#i’d argue they’re even less fungible

[chuuphic]

i don’t understand kpop groups selling nfts photocards are literally right there

[trainsinanime]

Okay, I promised, so let’s talk about NFTs, Non-Fungible Tokens, just for fun. What they are, what can they do, and why do so many people say you should or shouldn’t participate in them. I’m trying to provide a mid-level overview here: All the moving parts so you actually know how it works, but not too much detail. Let me know whether this works.

Blockchain

To start with, the whole thing revolves around the idea known as blockchain. A blockchain is long shared list of messages that follow certain rules, and a computer network that manages it. The messages are signed, which means you can use maths to prove that a certain message is really from a certain user (or someone who knows their password anyway), without any central authority. In the first and still most important blockchain, Bitcoin, the only message type is a transaction of the form „transfer X amount of money to user Y“.

These transactions get added to the shared list in larger packets, so-called blocks, and they get added one after the other, forming a chain of blocks if you will. That’s where the name comes from.

(Note that despite the name, there is no coin of bits anywhere, it's all just bank transfers. This system is known as a "cryptocurrency".)

Before a message gets added to a block, and before the network accepts a new block, it gets checked to see whether it matches the rules. For Bitcoin, the important rule is that nobody spends money they don't have. All the complicated parts of Bitcoin and other blockchains exist to enforce these rules even without any central authority managing it.

The energy problem

This following part is not directly relevant to how NFTs work, it's technically just an implementation detail. But one of the main talking points is the energy consumption, and this is where it comes from.

Since the network is decentralized, anyone can collect new messages into a new block at any time, and tell other computers about the great new block they just greated. That means there can often be multiple new blocks, and there's a question of which one is the "true" one. The general rule here is simple: Every block lists which block is the one right before it, forming essentially its own chain. The longest of these chains wins. The idea is that there may be some confusion in the short term, but in the long term, everybody can just see what the longest chain is.

There is a potential risk here, though: Suppose someone buys something with some bitcoin. The payment gets added to the list, the product gets delivered, everything is fine. And then this person suddenly reveals fifty new blocks they created in secret, and none of them include the payment. Since this is the longest chain, suddenly this one is valid. The original payment never happened, and the attacker has both their money and the goods.

To avoid this, there is a so-called proof of work mechanism: Creating a new block is made deliberately very hard. You not only have to collect the messages and check them; you also have to make up a random number, then do a lot of calculations on the whole block, and only if the result is below a certain number is the block valid. If the result is too high, which is very likely, you need to guess a different random number and do the calculations again, and you need to do that a lot.

The express purpose of this is to make it slow, difficult and annoying to create new blocks, so that nobody can do so just for fun; instead it takes actual work in the form of a powerful computer (or many powerful computers) spending a lot of time computing. And that means they will also spend a lot of energy doing this computing. That's where all the CO2 emissions are coming from. The amount of electricity needed by Blockchains right now is scary, and a good reason to avoid anything to do with them at all.

To ensure people still do these calculations, there are rewards for whoever creates a valid block first: Some bitcoin handed out automatically; plus, all transactions can (and in practice will) include a field saying „and also pay amount Z to whoever puts this in a block on the blockchain“. This whole process is called "mining".

NFTs

Some specific blockchains allow you to define your own types of messages with their own rules in the form of computer code. The rest of the network will see a message, see which rule sets applies, then see what rules apply, and use those rules to verify the message.  Such a set of messages and rules is called a „smart contract“. This is mainly a thing on the network called "Etherium", and this is where these non-fungible tokens come into play.

On Etherium, you can define a smart contract with messages like:

„Hey guys, I own whatever is at this link here:“

And later:

„Hey guys, remember that link I said I owned? Now this guy <X> owns it.“

You can send as many of those as you like. You will still need to pay transaction fees, of course.

That link (or some more-or-less random string of digits) is the non-fungible token that everybody talks about. Unlike money, you can’t swap it for a different one, or divide it or similar, because, well, you set up the rules so that you can’t. That’s what the „non-fungible“ part means. But that is all there is to it: A distributed list of messages saying „this person owns that link now“.

By the way, I’m mostly talking about art and digital pictures here, because that’s what the main discussion is about, but proponents of NFTs are also saying they could be used for tickets for big public events (remember those?), land deeds and so on. Which is technically true, but it’s unclear whether they are adding any value here, but that’s a whole other tangent.

This token has no legal consequence in itself. It’s just something someone wrote in a list. You can certainly agree with someone that you’re both going to honor whatever is in that list, but that’s something that you’ll have to do explicitly, ideally in offline writing.

The systems can be a bit more complex; for example you might add a message that is „give this link from X to Y, and this amount of money from Y to X“, signed by both X and Y. You can also include a rule that „every time someone else gets ownership that link, the first person needs to get some money, else the message isn’t valid“. NFT fans are very excited about this one. The idea is that the artist gets paid every time the NFT is resold. Still, the basic principle stays the same.

(In practice, the link is usually not directly to the JPEG file in question, but rather to a file describing the file, which includes a link to the file in question. There is nothing in the system that automatically makes sure both links will actually keep working; that part is up to you. There are solutions, but it’s not automatic.)

Digital Original

When talking about this, people will talk about concepts like „digital scarcity“ and „original“ and „authenticity in a digital age“ and so on. So there are a lot of relevant questions, for example:

How does the system ensure that only the original author can claim ownership over a certain link („mint an NFT“)?

How does it ensure that you can only claim a certain file once, instead of several times slightly altered?

How does it ensure that a file is only traded on one smart contract, instead of many different ones with different rules and different owners?

The answer to these question is simple: There is nothing ensuring any of that. Is is just as easy to claim ownership over a file that someone else made as it is to claim ownership over a file you made. And no part of the system actually looks at the file itself; it’s just a link or an identifier. Fraud is easy and common. I’m not even entirely sure whether it technically counts as fraud, since these NFTs are legally meaningless, but you should probably ask a lawyer first if you’re planning to do something like this.

That way, NFTs are arguably ignoring the question that they claim is the whole point. What does „original“ even mean with things like digital art? Arguably the closest thing to an original is the representation in the artist’s computer memory. If it gets saved to a disk, that’s a copy. If it gets transferred to a server, the server holds a copy in its RAM, then copies it to its disk, then later copies its to its RAM again, and then whoever looks at it online downloads a copy, and probably decodes that copy (in JPEG format) into another copy that the screen can actually show… it’s all a big mess of copies. NFT’s solutions to that is to just say „this here’s the original because I said so“, and hope that enough people listen and pay money for it.

The economics

Does this really represent a new opportunity for artists? Well, maybe; there are a lot of crypto bros right now spending money on NFTs simply because it’s cool. Whether owning an NFT of something has any long-term value, let alone whether that value goes up over time, is something that remains to be seen.

You will find a lot of people arguing that it’s a scam, or a money laundering scheme, and honestly, it might be. You can’t exactly pay a lot of things with cryptocurrency right now, so everybody who has some needs to find someone to trade real money for it if they want to do anything useful. The NFT hype can definitely lead to more people buying cryptocurrency to participate in it all, which helps mostly those people who have a lot of it. I don’t think NFTs are an illegal scam, but obviously that’s not the same as a good idea.

Suggestions

I’m not an artist, so I don’t think I’m the most qualified to give suggestions here. But I don’t see why I should let that stop me.

Should you get involved with NFTs? That’s honestly up to you. If somebody offers you money (ideally actual cash) for you to create a picture that they’re gonna do an NFT of, I’d say consider it. The environmental impact is really that bad, but hey, it’s money.

If anybody is asking you to first buy some cryptocurrency to participate, though? Better run.

At the end of the day, whether people value the work of artists is sadly down to their personal opinions. Whether NFT will change that is, at best, a long shot. If you have people who are willing to pay for your work, having them pay you directly through commissions or Patreon or whatever seems like the best bet to me, because there’s no massive environmental impact and you’re not tied to volatile cryptocurrency exchange rates.

And if you’re interested in buying NFTs: I wouldn’t, but it’s your money. Just be aware of what it actually is you’re buying.