital art ever sold. The decision by Christie’s auction house to list a collage of Beeple’s first 5000 days artworks as a non-fungible token — an NFT — and to accept cryptocurrency as a payment, has thrust Winkelmann into a role he never envisaged — that of a conduit between the legacy art world and the new, blockchain-enabled decentralized future for digital creators.
In the rapidly digitizing world that we find ourselves, Winkelmann’s creations and their role as a bridge from the traditional world to the crypto world are perhaps even more apposite than even he realises. While there can be no doubt that Bitcoin and other cryptocurrencies have been subject to immense speculation and gambling-esque behaviour, the refusal of the crypto space to die despite pushback from virtually all mainstream financial and economic channels has lit a fire under the visionaries among us, fuelling a new age of innovation as the decentralization of…well, everything…creates opportunities hitherto undreamt of (Tony Stark: did you really just say ‘hitherto undreamt of’?) by even the most libertarian idealists. With great potentiality, however, comes the potential for misconduct, exploitation, and injustice. Some of Beeple’s works are a no-holds barred reminder of where such a road could lead, and it’s often nowhere good. What is vital in this fast-paced transformation of our digital world is that fundamental rights, freedoms, and individual choices are respected, not abused.
Artists and musicians have struggled since time immemorial to earn their daily bread from their craft. The advent of the digital world has been a double-edged sword for many, with the access to resources and ideas giving birth (somewhat tautologically) to renaissances of creativity but at the same time the open access nature of the internet and the digital file creating a piracy paradise that undermines the value of what creators build in the digital space. The blockchain can fix all this — at least, that was the cry that went up from the armies of cyberpunks and Redditors that have made crypto their home. Non-fungible tokens — NFTs — are tipped as the holy grail of content ownership and monetization, although many remain skeptical and indeed you can hardly blame them, when the first (and most successful) incarnations of NFTs have been the pixellated, prolific, and puzzlingly popular CryptoPunks collectibles and the far cuter and less pixellated but equally puzzling CryptoKitties keepsakes (although since most of the internet is amusing videos of cats falling over, this one probably gets a pass).
Despite the skepticism, NFTs are the first technology that gives digital creators the power to really monetize their creations. That, at least, should be worth paying attention to, even for the naysayers. Claims of a rigged game that only benefits the rich, and of each NFT minted being responsible for vast swathes of environmental damage are patently absurd (on the latter point see articles here, here, here, here, and here…and remember that the arguments on Bitcoin’s environmental cost apply to Ethereum too, at least for the moment). Indeed the former of these charges is flipped on its head when taken under consideration for about the time it takes to explain to your elderly parents that the third most expensive art piece ever sold at an auction was under the name of ‘Beeple Crap’ — literally every single person with access to the internet can participate in creating and collecting NFTs, which is a far cry from the traditional art world with its walls built high around centralised clearing houses. A cursory read through social media posts from NFT artists makes the inclusivity of this space very clear — amid all the (expected) hype, many tweets are ones of genuine gratitude and happiness that fortunes have been turned around, and living mostly hand-to-mouth has been transformed into financial security with the ability to support family and loved ones.
That is not to say, however, that NFTs are the endgame in digital creator empowerment. If these new, blockchain-based assets suffer from a problem, it is one of not going far enough in their approach to true ownership, and the consquences of this are just beginning to be felt.
Dude, where’s my NFT?
On 9th March 2021, an artist with creations recently sold on the Opensea platform decided to perform a rug-pull on his art. A term normally used to refer to the sudden withdrawal of liquidity from a DeFi automated market maker platform (often with the effect of crashing the particular market), this artist brought a new meaning to the phrase by replacing all of the slightly cubist-reminiscent portraits with pictures of oriental rugs.
While clearly a stunt designed to draw attention to a flaw in the NFT concept, the broader implications warrant serious consideration and attention from the artists and collectors in the space. And this is not the only example. Tweets sold as NFTs have been deleted, leaving the owners with nothing but a broken link and, presumably, regret. Centralised NFT sales platforms are beginning to be called out by artists as untrustworthy, given the level of control that these platforms have over the artwork that they sell, even after the sale.
We are witnessing a period of experimentation. And just like all experiments, some will fail, others will succeed, but if we can learn from both then we can move forward. The hype is fading over NFTs and the work is beginning. Smart minds are coming together and debating the best way to proceed. A recent discussion among major players in the space pointed to the properties of authenticity and persistence as two vital squares on the board in the NFT race, mixed metaphors notwithstanding.
Digital art and collectibles need some sort of Authentic & Persistent Data Certification. A seal that could be posted on NFT marketplaces to show that a given NFT has stored its data in a way that will persist predictably for some reasonable length of time, or that gives the user agency in further ensuring the underlying data will continue to exist. (Brady Dale, Coindesk article, April 12th 2021)
Rights and compliance are two more crucial properties. While the wild west days of crypto hold a fondness for many, the ecosystem is growing up and new ideas and experiments must grow with it. Laws protecting the individual must be an integral part of any emerging concept that seeks to integrate with society.
From tokens to assets
The non-fungible asset — NFA — is the likely end result of this process of experimentation. It contains within it all of the ingredients necessary for real ownership of digital creations (and, through the use of a digital twin, ownership of physical items via the digital space also). A non-fungible asset is a file, not just a token. It is a digital piece of data DNA, rather than just a digital signature.
NFAs can be created via a decentralized file format known as Smart Data. Any file or content (including streaming content) can be converted into this new format which places an encoding scheme known as a data rights signature (DRS) on the blockchain and the encrypted and encoded file content on the user’s machine (or their cloud account). While the file content resides anywhere the user can access, it is in fact in a state of cold storage, even though its location may be fully connected to the internet. This is achieved through a combination of encryption with a symmetric key and an encoding with the DRS, which is itself accessible only with a public-private asymmetric key pair.
The DRS imparts a uniqueness to the Smart Data file in a way that is zero-knowledge, meaning that only the owner can gain access to the content of the file, even though the DRS is visible on the blockchain. Despite being titled as a data signature, implying it is used as a fingerprint, its function is much more akin to that of DNA than a fingerprint. In a similar way to how the ‘content’ of human beings is encoded with their DNA — their eye colour, their height, their propensity to spend large sums of money on ‘a load of nonsense imaginary digital art’ (one day my friends and family will respect my life choices…one day) — the content of a Smart Data file is encoded with the DRS, ensuring that it is part of the file’s makeup, rather than being merely attached to the file. The data itself therefore possesses a uniqueness that allows for ownership based on identity (through the file’s associated metadata) rather than access.
Smart Data is however only one piece of the puzzle. In order to make the asset itself non-fungible and tradeable, rather than just the token, a blockchain ledger has to be designed that allows for the DRS to exist on the ledger and be traded. Currently, every blockchain ledger to date operates as a form of gifting economy, with transactions for who paid who a particular amount of tokens recorded for posterity, but with no mention of what was actually paid for. Thus one can program a token with the property of non-fungibility, and assign it to represent an asset (held off-chain) but the asset itself is not in any way different from a standard .jpeg or .wav (for example) file. A blockchain ledger that accounts for both the payment and the asset and allows both to be traded (either asset-for-token, or asset-for-asset) moves the technology from a peer-to-peer electronic cash system (thank you Satoshi) to a peer-to-peer electronic trade system. Goodbye gifting economy, hello data economy.
The combination of these two technologies is the missing link in the evolution of non-fungibility and ownership. Non-fungible assets go far beyond NFTs in being able to assign not just an economic value but also a social, or indeed a legal value to your data. To quote the explanation here:
Non-fungible token standards essentially give you the ‘pink-slip’ of ownership, while Smart Data gives you both the pink-slip as well as the keys to the car.
Persistence, authenticity, programmable rights and compliance — these are all achievable with NFAs. You have control of the file, not some centralized distribution platform, and not the person you bought it from. You can use this level of control to ensure that the distribution of your data is in line with your vision and with your core values. Maybe you want to restrict the sale of your art to countries with a decent track record of LGBTQIA+ rights, or to prevent your data from being used to train targeted advertising algorithms. An opt-in to any and all third party usage, and privacy by default.
Integration of NFAs with existing and future software platforms would potentially solve the ‘screenshot’ or ‘right-click’ problem so often wheeled out as a criticism of NFTs. As alluded to in the caption of the Beeple image above, would this image have been an NFA instead of an NFT, my ability to simply download it and display it would not have been so simple a matter. Of course, there will always be a way to get hold of a 2D picture of any given content — that is not something that can be overcome (and indeed, nor would anyone want it to). But by incorporating a form of metadata intelligence into the file itself, applications do not have much work to do to distinguish a fake from the real deal.
This approach to application-integration of ownership rights is not as far off as one might think. Already, email clients can be programmed to link with the digital signature on a PDF (say) and only allow the signed file to be transmitted over the server with a valid certificate. Indeed, in searching for an appropriately dystopian Beeple creation to display above, I attempted to right-click on one such image on a website displaying some of his work, and was prevented from downloading the file with the message ‘Sorry, this content is protected’ (naturally I went via Google images instead). But this is just the start. Ensuring authentic ownership that is machine readable and legally executable is the ‘killer app’ of the entire crypto project — it brings, finally, the traditional world of ownable and tradeable assets into the digital space, which is something that has been missing since the digital age began.
Mike Winkelmann may have stumbled upon the monetization opportunity of a lifetime, but money isn’t everything (yes, I realise how that sounds). When monetization becomes democratization — that is when we will truly experience the golden age of data.