In the final months of 2021, NFTs, or non-fungible tokens, practically forced themselves into the collective attention of the internet and media. With assets like the first tweet, which sold for $2.9 million, it is not uncommon to hear about high-value transactions. NFTs, however, are most well-known for the myriad of low-quality generative art pieces, occasionally adorning the Twitter profile pictures of various sponsored celebrities like Snoop Dogg, Eminem, and Serena Williams. Both the consumers and producers of NFTs have quickly transformed a potentially promising cryptocurrency technology into a running joke, finding easy criticism of the short-sightedness and irrational behavior needed to buy into the NFT snake-oil art scheme. Despite this, one must maintain a holistic view of NFTs and cryptocurrency and allow a thorough interrogation of NFTs and the cryptocurrency they are built on before prejudice.
To navigate the realm of NFTs, one must first be inundated with a slew of technical terms and vernacular to have any intelligible understanding of the NFT market. Though intimidating, I will decrypt the ideas necessary for anyone to achieve an honest analysis and conclusion, regardless of familiarity. I do not invest in and do not suggest investing in NFTs, but have put in more than enough effort into traversing the subject. NFTs are not so elusive, despite the convoluted technology these systems are designed on. Cryptocurrency is conceptualized to be purposefully obtuse. The design is necessary to uphold the principles cryptocurrency strives to fulfill, but never requires a crypto monomania or any advanced technical understanding to reach a decision on it, despite what your average cryptocurrency investor suggests.
As said before, NFT stands for non-fungible token. A token can be any arbitrary asset, real or digital, including real estate, collectables, licenses, tweets, and most popularly digital artwork. Non-fungible designates that the token is not divisible, copyable, or replicable. NFTs exist to represent anything as a unique asset on a blockchain. A blockchain is simply a public append-only ledger of the transactions that have been executed on the digital market. NFTs exist as a synthesis of digital and real-world assets being immutable, unique, perfectly transferrable, and subject to scarcity. Ultimately, an NFT is most importantly a serial code on the blockchain that can be traded with cryptocurrency, representing the public transfer and ownership of an arbitrary asset.
NFTs mutually exist with cryptocurrency. Cryptocurrency is a decentralized digital currency that uses cryptographic techniques to process transactions, operate the blockchain, and generate currency. These two things, at least conceptually, depend on the philosophical principles of decentralization and anonymity. The cryptocurrency network’s users are detached from any real-world identity, and the currency does not operate through any central banking system. However, this system still has caveats. Though anonymous, the blockchain is still public and even implicit evidence can indicate a person’s true identity. Any asset traded on the blockchain that can imply someone’s real-world identity then reveals all the transactions the user has made and violates their anonymity.
Though the system is decentralized, a network like Ethereum — the most popular cryptocurrency to exchange NFTs over — is still owned by a centralized organization that ultimately has authority over the network. Furthermore, it must be mentioned the large power consumption cryptocurrencies require to operate, often demanding enough energy to power a small nation, just to host one currency. Regardless, it would be dishonest to allow these faults to fully precipitate onto NFTs. They should be investigated in their own regard. The systems of cryptocurrency are still open to improvement. The violations of anonymity, decentralization and environmental impact are thematically retorted by crypto investors with optimistic trust in the future improvement of these systems.
Simply put, NFTs are a tool for individuals to transfer ownership of some asset digitally. However, its popular uses have created a techno-fetishizing cult that has misconstrued the mundane concept of NFTs into a market based on fraud and speculation. What was just created as a blockchain mechanism has been appropriated into a market composed of gambling addicts and get-rich-quick scheme victims that pump money into ambiguous NFT art collectibles like Bored Ape Yacht Club and Lazy Lions, which in turn fund the aggressive and misleading marketing campaigns of these brands and perpetuating this malady. An NFT by design is only a designation of ownership on the blockchain. Rationally, individuals should trade assets by the utility they get from it. It is absurd to see generative art pieces selling for anything between three and seven figures. But due to the user base, NFTs have suffered unprecedented demand pumping. Within the NFT market, demand is generated for the sake of demand. People desire to see the value of something go up and buy into the culture scheme hoping for the NFT golden ticket. Trading art for profit is virtually ambiguous. Generative art is traded not for the value of the art itself but for the semantic ownership of the token. The demand driving the price of NFTs so high is dependent on the fact that it exists on the blockchain regardless of the art itself. There should not be a difference between owning a digital copy of a digital art piece and owning the digital art piece as an NFT. Hence, the NFT market has devolved into a market of speculation which receives its valuation through hype and technophilia.
NFTs as a pure and isolated concept aren’t necessarily a bad thing. A decentralized system of ownership on an immutable public ledger gives promise to the development of economic technology. However, there is much work to be done for its sustainability and legitimacy, most notably the electricity costs and improvement of user security, in order to see meaningful success. Currently, ownership on the blockchain is vague. The relationship between blockchain ownership and legal ownership is trivial, and there is no cryptographic relationship between the NFT and the asset it is assigned to. NFTs can only find legitimacy through marketing and speculation, upheld by a façade of demand. Additionally, there are still large questions on the possibility of cryptocurrency as a way to exchange (legal) goods. Cryptocurrency is highly volatile and infested with short selling and monetary schemes. Most investors have the disposable income to use cryptocurrency as an outlet for their trading hobby, always expecting to cash out. Though NFTs as a technology may be useful, they must be relegated to a proof of concept rather than a finalized idea to be widely implemented, needing significant technology and social improvements for it to be anything greater than cartoon monkeys.