Economic inconsistency and the promise of NFTs.
Over the last few months of 2021, NFTs, or non-fungible tokens, have all but forced themselves into the collective attention of the internet and the media. With assets like the first tweet, which sold for $2.9 million, it’s not uncommon to hear about high-value deals. NFTs, however, are best known for the myriad low-quality generative artwork, sometimes adorning the Twitter profile pictures of various sponsored celebrities like Snoop Dogg, Eminem, and Serena Williams. Consumers and producers of NFTs quickly turned a potentially promising cryptocurrency technology into a running joke, finding easy criticism of the myopia and irrational behavior required to adhere to the NFT snake oil art scheme. Despite this, one must maintain a holistic view of NFTs and cryptocurrency and allow for thorough interrogation of NFTs and the cryptocurrency they are built on before any harm is done.
To navigate the NFT field, one must first be inundated with a multitude of technical and vernacular terms to have an intelligible understanding of the NFT market. Although daunting, I will decipher the insights necessary for anyone to come to an honest analysis and conclusion, no matter how familiar they are. I don’t invest or suggest investing in NFTs, but I’ve put more than enough effort into reading the subject. NFTs aren’t that elusive, despite the convoluted technology these systems are built on. Cryptocurrency is conceptualized to be deliberately obtuse. The design is necessary to adhere to the principles that cryptocurrency strives to adhere to, but never requires crypto monomania or advanced technical understanding to make a decision about it, despite what your average cryptocurrency investor suggests. .
As said earlier, NFT stands for non-fungible token. A token can be any arbitrary asset, real or digital, including real estate, collectibles, licenses, tweets, and most often digital artwork. Non-fungible means that the token is not divisible, copyable or replicable. NFTs exist to represent anything as a single asset on a blockchain. A blockchain is simply a public appendix-only record of transactions that have been executed in the digital market. NFTs exist as a synthesis of digital and real-world assets being immutable, unique, perfectly transferable, and subject to scarcity. Ultimately, an NFT is primarily a serial code on the blockchain that can be exchanged with cryptocurrency, representing the public transfer and ownership of an arbitrary asset.
NFTs exist mutually with cryptocurrency. Cryptocurrency is a decentralized digital currency that uses cryptographic techniques to process transactions, operate the blockchain, and generate currency. Both of these things, at least conceptually, depend on the philosophical principles of decentralization and anonymity. Users of the cryptocurrency network are detached from any real identity and the currency does not operate through any central banking system. However, this system still has reservations. Although anonymous, the blockchain is still public and even implied evidence can point to a person’s true identity. Any asset traded on the blockchain that may implicate someone’s real identity then reveals all transactions the user has made and violates their anonymity.
Although the system is decentralized, a network like Ethereum – the most popular cryptocurrency for trading NFTs – is still owned by a centralized organization that ultimately has authority over the network. Also, it is worth mentioning the large energy consumption required by cryptocurrencies to operate, often requiring enough energy to power a small nation, just to host a currency. Either way, it would be dishonest to let these flaws rush completely onto NFTs. They must be studied in their own regard. Cryptocurrency systems are still open to improvement. Violations of anonymity, decentralization, and environmental impact are thematically replicated by crypto investors with optimistic confidence in the future improvement of these systems.
Simply put, NFTs are a tool for individuals to digitally transfer ownership of certain assets. However, its popular uses have created a techno-fetish cult that has misinterpreted the banal concept of NFTs into a market based on fraud and speculation. What has just been created as a blockchain mechanism has been appropriated in a market of addicts and victims of get-rich-quick schemes who funnel 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 disease. An NFT by design is just a designation of ownership on the blockchain. Rationally, individuals should exchange assets based on the utility they derive from them. It’s absurd to see generative art pieces selling for between three and seven figures. But due to the user base, NFTs have experienced an unprecedented pump up in demand. Within the NFT market, demand is generated for demand. People desire to see the value of something increase and join the cultural program hoping for the NFT golden ticket. Trading art for profit is practically ambiguous. Generative art is traded not for the value of the art itself but for the semantic property of the token. The demand that drives the price of NFTs so high depends on it existing on the blockchain, regardless of the art itself. There should be no difference between owning a digital copy of a digital artwork and owning the digital artwork as an NFT. Therefore, the NFT market has become a speculative market that receives its valuation through hype and technophilia.
NFTs as a pure, isolated concept are not necessarily a bad thing. A decentralized system of ownership on an immutable public ledger promises the development of economic technology. However, there is a lot of work to be done for its sustainability and legitimacy, including electricity costs and improving user safety, in order to see meaningful success. Currently, ownership of 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 to which it is assigned. NFTs can only find legitimacy through marketing and speculation, backed by a facade of demand. Moreover, there are still big questions about the possibility of cryptocurrency as a means of exchanging (legal) goods. Cryptocurrency is highly volatile and infested with short selling and currency schemes. Most investors have the disposable income to use cryptocurrency as an outlet for their trading hobby, always expecting to cash in. Although NFTs as a technology can be useful, they should be relegated to a proof of concept rather than a finalized idea to be implemented on a large scale, requiring significant technology and social improvements to be something more. bigger than cartoon monkeys.