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Beneath the pizzazz of NFTs, digital art markets nestle...

Defend Truth

Opinionista

Beneath the pizzazz of non-fungible tokens and digital art markets nestles a truly new idea

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Steven Boykey Sidley is a Professor at JBS, University of Johannesburg, and the co-author of Beyond Bitcoin: Decentralised Finance and the End of Banks (with Simon Dingle).

NFTs allow one to imagine much more complex forms of ownership: I own this today, my wife owns it tomorrow, my best friend owns it when it rains and if it’s sold, 5% goes automatically to the Gift of the Givers. That sort of thing.

When NFTs burst into the zeitgeist less than two years ago, there was a double dose of confusion. First there was, ‘WTF is an NFT??’ Then there was, ‘someone paid HOW MUCH for a little blocky jpg of a cartoon face???’

It would be comforting to know that this confusion has now been cleared up, but alas. Most people don’t know why so much money is being paid for seemingly so little, and neither are they any wiser about what an NFT is. And they also probably don’t know that there is considerable excitement among deep technology wonks and futurists about this blockchain-born creature with the clumsy expansion “non-fungible token”.

Recently a smart financial columnist gave the shortest and most pithy definition of an NFT I have yet seen.

He said: “Oh, I get it. It’s a receipt.” 

Exactly. It’s a receipt for something somebody owns. A very secure receipt, not counterfeitable or changeable, secured by fancy cryptography. Or, if one wants to get all hifalutin, one could say it’s a digital title deed. Same thing really. It specifies that something is owned and it specifies who owns it and under what conditions that ownership may change.

This is important to remember — an NFT is (with some exceptions) not the thing that the owner owns. It is merely a record of ownership of that thing. A jpg or digital animation or e-book or mp4 file that lives somewhere else, maybe on a server in the cloud. Or perhaps even something physical, like that old piano in the basement.

Why is this important? Because all the other “possession” documents like the receipt for your smartphone or the title deed for your house or the registration for your car can (and do) get lost or counterfeited or stolen. NFTs can’t (unless someone gets hold of your personal password to your NFT).

The second question. Why, in October 2021 would someone have paid over R40-million for Bored Ape #8817 — a graphic of a primate with an earring, a propellor cap and streamer between their lips? The answer is — I don’t know. That’s what they paid.

The buyer bought ownership of the Bored Ape graphic and they got membership to an elite club. They thought it was worth over R40-million. I also don’t know why someone paid $91-million for a little stainless-steel sculpture of a rabbit by Jeff Koons that I wouldn’t have looked at twice had I seen it at a garage sale. Go figure.

There are jpgs of this Bored Ape and millions of other NFT-tethered digital content all over the web. What’s to stop someone from bringing up a graphic of BA #8817 up on their screen and saving the image? Taking possession of a copy, so to speak. Nothing. But that person does not own it and the bragging and selling rights which come from ownership.

There are, by one recent measurement, over 80 million NFT-tethered works of digital art available on NFT marketplaces, but as you can imagine, almost all of them lie sadly neglected, and the majority of the few that do trade fetch less than $200. The halcyon days when a 13-year-old can sell his scribble for $60K are gone (true story).

The entire value market is now dominated by celebrities, brands and corporations (punctured only very occasionally by a brash newcomer). Like Adidas, Lamborghini, Coca-Cola, Nike, Louis Vuitton, Samsung, Pepsi, McDonalds, Burger King, Ray-Ban. And Eminem, Snoop Dogg, Grimes, Paris Hilton, Kevin Hart, LeBron James etc.

I find this all a little depressing, but I am not sure why. Perhaps it is the co-opting of something that was fresh and new by the usual suspects with access to means and influence.

NFT prices and activity have collapsed spectacularly over the last few weeks, some by over 60%. Also, a 74% drop in interest via Google searches over the past month. This has led to no small amount of glee and a great deal of doomsaying from the peanut gallery. I do not agree. Everything in this economy has crashed, so no surprise there. It will recover. (It turns out that 23% of millennials in the US have dabbled. They are still there, waiting for the next bull).

Which brings me to this.

Underneath the pizzazz and sensation of these NFTs and digital art markets nestles a truly new idea: the NFT represents a new way of defining ownership. Rather than the age-old understanding of ownership — (it’s mine, to have, hold or cede) — NFTs are expressed as computer code, allowing one to imagine much more complex forms of ownership: I own this today, my wife owns the thing tomorrow, my best friend owns it when it rains and if it’s sold, 5% goes automatically to the Gift of the Givers. That sort of thing.

When ownership is elastic, rather than constrained by a piece of paper with unchanging and inflexible formats, many things become possible. A startling number of new innovations are already bubbling up to the surface, all based on the concept of elastic ownership.

Finally, a word about the soul. Actually, more accurately “soulbound”, a slice of jargon which has recently found its way into NFT language.

One of the fundamental capabilities of the non-fungible token is that it can be transferred from one owner to another, either when a sale is made or under some other condition, like a donation. But what if someone wanted to tether an NFT incontrovertibly to a particular human individual, in other words have it be non-transferrable? For example, some form of digital identity document, or an entrance ticket for some event reserved for one unique person only?

This is called a soulbound NFT. A lovely combination of words, simultaneously poetic and nerdy. With all sorts of potential applications that demand simple and instantaneous authentication of a specific individual’s identity, without having to pull an ID out of a physical wallet.

So watch with some bemusement as people make and lose fortunes in the Wild West of digital art markets, if you like. But there is a whole bunch of other more transformative NFT stuff on its way.

I leave you with but one example. Imagine that you owned every piece of data that Facebook has on you, which they currently sell to advertisers for hundreds of billions of dollars a year. Now imagine that they have to share that revenue with you, because it is you, not them, that owns your underlying data.

Think about this. The fact that you clicked on a site to find the price of dining room furniture is your data. No one else’s.

Boom! DM

 

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  • I may be old fashioned, but William Smith once explained the line of value very simply on TV (for kids maths curriculum, so yes this is a simple principle, but it makes sense) in the problems with inflation. Today there are many ways that inflation occurs, and many reasons why. These reasons include political power and the manipulations by the myriads of institutions. Nevertheless, he spoke it thus : money in the world is supposed to be equivalent to the value of everything in our world, including labour, potential, hard stuff like raw materials and minerals, development, manufacture, import and export and so on. It gets very complex. But each rand stands as a proxy for the value of our world. example – If an apple equaled R1, and you suddenly grew two apples, then in the first calculation without adjustment, each apple would then be worth 50 cents. Conversely, if you cut the apple in half, a whole apple would be worth R2. But apples are calories. They equate to a value to humankind. So as I see it, when all this extra “value” with limited or no common shared value is spirited from the ether through institutions like futures and technology, theoretically first – the value becomes partial to the owner and second, the rest of the world “community” is left with the deficit of inflation with no benefit of the inflation. The rich get richer and the poor get to pay. No wonder we are reading all about us about global economic collapse.

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