Blogs & Articles: Why NFTs are hard to explain 🔗 3 years ago

A disambiguation

NFT “Birth,” from the Ethstory project by @takenstheorem. See details in postscript.

I keep seeing the pro-NFT crowd complain about Bitcoiners “not getting it.” Bitcoiners are to NFTs as nocoiners are to Bitcoin, the saying goes. The argument is an endless circle:

“How can you not see the value of digital scarcity? You’re a bitcoiner!” This is invariably met with the retort: “NFTs aren’t scarce, you can copy and paste them!” Ad nauseam.

The reason proponents have a hard time explaining NFTs, in my opinion, is because NFTs aren’t a singular concept. They’re a bundle of related concepts. NFTs are a cluster of superficially similar but functionally heterogeneous entities, in much the same way that “cryptoasset” or “blockchain” are too semantically diffuse to be considered a single taxonomic element.

In other words — NFT is a process, rather than a product. To NFT something is to assign it a distinct serial number that lives on a public blockchain. That’s it. ‘NFT’ conveys no additional information about the purpose or nature of the content-being-serialized aside from that.

The problem is when proponents try to explain NFTs by resorting to a specific teleology (“NFTs are for x” or “NFTs accomplish y”). This confuses the issue, because the NFT landscape is incredibly broad, and encompasses a huge diversity of applications. (Opensea’s NFT Bible is a decent introduction.) So naturally many people won’t understand NFTs when they are explained with reference to a single purpose: their would-be guides to the NFT world don’t understand them either. How can you teach that which you do not truly know?

To tease out the different types of ownership offered by NFTs, let’s consider three examples. They are categorically different, and have nothing in common aside from their mechanical nature. To conflate them is a taxonomic misstep.

Grimes

The first is one out of 100 digitally signed pieces of digital art, made by the artist Grimes. When I buy this (I haven’t, but I’ll admit I was tempted) I am buying it for a couple reasons:

• I know that I am buying a ‘limited edition’ of a piece of artwork, which I have a permanent claim on
• I know that I am supporting the artist directly (if purchasing the art in the primary market) or indirectly (some marketplaces pass on revenues from the secondary market, and if not I am influencing the market and encouraging the artist to mark up subsequent sales)
• I know that I can likely resell the art on the secondary marketplace should I choose to
• I know that Grimes is using this platform, and this one alone, to issue these NFTs, and is unlikely to turn around and sell a second set of ‘limited edition’ versions of these exact digital paintings

What I’m buying is effectively a digitized version of a signed setlist after a gig, or a signed, limited edition album cover. As I jokingly put it, the NFT should be understood as the autograph, not the art.

That’s not remotely difficult to reason about, because the practice is already familiar to us in the analog world. Crucially, there’s an extremely tight causal link between the generation of the IP and the digital serial code. I know that Grimes has authenticated this specific interface as the designated broker of her digital art sales. I know that additional copies of these autographed pieces of art will not be sold in other digital contexts, because she would be violating an informal social contract with her fans.

Importantly, we have strong assurances that Grimes isn’t duplicating these NFTs elsewhere. What use is a limited edition NFT if the artist doesn’t commit to not releasing it on 20 NFT platforms? This is also why the NBA/Top Shots product works: the NBA is not going to sell designated highlights/moments on other platforms. You have assurances of exclusivity.

Cent

The second case study here is the tokenized tweet. Jack Dorsey infamously put the first ever tweet up for sale, and looks likely to sell it for $2.5m to Justin Sun. In this instance, when you bid for someone’s tweet on Cent (I actually ‘own’ one of Neeraj’s), you are declaring that you are willing to purchase the bragging rights to the tweet on the Cent platform. The creator has to actually accept the offer though — you can’t just buy a tweet without their consent. So you are effectively committing to buy an autographed version of a tweet on a third party platform. That’s what the Cent NFT is. A declaration of financial intent in order to show appreciation (and later, to serve as a bragging right of sorts. See — just five sentences ago, I bragged about owning Neeraj’s tweet!)

Of course, many other NFT issuers could emerge and compete, so I can’t claim I own the exclusive rights to the tweet, just the tokenized version on a specific platform. In fact, I don’t own anything about the tweet on twitter itself.

The connection between creator and NFT is much looser here. The creator may not be aware that their tweets are up for sale. When the creator accepts the transaction, they give a slight headnod to the buyer. But again, the buyer just owns the exclusive bragging rights to the tweet on the Cent platform, and nowhere else. That’s as much a bet on Cent as it is on the tweet itself.

Cultural artifacts

Lastly, we have a category of NFTs you could uncharitably describe as ‘art fraud on the blockchain’. There are numerous reports of individuals, either through malice or unintentionally, listing content on NFT sites which is either directly lifted from another artist or a derivative of some content encumbered by IP. Here’s a report of art fraud on Rarible; here’s Giphy complaining about the practice; and here’s an accusation that the Wu Tang Clan actually NFTed another artist’s art. These cases are relatively cut and dry, and the platforms themselves try to police this.

But there’s additional gray areas which call into question the IP linkage of NFTs. These are instances where creators monetize memes or other content that’s effectively in the public domain. Who is the “creator” of Pepe the Frog? In theory, it’s Matt Furie. But what about the endless remixes and derivatives? NFTing memes or other culturally salient content degenerates into a discussion of who owns culture, to which the answer is of course everyone and no one. Who has the right to monetize memes? The originator, or the remixer? The popularizer?

The other problem with buying NFTs that aren’t directly linked to a specific creator is that you have no assurances of exclusivity. I saw an NFT image of myself put through a deepdream filter recently. Had I bought it, I wouldn’t have had any exclusive claim to the concept “Nic’s twitter avi put through a generic filter.” The artist also doesn’t matter much here, because the output is content combined with a simple algorithmic process. It’s this category of NFTs that people struggle to reason about, and that makes sense: they raise extremely thorny questions of ownership. NFTs aim to strongly codify who owns what, but if you can’t agree on ownership in the first place, putting that content in a “strong property rights” wrapper doesn’t make sense.

It’s about the IP

The comparison allows us to tease out the key distinction between NFTs. I would contend that distinctions between subclasses of NFT turn on the tightness of IP integration. On the one end of the spectrum, I have strong assurances that I am receiving an autographed piece of original art directly from the creator. I have an extremely tight linkage between the creator, her original IP, and the digital product that I now meaningfully own. In the middle, we have a more diffuse connection: I own unique bragging rights to someone else’s tweet, which they have acknowledged by collecting the reward. But I don’t really own their IP, I certainly don’t own the tweet itself, and all I have from the creator is a cursory headnod — “yes, I accepted a fee in exchange for consigning these bragging rights.”

On the most vague side, I have a dubiously scarce claim to a meme or cultural artifact, which may be presented in a unique manner, but is not even owned in a meaningful sense by its creator. The product is mostly derivative — it’s still artistic, in the sense that most art is derivative, but it’s definitely not the original and exclusive work of a single individual. They may actually be violating copyright by monetizing it. I might still get a kick out of owning it, but aside from entertainment value it’s very unclear what I actually own.

And lastly, in the really wacky world of procedurally generated NFTs like Cryptopunks, it’s incredibly unclear what I’m buying. I’m not exactly rewarding the artist, because the artist is an algorithm. Most likely, I’m betting that newly-rich Ethereum enthusiasts will see the NFTs as a kind of totem of status, signaling membership in an exclusive club (people that had the foresight to buy the first NFTs on Ethereum, or the financial clout to buy them once they got popular.) My best thesis here is that these are effectively a form of re-sellable social signaling, like a digital Hermes Birkin bag. The actual contents of the NFT is largely irrelevant.

So in the debate over NFTs, I would contend that people talk past each other. Skeptics consider the “emptiest” NFTs — the ones with the loosest or nonexistent IP/token linkages — and examine ownership is in that context. Proponents look at the “fullest” NFTs — the ones with tight linkage and assurances of issuer exclusivity — and point out the advantages of such an issuance model. And they’re both right! Because NFTs aren’t a singular class of thing. An NFT is a wrapper.

I’m not telling you that the NFT process is God’s gift. Nor am I saying they’re doomed or bound to crash. The notion of a serialized, public-blockchain-residing, innately financialized instrument is clearly a useful wrapper, and it will absolutely persist. What I am saying is that NFTs are a loose cluster of ideas, rather than being one concept. The subclass of NFTs that makes the most sense to me consists of the ones where you have a) a tight linkage between the IP and the digital reference; and b) assurances of exclusivity. The remainder is very hard to reason about.

The cover image is a copy of “Birth,” an NFT shared with permission by the creator @takenstheorem. His charitable data-visualization project “Ethstory” recounts the history of Ethereum via thousands of data points, and rendered as high-quality PDFs that only owners can access with a password from OpenSea. Here, transaction flows from the BTC presale into the first transactions from Ethereum’s GENESIS.

I’d like to thank Takens Theorem for his feedback on this article — and the cover art.