The Danger of NFTs: Beyond the Memes

So lately if you're on the internet a lot it's nearly impossible to avoid all the talk of current NFT scams and absurdities.

If you're less terminally online than I, though, I'll explain a bit about what's been happening. The tl;dr is that Non-Fungible Tokens (NFTs) are a way of naming ownership of an artifact on a public ledger---a "blockchain". This receipt of ownership is publicly viewable and checkable and all transfers of it within the same public ledger system are also easily checked. The receipt doesn't contain the artifact but a pointer to it, generally a URL.

Okay, now I've tried to give this a fair and neutral description because I don't want to be accused of baking bias into the discussion.

Now we get into the real problem of NFTs both as currently implemented and in theory. The first problem, that I think a lot of people have already covered well, is environmental. Proof-of-work currencies consume massive amounts of energy for every completed transaction. There have been attempts at estimating the energy cost of "minting" an NFT---i.e. adding it to the ledger---and they're, well, not great.

https://memoakten.medium.com/the-unreasonable-ecological-cost-of-cryptoart-2221d3eb2053

Now the counter-argument is always that currencies like Ethereum are moving away from proof-of-work to proof-of-stake which, in theory, should be less energy intensive. For the purposes of argument, let's just assume that this is true and that in the not-too-distant future cryptocurrency will no longer consume the electricity of a medium sized nation-state.

The next problem is about the current NFT markets themselves which are, and there's no polite way of putting it, pretty clearly a combination of money laundering and scamming. A lot of the current NFT scams were inspired by the cryptopunks, a set of picrew-like images which are all variants of the same fairly boring image, which rather quickly became valued at millions of dollars worth of Ethereum currency.

Check out this glorious art for yourselves

Dan Olson's thread about current scams

And the thing that's obviously a scam about all of these picrew ripoffs is that the value of these things is clearly not about the art it's about the artificial scarcity and the success of a few of these projects has inspired oh so many copycats, some of which have just blatantly stolen millions of dollars.

Evolved Apes scam

Maybe I sound like I'm being mean but I don't know what else to call it when people are buying and selling receipts to "own" items that have absolutely no value in and of themselves. They're imaginary commodities, like the tulip bubble writ-large.

Fans of these NFT projects won't even deny this aspect. They'll say instead that the value of owning one of these objects is that it gives you access to a community, to an elite club of people marked solely by having bought into the system.

In the end, these small scale tulip-scams are just like every other absurd investment trend that comes along, not really any different than commercials trying to sell old people commemorative coins whose value will only appreciate with time. The "joining a club" aspect, though, scares me because I think this is where big tech companies like Facebook are going to get involved.

This isn't speculation, this is literally what the "metaverse" is: big tech companies want to eventually create VR/AR spaces where your ability to build avatars for yourself in the virtual world, or accessorize yourself in the augmented one, are dependent on artificial scarcity of artifacts.

What I fear is that in ten, twenty, years we'll have a world where the big tech companies have gotten their way and we're all wearing smart glasses and AR tech becomes a basic part of the UI of the world around us. If that happens, it becomes easy to start paywalling basic functionality of the world. NFTs-as-club-membership would play a really natural role in this kind of development.

And further I fear that AR accessories like clothes are going to be used as a social pressure in order to get as much buy-in as possible into these systems before they start being used not just for social pressure but for more hard-line compliance.

Trust me, I feel a little paranoid saying all of this but I do believe that this is what companies want from the combination of AR and NFTs. I don't know how likely they are to pull it off, but I think it's the goal.

So after all the jokes about Evolved Apes "investors" getting their money stolen or about Lindsay Lohan's earless NFT fursona are done, I think we need to keep an eye out for what's coming with web3 and the metaverse because I think it's going to be another phase of centralization, yet another way to consolidate power and just like with the original web it's going to be done with tools that we were promised would do just the opposite.