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diff --git a/src/_posts/2021-05-02-nfts.md b/src/_posts/2021-05-02-nfts.md new file mode 100644 index 0000000..a3871b1 --- /dev/null +++ b/src/_posts/2021-05-02-nfts.md @@ -0,0 +1,349 @@ +--- +title: >- + NFTs +description: >- + Some thoughts about. +tags: tech crypto +--- + +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. + +## FUD + +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][ens] 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 +transaction. + +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. + +[ens]: https://nfton.me/nft/0x57f1887a8bf19b14fc0df6fd9b2acc9af147ea85/7558304748055753202351203668187280010336475031529884349040105080320604507070 + +## 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_. + +{% include image.html dir="nfts" file="gleaners.jpg" width=5354 %} + +The painting depicts three peasants gleaning a field, the bulk of their harvest +already stacked high in the background. The [wikipedia entry][gleaners] 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][gleaners]: + +> 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. + +[gleaners]: https://en.wikipedia.org/wiki/The_Gleaners + +### 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: + +{% include image.html dir="nfts" file="disaster-girl.jpg" width=2560 %} + +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. + +### Content Creation + +Another interesting mechanism of NFTs is that some platforms (e.g. +[Rarible][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. + +### Shill Gang + +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. + +[rarible]: https://rarible.com/ + +### Art + +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. + +## Fin + +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. |