For watchers of the NFTs phenomenon, it's been a wild couple of weeks. "All apes gone," tweeted art gallery owner and crypto evangelist Todd Kramer on Dec. 30, after someone swiped his collection of "Bored Ape" NFTs. Then Eminem was reported to have purchased one of those same apes for a cool $462,000 in cryptocurrency — just the latest in a long string of celebrities getting in on the craze. (Matt Damon also appeared in a crypto ad during prime time football Sunday night.)
As an NFT skeptic, some guy getting scammed out of his collection of objectively hideous procedurally-generated ape cartoons was amusing. But it's all getting steadily less funny. Real non-rich people are putting a lot of money into these things, and there are good reasons to think sooner or later most of them are going to lose their shirts.
The details of how NFTs work are a fascinating study in how utopian technobabble, heavy advertising, and the appearance of instant effortless wealth can convince millions of people to fling money into an incredibly dubious "investment." To create one, you inscribe some metadata about a piece of art (like a link to an image) onto the blockchain of some cryptocurrency (typically Ethereum) with a smart contract, requiring payment of a "gas fee" (using up something like 48 kilowatt-hours of electricity, or as much as the average U.S. household uses in a day and a half) which puts a time-stamped permanent record of the metadata onto the blockchain, naming you as the owner. Hey presto, you "minted" a new digital … thing that, unlike any normal piece of data, can't be replicated, but can be sold.
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NFT boosters say the resulting tokens are a new way for people to own unique digital assets — one of those classic libertarian schemes trying to engineer around the need for social trust or the state. But in reality, NFTs have nothing to do with real ownership. They are essentially just an electronic "receipt" that anyone can make pointing to anything. (People are constantly making "fake" NFTs on art they do not own in real life, though I would argue they're all equally fake.) Boosters will tell you forthrightly that any artist who mints one still retains all normal copyright powers. In terms of the actual art itself, anyone with a web browser can go and look at the entire collection of those appalling ape cartoons, and even save the image files to your computer — indeed, just looking will create a copy of the original ape image simply because of how the internet works.
An NFT isn't even really scarce. Nothing is stopping someone from minting another NFT of the same image or whatever — the two would be distinguishable of course, but nothing on either token would indicate one is better or more legitimate than the other. Or they could use a different cryptocurrency and blockchain (or set one up themselves) and do the same thing. The only actual limitation is the mind-boggling amount of electricity required, and perhaps whether the resulting carbon emissions will end up drowning the servers hosting the image file with rising sea levels.
One might even argue that it is not possible to steal an NFT, because theft implies trust and interface with the legal system that NFTs are explicitly designed to avoid. There is no difference between a smart contract and a hack in terms of the internal logic of NFTs and crypto — in each case you have some machines executing pieces of equally-brainless code. The difference is in the intention of the participants and their relationship to society. In a trustless system where "code is law," possession is proof of ownership.
Kramer, of course, was very upset about losing all his precious apes, and so convinced OpenSea (the third-party service where he had hosted his NFTs, allegedly worth some $2.2 million) to freeze them, and he eventually got them back. Odd, isn't it, how all these libertarian schemes trying to prove that society and government are unnecessary quickly run into the reasons why human beings created laws and the state in the first place.
The baffling thing about NFTs is that people were ever convinced that they are worth anything at all. If I bought a cash register and printed out a receipt that said "Ryan owns the Mona Lisa" (as a pseudonymous Tumblr user once suggested) with a link to the Wikipedia image file of the painting, and tried to say that was some kind of hot new investment asset, people would think I was nuts.
Yet because NFTs have that gloss of new technology, and huge profits being made apparently for free — some guy paid $560,000 for an NFT of a New York Times article — suckers are flooding into the market. A lot of those apparent riches are unquestionably fraudulent, or the result of money laundering. A common practice in NFT markets (and in crypto generally) is "wash trading," where somebody takes both sides of a trade to create the impression of demand. Trade your ape back and forth a few times to yourself to create the impression of demand, and then fob it off on some sucker who thinks it's worth that much.
It is pretty obvious that free money hype is driving most of the NFT craze, just like any kind of financial mania. People are buying apes and other appalling garbage because they think they'll always be able to pass them onto the next person for more money. And once people have significant money tied up in this stuff, the urge to think up rationalizations why the number will keep going up is nearly irresistible. This time is different, they'll say.
But still, the amount of advertising in the NFT space — particularly the number of A-list celebrities who mysteriously got into the racket all at once — indicates that lots and lots of suckers are needed to keep the party going. And the absolutely rampant financial swindling in the crypto space, plus the unbelievably sketchy nature of keystone crypto institutions like Tether, suggests that a crash is coming sooner or later. If it does, NFTs will sell for something like their actual usefulness: nothing.
As someone who grew up in the '90s and 2000s when the internet did seem like a magical place, I find the idea of deliberately creating scarcity through this idiotic, incredibly wasteful process disgusting on an almost spiritual level. The whole point of the internet — one of the few things that is still genuinely great about it, despite all the Nazis, insanity, and Mark Zuckerberg — is to allow people to send information to each other for almost nothing. Most human knowledge is there on Wikipedia for anyone with an internet connection, for free. Making "art" "scarce" though a bunch of blockchain nonsense is a crime against nature and a sin against humanity.
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