NFTs are just Another Way for the Rich to get Richer
Picture the following scenario : you go to Paris. Once there, you head to the Louvre to have a look at the Mona Lisa. While in front of the painting, you turn to a nearby stranger. “I’d like to own this”, you tell him. The stranger, an accommodating fellow, waves a note and replies “Sure. Give me 65 million dollars and I’ll burn down an unspecified amount of the Amazon forest in order to give you this here receipt of purchase”. Because you’re a gullible rich socialite who doesn’t care about the environment, you pay him. So far, so good.
The stranger tells you “Here’s your receipt, thank you for your purchase”. He then goes to an unmarked supply closet at the back of the museum, and, behind a few Mr Clean bottles, pins the handmade note, on which he’s written “MONA LISA, CURRENTLY OWNED BY InternetStranger69”. If anyone wants to know who owns the Mona Lisa now, they have to find this specific supply closet, in this specific corridor, and look behind these specific Mr Clean bottles.
Confused, you enquire “Can I take the Mona Lisa home now?” The seller looks at you funny, and scoffs that you OBVIOUSLY cannot take the Mona Lisa home. Silly InternetStranger69. You only bought the receipt that says that you own it; you didn’t buy the painting itself. You CAN, however, take the replica print in a cardboard tube that’s sold in the gift shop.
A few days later, you find out that the person who sold you the painting has, at no point in time, ever owned the Mona Lisa.
Congratulations, you just bought your first NFT.
Only the stupidly rich, or the vastly stupid would participate in such a racket. And I can prove it.
A few definitions before we begin
NFT stands for “non-fungible token”. Since the term has often been incorrectly used to describe a piece of digital art, I’d like to clarify what these words mean before going forward. If you’re not about that noise, feel free to skip ahead.
In this context, a “token” represents a digital certificate of authenticity verifying ownership of an asset. Because the digital world is a tricky place, that token is added to a digital ledger called a blockchain. That way, records of ownership cannot be forged because the ledger is maintained by thousands of computers around the world. This also allows for the creation of smart contracts, whereby ownership is historically tracked, and the original owner of the token (often the creator of the asset the token represents) can be rewarded every time it changes hand.
“Non-fungible” means that one such token represents a unique piece of information, with a distinct value that cannot be divided into smaller units (unlike a dollar, or a Bitcoin).
One easy example of an NFT at work is that of digital artist Beeple. In early March 2021, Beeple put his artwork collection for sale online, as an NFT. Someone with way too much money purchased the token for $69M, and is now verifiably the owner of the artwork, which cannot be broken down into smaller pieces. You can of course still go see the art, and the new “owner” cannot make any changes to the art itself, as this wasn’t exactly what was purchased.
If that seems like 1 percenter technocratic bullsh*t, trust your instincts and read on.
Killing the internet for profit
One of the internet’s prevailing success factor is the absence of scarcity within its realms : on it, any song, image, article or software can technically be infinitely reproduced at virtually no cost. And while the internet is far from the utopia we once imagined, it has more or less remained that way for the past two decades.
But all this free sharing does not create enough money for those who never seem to have enough (tech billionaires, Venture Capitalists, investment bankers, musicians, sport personalities…). NFTs seek to put an end to this, creating (and I cannot stress this enough) FAKE scarcity where there ought to be none. This creates a whole economy from scratch.
1. Artificially Limiting supply
There are two types of NFTs : those that point to purely digital assets (like a Tweet), or those based on the physical world (like a dunk video). Transforming the latter into an NFT is just yet another step in the digitalisation of our lives. It was to be expected. Turning the former into an NFT, however, turns something that is by definition liquid into an illiquid asset that can be bought and sold instead of freely shared.
Why is this a rich-people problem, you may ask ? Because under the guise of democratising content, they are the only ones able to purchase them. They will say that purchasing assets usually involves a notary, a bank, certificates, registries… and that doing away with them through a decentralised digital market-place REDUCES scarcity. But in order to purchase an NFT, you need crypto-money (often in the form of ETH). And a lot of it, as well as the funds to gamble with its volatility. You also need to pay gas fees (fees required to add something onto the blockchain). An understanding of the few platforms on which such exchanges take place, and some technical knowledge on how they work is also a pre-requisite. And finally, you need friends and connections with access to the same resources to get the first few trades going. A middle-class person doesn’t have all this.
Also, guess who handled the sale of Beeple’s art, and took a $6M cut in the process ? Christie’s, a 300 year-old company owned by French multi-billionaire Francois-Henri Pinault, who also owns the Kering luxury group (Gucci, Balenciagga, YSL…). So much for democratising art.
Sure, for now, anyone can still view content purchased as an NFT. But that may yet be just a matter of time. You don’t have to look far to see it happen : the video “Charlie Bit My Finger”, a staple of early internet culture, was recently sold as an NFT, then be deleted off of Youtube. The person who buys it might put it back there for all to enjoy… or not.
It’s just a matter of time before swathes of the internet (and parts of our common digital culture) become private collections inaccessible to all but a few privileged friends and donors.
2. Artificially creating demand
The rich and the famous may not even have to artificially limit supply in order to get wealthier. When it comes to a world of abundance the power that matters is DEMAND, not supply. A market only works as long as people are enthusiastic about it.
And who is able to create that enthusiasm? That demand? People who already benefit from the attention economy of course. My Tweets or yours don’t sell, but Jack Dorsey sells his for $3M. Our basketball highlights don’t sell, but the NBA sells theirs for $210K. My art doesn’t sell online, but Beeple sells his for dozens of millions.
And don’t give me that “Yeah but I’d never heard of Beeple before”. That’s on you. He is well-known in commercial art circles, having collaborated with companies and musicians such as Louis Vuitton, Justin Bieber, Katy Perry, Nicki Minaj, One Direction, Eminem and Flying Lotus; he isn’t some rando in a basement whom nobody has ever heard of.
What’s worse, countless articles about the democratising aspect of NFTs has led thousands of people to create their own. The thinking seems to be that there would magically be a market for their crappy photoshopped images. But creating an NFT isn’t cheap. You have to “mint” it (put them on the blockchain), which costs a noticeable amount because of the gas fee.
I spent 50$ to make the NFT I created for research purposes. It set its price for 1.99$, but purchasing will also set you back 100$ in gas fees. When all is said and done, I get 2$ cents for my asset, and the crypto-millionaires who run the network get 150$. Decentralised, my ash.
The rich get richer and the poor get poorer. Make no mistake, NFTs alter the concept and our understanding of the open internet. But this is far from the only problem; it’s only a symptom of a much more worrying disease.
Killing the environment for profit
Why is it so expensive to create an NFT? Simple : to receive financial rewards, miners who create blocks within a blockchain have to solve complex puzzles, which require a lot of processing power, and thus a lot of electricity (often from burning coal in poor countries). And they have to do it faster than their peers. So YOU have to make it worth their while by paying the big bucks.
This energy-intensive network competition is called the “proof of work”. Proof of work, in essence, is a way to confirm that computational effort has been expended by “the prover” (the system doing a task). It’s just how blockchains work. The more a computer “works” (the more energy is expended / the more coal is burnt), the more competitive it is, and the richer its owner gets. And who has access to such high-tech materials? The people who already own a lot of assets.
And the WHOLE system is created to ensure a lucky few remain at the top, as the difficulty of mining blocks is designed to increase over time. To solve the problem of more computers mining, the proof of work puzzles get harder.
People who can afford it get more computers and better GPUs.
The puzzles get harder.
The puzzles get harder.
And so on.
This computational arms race essentially rewards the participants able to burn the most coal. This is the price of an NFT : a bit of cultural value on top of hundreds of acres of forest burnt to make electricity to create the fancy puzzles enabling the technology.
We KNOW that climate change is primarily hitting poor communities, making entire countries in more precarious conditions. Even if you’re not becoming classically rich after creating an NFT, you’re still increasing inequalities by making the rest of the world less well-off.
Some “new” concepts have been offered of late to reduce blockchains’ carbon footprints. I believe they have not been implemented because doing so would upset the order created, which benefits so many millionaires. But even if we were to consider them, we’d quickly realise they’re just more of the same.
Proof of Stake : This does away with the competition to create blocks. It however relies on how much of the network someone owns : so the more cryptocurrency for a specific blockchain you own, the more you will make from fees as more transactions will be directed to you. The rich get richer.
Proof of Capacity : This is an algorithm that allows for mining devices in the network to use their available hard drive space to decide mining rights and validate transactions. So the more hardware space you have, the more money you can receive by running transactions (NFTs or otherwise). The rich get richer by simply being able to afford more space.
Proof of Donation : You earn coins that you can trade for NFTs (again, this is all you can really do with crypto) based on how much money you donated over a specific time frame. The only reason to do this is if you believe the future rewards will be greater than the donations made (through price increases). So the people able to give more receive more in the long run. The rich get richer.
Trading NFTs not only ruins the internet, it also ruins the environment, and only makes the rich richer. But why are they so suddenly interested in a technology that’s been around for years ?
What is money, anyway ?
Despite what’s being said across the internet, NFTs and crypto-currencies cannot really be spent on anything. In fact, it seems that the lack of real world use-cases for crypto-currencies has led to the explosion of NFTs, as this is the only place to spend the currency which has become an endless derivative of itself.
Let’s be honest : we’re not talking about the Next Big Thing here. More than a decade after blockchains first caught tech geeks’ eye, not a single smartphone app that you use with friends or co-workers relies on that technology. By contrast, when the web was the same age that bitcoin is today, it had half a billion users around the world.
In the end, NFTs are stores of value with extra steps : they appreciate as more trees are burnt, while also being cool and new enough to bring in droves of gullible investors ready to become bag-holders. And the only reason people put up with those extra steps is because they had nothing better to do.
It’s no surprise that the amount of attention paid to NFTs exploded during the pandemic, even though the technology has been around since 2017 (remember crypto-kitties?) : bored billionaires had nowhere else to put their money while they were sheltering home.
As the economy reopens, we are seeing the value of NFTs being cut in half, if not more. Coincidence ? I think not. Millionaires have just taken their money out to spend it in Florida.
A quick recap, then :
NFTs only make sense if you see them as playthings for the wealthy. Their mere existence endangers both the internet as we know it, as well as the planet’s survival in the long run. They are nothing but stores of value, toys that the children will get bored with once the clubs reopen.
With that said : BUY MY NFT ON RARIBLE FOR JUST $1.99!
Good luck out there.