NFTs, What are they good for?-Part 1
“Riddle me this, in a world of pixelated avatars and promises of digital ownership built on 1s and 0s, does the token represent the image or does the image represent the token?”
It’s the year of our Lord 2022, and everyone is talking about NFTs. With billions of dollars coming into the industry, the euphoria surrounding these tokens, which are supposed to serve as proof of ownership of digital assets, has reached a fever pitch. Do they deliver on their promises of digital ownership and scarcity though?
We all know what NFTs are, Right?
In the most basic sense, an NFT(Non-fungible Token) is a digital stamp of ownership for an item. A stamp of officiality and uniqueness in the digital realm. At the very least, That’s what it’s meant to be, but let’s take a closer look under the hood.
A Non-fungible token is a blockchain-based ledger that is immutable and transparent. This technology attempts to document genuine digital ownership and history as an item travels through the digital environment. Let’s have a look at some of the critical elements:
- “Non-fungible” simply means that it is unique and cannot be replaced with anything else. For example, a $100 bill is fungible, which means you may swap it for another and get exactly the same thing. A one-of-a-kind trade card, on the other hand, cannot be exchanged for another, making it non-fungible.
- “Tokens” are bits of data and code that are used to represent something. They exist on the blockchain.
- “Attempts” — Herein lies the problem: there is a significant gap between what NFT promises and what is currently being implemented. There is a gap between how we presume it works and how it actually works.
NFTs Don’t Work the Way You Might Think They Do!
NFTs are used in a variety of ways, but the basic format remains the same. An NFT typically includes the information required to identify the item being owned, as well as some text indicating that the blockchain account holding the NFT is the owner of that item. To gain a better understanding of NFT technology, let’s look at how it’s employed in digital art.
An NFT can be linked to another digital asset like digital artworks by cryptographically associating the token with it. The main problem with this model is the shaky connection between such NFT and the digital asset to which it refers. NFTs are frequently referred to as “connecting” or “representing” an artwork. However, those descriptions are misleading.
To begin, the term “nonfungible token” refers to the token itself — that is, the block of code that makes up the NFT — rather than the artwork with which an NFT is linked. The nft, you see, is merely a chain of data and code that’s intended to monitor ownership of the token that’s tied to the digital art; it’s not the digital art itself.
But the digital artwork resides in the blockchain right?
Not quite. As you can see, blockchains are great for maintaining secure ledgers that track transactions, but they do a terrible job of storing or distributing digital assets. This means that these digital media assets will have to be hosted elsewhere. The Blockchain does not include any picture data; instead, it contains only the token that represents the digital file(or does the image represent the token?🙃). the artwork is usually stored in a location on the Interplanetary File System (IPFS).
So what exactly are you buying?
You are acquiring the token itself, not the visual image to which the token is attached. The transfer of any rights or duties pertaining to the asset does not occur automatically as a result of the cryptographic link between the token and the asset; this occurs as a result of the buyer and seller’s contract, which would be enforceable via traditional methods.
“At this juncture, I have to ask again, does the token represent the image or does the image represent the token?”
Now that we’ve looked under the hood, let’s see how the promise of digital ownership and scarcity is playing out.
The Current Climate
Because NFTs are fundamentally unique and exist on a trustless blockchain, there is a common misconception among enthusiasts and investors that purchasing an NFT entitles you to own the asset to which it is linked rather than just the token. But we now know that it’s not true. It’s just like buying a book and expecting to receive the book’s copyright. Some of the confusion may have stemmed from the amount of money spent on the tokens. When pixelated graphics trades for more over one million dollars, it’s easy to assume that the buyer got more than just a piece of code.
NFTs also utilize “smart contracts” programs to encode the conditions of a buyer-seller contract. The core terms of sale, such as who gets paid what, are defined by the smart contract for a single NFT. However, this does not imply that the token can enforce all selling conditions. If the seller wants to impose copyrights, usage rights on the digital asset itself, or other related rights, such as the transfer of ownership of a digital asset, he must meet with the buyer to discuss the terms and utilize traditional enforcement mechanisms (eg, demand letters, litigation).
There is also the risk of copyright complications. Is it possible for someone to create an NFT using a digital asset that does not belong to them (yes), and if so, is this copyright infringement?
Because the blockchain cannot verify ownership of an asset when it is minted into an NFT, third-party platforms must now solve the problem by confirming that the person minting the NFT has the rights to the digital work they are minting. This places the ability to determine “actual” ownership in the hands of the marketplaces rather than the NFT itself, giving the purportedly decentralized ecosystem an aura of centralization. Numerous examples of stolen digital art have already been recorded on several blockchains. According to an assessment conducted by Open Sea, over 80% of the NFTs listed on the marketplace were pirated art, bogus collections, or spam.
Even if done without authorization, it’s difficult to see how minting an NFT could be considered copyright infringement. How? NFTs are exempt from copyright laws because they can be made from any digital artwork and do not require duplication, distribution, or exhibition. The finished file cannot be regarded a reproduction or even an adaptation of the digital asset because the NFT is merely a string of numbers formed in association with it. In fact, most NFTs sold in 2021 lacked copyright or intellectual property protection. This raises the question of whether NFTs are effective in distinguishing the genuine digital asset copy. They may wind up adding a lot of false and perhaps confusing ownership information.
In the best-case scenario, NFTs can only ever be used to prove ownership of themselves. Third-party systems must still validate the external data — artwork, digital items, and so on — to which NFTs refer.
Artists, collectors and marketplaces alike will have to take extra steps to make sure that they’re meeting the right people in the right places. We can now see that enforcing digital ownership is more of a social issue than a technical one which leads me to my next point.
Any digital creation has the ability to be copied exactly, indefinitely, and virtually for free.
A third party can copy a digital object linked to an NFT if they have access to it (which is quite possible given that the item is hosted on IPFS, which anybody can access at any time. It is, after all, a public and decentralized service).
In effect, by right-clicking and saving digital assets represented by NFTs, anyone can “own” a piece of art, and it won’t be prohibited (Possession is nine-tenths of the law). Indeed, simply viewing an NFT in your browser caches it locally, meaning that a copy is created and saved on your hard drive. How can someone claim ownership of something that can be replicated eternally and perfectly?
So if NFTs don’t resolve the question of ownership or creating scarcity of the digital asset it’s linked to, what the hell are they good for?
The truth is that NFTs have failed to deliver on their promise in their current form. There are numerous flaws in the eco system’s foundation. I believe that the present implementation was unable to innovate around existing mental and social conceptions of ownership, and instead began making lofty promises predicated on moonshot thinking and el dorado fantasies.
However, I believe that NFTs can deliver on their promises of ownership and digital scarcity, but not in the way that we expect. This is because, in the future, we’ll have to consider whether ownership can be attained without scarcity.
Is it feasible to own an item in a world where scarcity of the item is unattainable?
I’ll leave you to ponder on that question while I go prepare my argument for or against it🙃.
Stay tuned for Part 2…
