Yes, NFTs are a fad - here's why they should stay
Non-Fungible Tokens are the new hype. While governments try to get a handle on protecting consumers, they should also be thinking about how to promote NFT applications that don’t generate profits.
Ricardo Chejfec (RC) is a graduate student at the Max Bell School of Public Policy at McGill University. With a background in research and technology, Ricardo is interested in exploring the role of emerging technologies in governance, wellbeing, and public life. Write us at newsletterthebell@gmail.com
DO YOU KNOW how much your tweets are worth? Now you can find out. Non-Fungible Tokens (NFTs) are the new craze in crypto-technology. They have been around since 2015 but have become popular seemingly overnight. Starting in February, NFTs tied to video game assets and musical videos made headlines with record breaking sales in the millions, and just last week, Jack Dorsey, the founder of Twitter, sold an NFT of his very first tweet (“just setting up my twttr”) for almost $3 million.
Increased adoption by mainstream celebrities and media, the pandemic’s effect on people’s saving patterns, and the continued rise in the price of Bitcoin, have all likely contributed to the rapidly surging profitability of NFTs. While proponents contend that NFTs will serve to help redefine ownership in a digital world, by continuing to worry only about the long-term investment opportunities that accompany this technology, we may be ignoring some of its most consequential uses.
When you buy an NFT, you are not buying a piece of media but rather a token that connects your name to such a piece in an open, decentralized ledger (the blockchain). Like Bitcoin, these tokens are immutable, easily authenticated, and impossible to recreate. Non-fungible because unlike coins in a crypto-currency which all share the same value (i.e. one Bitcoin is worth the same as any other Bitcoin), NFTs intend to assign property to individual pieces of media — essentially introducing the ability to trade and collect digital items. Similar to art collecting or autographed books, the value of the piece is ultimately determined by interested buyers.
Extending the metaphor, other people are still able to access copies of the piece sold and the creator of such piece is free to continue profiting off of it. Like a certificate of authenticity that often accompanies valuable memorabilia, NFTs merely allow their buyers to attest themselves as the owners of a particular (frequently the first sold) version of a digital asset. Unlike art collecting or autographed media however, the electronic piece you now have “ownership” over is completely indistinguishable from the media accessible to everyone else. You cannot hold it in your hands or store it in a safe, and passing it on to your children will always depend on the continued existence and maintenance of the ledger in which you purchased it.
Regardless, we have seen artists accrue massive profits through NFTs. Musician 3LAU, one of the earliest adopters of the technology, sold a crypto-album for $11.6 million. A new version of the Nyan Cat meme sold for almost $600k and even long-established art institutions like auction house Christie’s have become involved, last month overseeing the sale of digital artist Beeple’s work for a record $69 million. Not even gains like this will scare away the skepticism. Beeple himself, who can thank NFT art for turning him into the third-most valuable artist alive, claims that we are experiencing a bubble and its prices are likely to plummet sooner or later.
There’s nothing inherently wrong with people spending large amounts of money on things that have no intrinsic value or useful function but as people have started to take notice of the profiting potentials of NFTs, much more nefarious uses have risen. Twitter accounts like Tokenized Tweets have been created with the purpose of giving random users the ability to NFT anyone’s tweet, leading to opportunistic and presumably non-artist users scavenging the feed for original works coming from small to medium Twitter artists. At a much larger scale, companies like Global Art Museum were started to create NFTs, and consequently sell them, for whatever digital renditions of museum art they can find.
Is the art being stolen? Conversations about the intricacies of copyright law and what constitutes derivative work are still ongoing. In the meantime, Tokenized Tweets has added functionality allowing creators to request their tweets be taken down and Global Art Museum is no longer selling digitized art. One thing we can confidently conclude is that the value of these tokens will always be solely determined by our reaction to them. Ultimately, these companies are selling us the ability to corroborate that a transaction took place, whether we decide to interpret that as ownership and whatever value we end up attaching in its trade, are up to us.
With such a fast growing technology, coupled with the massive gains we have seen from early investments in new digital tools, it is not difficult to imagine that the hype alone will carry NFTs forward. If we want to make sure that this does not get out of control, ignoring the problem because we think the concept is silly may not be enough.
A few cryptography experts have tried to shine a light on some of the less business-attractive but no less important uses of blockchain with little success breaking their ideas out of niche circles. The most potentially influential use for NFTs is the ability to maintain a credible record of origin for digital items, with applications ranging from protecting against deep fakes to mitigating against stolen digital art. Fatcom, a company started in 2015, aims to do just that, using blockchain capabilities to provide companies a way to make their data’s credentials independently verifiable. But just as the battle against doctored videos begins to materialize and investors line up for NFT’s, Fatcom is struggling to find financial backers.
It seems like no longer than a year ago, the media and public were horrified by a future where hyper-realistic tampered videos — aka “deep fakes” — could do away with our notions of veracity and authenticity. Yet, we seem to be rolling our eyes at a tool intended to use top of the line cybersecurity techniques to maintain a reliable and legitimate record of media ownership. How scary would deep-fake sample videos really be if reporters, people, and even social media platforms could simply verify the original source of the video in a public ledger?
Regarding the potentially disruptive financial effects of a bubble forming, the Financial Consumer Agency of Canada is likely to respond similarly to when Bitcoin prices first began to rapidly rise, focusing simply on informing the public of potential dangers. But, governments in particular should pay close attention to this technology as the dangers of forged information grow alongside our digital accessibility. They may not be technologically adept yet to spearhead these efforts but they would be wise to meaningfully investigate the implications of NFTs for consumers, identify ways the government may leverage the tokens to verify credentials, as well as divert investments into supporting early stage companies exploring its functional uses.
Granted, more public familiarity with the technology would be needed for NFTs to play a fair fight against deep fakes and stolen art, after all, there’s no value in a reliable record that only a few people can understand. Instead of focusing solely on the investing potential and Bitcoin-inspired-craze that currently fame NFTs, we should begin thinking seriously about its applications that don’t directly generate profits — demystifying the air around crypto-investments and allowing the technology to grow in accordance with (and in direction of) its real value. (RC)
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The Bell is edited by Emily Nickerson, Mariel Aramburu, and Andrew Potter of the Max Bell School of Public Policy at McGill University. If you have any feedback or would like to contribute to this newsletter, please send an email to the editors at newsletterthebell@gmail.com