Digital art and collectibles are a rich vein of opportunity, but this isn’t the way.
I don’t live under a rock, but I’d never even heard of “NFTs” until about a month ago, and now they are absolutely everywhere. Mainstream artists and pop acts are “minting” digital collectibles, artists are auctioning off image files for tens of millions of dollars. Very few trends emerge so widely this without pointing toward some problem that wanted solving. But the current ecosytem springing up around NFTs is a confusing mess, slow and expensive.
I spent some time as a total normie trying to buy and sell a crypto collectible, and I’m going to explain what the fuss is about, and how they suck. And take a guess at where we’re headed.
An NFT is just an online registration for a file
It’s a so-called non-fungible token. While I’ve always liked the word “fungible” and I’m happy to see it going mainstream, this is a pretty silly acronym and basically just means “a unique item that has only one owner.”
If this sounds a lot like an “object in the real world,” that’s because it is. Just like the shampoo bottle in your shower, or your car. It’s a thing, and it has one clear owner (you). In the case of the shampoo bottle, we all know you own it because it’s in your bathroom. For the car, we know you own it because the state government has a record of you on the registration (plus, only you have the key that starts it.)
An NFT is like the car registration, but for a computer file. We all know that if I have a digital photo or an MP3 and I copy it to you — by email or Dropbox or USB stick — then you also have a copy of it, and those copies are the same. Once I’ve copied you the file, I can’t be said to own it any more than you can.
An NFT means, definitively, that I own the file. Even if I chose to copy the data to you, I still “own” it as far as the rest of the world is concerned.
Owning stuff in the online domain opens new cultural doors
The online world is very good at communication and sharing but it doesn’t do ownership very well. Lots of people creating cultural work do much of their production digitally, but in order to make any money from their creations, they have to sell you something.
When the something is one of infinite copies (a music album, a film, an app), it’s pretty easy: you pay some money and you download the thing. You just want access to the content, you don’t care to prove to anyone that you own anything.
But now imagine a visual artist. Lots of artists already work digitally. But they want to sell their artwork to individual people, because the limited, exclusive nature of the work is part of its value. So they make high-quality prints of their files onto paper, sign them and number them, and sell the prints. They do this because it would be silly to “sell” people JPEG files, which have none of the limitations or exclusivity.
But with NFTs, they actually can. That is what everyone is so excited about. NFTs take the problem of ownership and solve for it in the digital domain. Artwork? Yes. Limited edition pop culture collectibles? Yes. Items that are designed to be used or displayed entirely within the online world. Yes!
This is genuinely cool. People are still buying records on vinyl of the same albums they can stream for free because it’s cool to own stuff, to have it and have it be yours. If we all have a shared understanding of ownership of digital items, that both unlocks audiences and income for artists and creators of all sorts, and also opens the door to genuinely novel online experiences.
Narrow vs global ownership
“Wait” I can hear you thinking right now. This is nothing new! When Bandcamp sells me a copy of a cool indie album for $8, they remember that I own it, I can always go there and listen to it.
Well, yes. But here’s the deal. Bandcamp “knows” that you bought these items from them. But only they know. And that’s fine! Because I don’t care if you own an indie album, and you only need to care that Bandcamp keeps tabs on it. And if Bandcamp goes out of business, you’ll still have those MP3s.
What about a piece of unique art? Well, that’s a bit different. Art can remain viable in the culture for decades or centuries. Van Gogh painted his iconic Café Terrace At Night in 1888 and promptly died two years later. How do we know who owns that precious painting today, well over a century later? That’s easy, the Kröller-Müller museum in the Netherlands does, because that is where the painting is.
But consider a contemporary equivalent. Like, I don’t know, Banksy. If Banksy wants to sell me a piece of digital art — just a a single exclusive copy — he can take my $5 million in cash and give me a high-resultion image file. Good deal, right? Well, I can copy that file for anyone I want, first of all. Banksy himself still knows that I’m the rightful “owner” but let’s say you offer me $15 million (hell yeah) how do I sell it to you? I have to tell Banksy to write down that you’re the new owner. And what if Banksy dies someday, or his house floods and the ledger is lost? A hundred years from now, who will be able to say who “owns” the image? If there’s no guarantee of ownership, I’m not going to pay $5 million for that image file, Banksy can’t make money selling digital work, and he sticks to spraypainting buildings.
NFTs solve this problem. There is no central ledger, no single company that manages the ownership in their Silicon Valley databases, which could go away when that company is acquired or goes bankrupt or gets hacked. Even the most sturdy companies are centralized and have a time horizon measured in years or decades. The internet — we think — is forever, and therefore the NFTs are too.
The way this works today is an incomprehensible mess
I want you to notice that we’ve got all this way without even mentioning blockchains, or Ethereum, or linked crypto wallets. It is very important to understand that these things are not central to the concept or value of NFTs, yet they are the mechanisms on which NFTs are currently constructed, and they are super complicated and confusing.
I’m not going to explain blockchains except to say that these are just global, distributed ledgers of ownership. You’ve heard of Bitcoin, the granddaddy of blockchains, which is like a bank ledger for its own form of currency.
Ethereum is a different blockchain, also global and distributed, and has its own form of currency, called Ether. Crucially, Ethereum is a ledger of both this currency and ownership of digital items — NFTs.
So you can transact both money and digital goods with Ethereum, and that’s what has really taken off lately. You can bid on, or buy, the ownership of digital files using Ether. Transacting these things is a huge hassle. You have to have a “crypto wallet” which is a cryptographically secure thing that indentifies you on the global ledger. You have to have some ether (ethers? Eth? I dunno) to spend, and every single thing you do, from creating a new unique item to making a bid to buying a thing to selling a thing requires paying a transaction fee, which for some inscrutable reason the Ethereum world insists on referring to as “paying for gas”. Transaction fees can range up to $100 worth of ether, depending on all sorts of variables.
To get into this ecosystem, you need to go to one of these sites that’s trying to get traction as an art and collectibles marketplace: Foundation, Rarible, or OpenSea. You have to “connect a wallet” to the site which means you have to find some other startup company to create one of these wallets with. The value (in dollars) of ether has spiked in the last few months and it is quite volatile, and you have to find a way to fund your wallet with your real dollars, which is not as easy as you’d imagine, and then do the transaction, and make sure you have enough extra to “pay for gas” at several different steps.
The user interfaces of these services all assume that you are already pretty fluent in the crypto currency world with its various tokens and ether and hexadecimal addresses and understand how they all relate to each other, and trust that they all are legit.
We are used to going to a website, looking for items which are available there, clicking “Buy” and doing a checkout with our credit cards. That is not at all how any of this works right now for NFTs. All these marketplace sites seem like standard ecommerce sites but are really “fronts” for the blockchain with varying levels of success of hiding the gnarly details from you. That also means the same items can be seen from any of the sites, but the items look different in them all. So confusing!
You spend interminable minutes being forced to wait for every blockchain step to complete, you’re constantly having to parse unfamiliar terminology and unpredictable fees for stuff that you can’t imagine needing a fee.
The fees for Ethereum transactions used to be cheap — a few pennies. But as the value of ether has taken off quite recently, the fees have radically scaled up with it to unsustainable dollar-equivalent levels. Oops.
A lot of this part of the internet looks kind of shady, and some of it probably is. These are the early wild-west, gold-rush Barbary Coast days of this stuff, and there’s a lot of real money flowing around in the cryptocurrency world with no transparency and a lot of people are going to get really taken advantage of.
Give the people what they want!
I’ve been surprised by the recent pop culture breakthrough of a system that is so unbelievably difficult to get to grips with. “Crypto people” will tell you that this validates the value of crypto and blockchain! But it’s really just a signal pointing to the value of NFTs — verifiable ownership, in perpetuity, on the internet.
Sorry folks, nobody really cares about, or wants, ether currency for its own sake. People want to spend dollars, in familiar and predictable ways, but get that NFT result.
Here’s what normies want for digital goods: Amazon. Or eBay. Or something like it. Some browsing, some searching, and a Buy button you can press. Fancy auctions for fancy art items, if you like. But paying with your credit card, in dollars, because that’s already what people buy other stuff with. After that you should receive an NFT, i.e. be registered as the unique owner of the digital good.
See? None of this has anything to do with Ethereum, or cryptocurrency, or smart contracts, or “paying gas” or mysterious securitization of artwork! That stuff is all just incomprehensibly technical implementation detail. The end result of an NFT — a uniquely owned digital good that everyone agrees on the ownership of — is the only value proposition that matters. That promise is what incentivizes digital creators and artists to do this work.
That’s what even Halsey is getting excited about.
We’ll get there, one way or another.
The signal is strong. This seems to be something that people are interested in, and they’re willing to attempt to bend complicated products to their will in order to do it. That tells you something.
But the current way is not sustainable. The ether currency is too volatile, the fees are too huge and unpredictable, and the entire space is littered with sketchy and poorly designed services. To say nothing of the grotesque environmental (power) costs of every single transaction on a blockchain, which increase with increasing popularity. Yikes.
If you were involved in the early days of Bitcoin (I wasn’t, tragically, but I did skim some articles about it!) there was a similar level of craziness, all these different coin exchanges, and weird bespoke “coins” and you had to mine your own cryptocurrency, manage some private keys, whatever that all is. Now, years later, you can just go to like, Coinbase or wherever, and change some money into bitcoin (or Ethereum, or what have you) at the going rate.
It’s not as dumbed down as using your checking account, but now it’s close. NFTs and Ethereum today are like if you had to understand how the merchant transaction contracts were set up for Visa in order to use your credit card to buy groceries. That’s just never gonna work for most people.
But my prediction is that it will wash out, somehow, into something sustainable. I dearly hope it’s something healthy for the planet as well as friendly and sustainable for the users. Because lasting digital ownership is a good idea that could lead to some evolutionary cultural work.
Meanwhile, I guess check out my exclusive, one-of-a-kind artsy floppy disk image that I posted on Rarible? If you can figure out how.