Jorge Stolfi
2021-03-19
Basically, a Non-Fungible Token (NFT) is a bit string that includes the hash of a digital file -- text, image, video, song, anything -- and is inserted in a cryptocurrency's blockchain as an appendix to a transaction of that currency.
The bit string thus becomes assigned to a blockchain address X. This assignment can be verified by anyone (just as anyone can verify whether an address has some coins assigned to it); and the bit string can be transferred to any other address Y by anyone who knows the private key of address X (just as he could transfer coins from X to Y). In particular, the transfer may be in exchange for money or something else; that is, the NFT can be traded (just like cryptocoins).
The "non-fungible" in the name means that, unlike the coins of a cryptocurrency, no NFT is equivalent to any other. Thus each NFT is a market by itself, and, when traded for money, its price is independent of that of any other NFT.
NFTs have been traded for high prices, sometimes thousands of dollars. But those prices can only be achieved by misleading the buyer over the real meaning and consequences of "owning" an NFT. Which makes them a scam.
In 1979 a guy had the idea of selling the stars on the sky. The company he created (International Star Registry) is still around.
You gave him a few dollars, your name, and an arbitrary name for the star; he would pick a yet-unnamed star on an astronomical photo, and enter its coordinates with that info in his company's ledger, thus making you the owner of that star.
Needless to say, his clients did not really "own" those stars, and that name was not "official" in any sense. The star names that astronomers use are assigned the International Astronomical Union (IAU) according to its own scheme, with no regard whatsoever for that guy's ledger; and even those names are just widely respected recommendations, with no legal force.
NFTs are just like that, with some differences:
Since he was an identified individual and there was a ToS, that purchase did have some legal rights -- over that ledger entry. For example, you could sue him if he sold the same star to someone else, or erased your entry. Or if he failed to create the entry after taking your money. And you could prove all those facts in a court of law.
No one ever complained of his ledger being "insecure". Quite the opposite. His ledger was very secure. No one could steal your star just by hacking his ledger, or by adroitly manipulating a $5 wrench on your person. You could not lose your star by losing a password. Any mistake, hacking, or accidental change to the ledger would be promptly corrected.
Stars made cool presents. "I bought a star and named it after you" surely is more endearing than "I bought a entry on the ETC blockchain, signed by the Boggws app, that contains a hash of a digital image of Mona Lisa onto which I scribbled your name with the mouse."
Everybody (well, most everybody [1]) understood that the Registry provided only "pretend ownership", no legal right of possession of the star. And,
The price that the company charged (well under 100 USD) was commensurate with the previous item.
I can't recall any "advanced financial engineering" built on that star catalog. Maybe people were smarter back then, I don't know. It was a couple of decades before the Beanie Baby craze...
As is the case with cryptocurrencies, there are no laws, precedents, contracts, or ToS that give the "owner" of an NFT any legal rights over the data file whose hash included in it. In particular, anyone who can get hold of your private key can transfer your NFT permanently and irreversibly to an address that he controls; and there is no Consumer Service or Trade Comission that you can complain about it.
In fact, you could not even prove in court that you ever owned the coin, or that it was taken from you. How do you prove that you don't know the private key of the new address? How do you prove that you knew the key of the old address before the NFT was moved from it?
More importantly, the NFT does not give you any legal "property" right over the the underlying digital file. The "ownership" is bogus even in the weak sense that people can "own" cryptocoins.
One may "own" a physical artistic object, but there is no such thing as "ownership" or "property" its "artistic contents". The Mona Lisa is the property of the Louvre, but the image that is painted on it is in the public domain. Like that image, the file whose hash is included in an NFT can be copied, used, and enjoyed zillions of times by anyone, without paying a penny to the NFT owner or asking for his permission.
There is "copyright", which is a very different concept: the right to demand payment from everyone who "performs" or "reproduces" that contents in a commercial setting, etc.. For a limited period of time. But copyright is established according to its own laws, and can be transferred through normal contracts, without regard to the NFTs. Buying an NFT does NOT give you any copyright on the associated file.
Moreover, the copyright of a work applies to all variants of that work as well; and what constitutes a "variant" can only be defined by human evaluation in courts. Whereas an NFT contains the hash of only one definite pattern of bits. Change one bit of a pixel in the corner of an image, or in its metadata, and that gives a completely different hash; which can be packaged in another NFT, and sold independently of the first.
.Owning an NFT will give you no advantage in the use of the associated digital file. Anyone in the world can still copy, store, use, or enjoy that file just as well as you do.
One of the misconceptions that the NFT trade relies upon is the illusion that the NFT somehow establishes the underlying digital file as the "original" and distinguishes it from "copies".
However, the concepts of "original art" and "ownership" do not make sense for a purely digital artifact -- a pattern of bits. Every copy of a digital file is not just "similar to" or "indistinguishable from" the original it is the same as the original.
In fact, the word "original" makes no sense for a digital file. Even the text file that the author saved to disk himself is a copy of the bits that were in memory. Those bits were copied a few times on their way to the dist, and will have to be copied again for any use -- such as creating an NFT. Thus verifying that the hash is included in an NFT does not "verify the originality" of an instance of the file, in any meaningful sense.
The fundamental bogosity of the NFT concept may perhaps be grasped by pondering on these questions:
I make an NFT of an image of the Mona Lisa. Does that make me the owner of the Mona Lisa?
I take an image and change one bit one pixel in the corner. or in the EXIF metadata. I make two NFTs from those two files. Which one is "the original"?
I take the image from someone else's NFT, and do as above. Which one is "the original"?
I take one image and create two NFTs from it without changing a single bit; but one on the BTC blockchain, one on the ETH blockchan. Which one is "the original"? >>
I take one image and create two NFTs from it, without changing a single bit; both on the BTC blockchain; but one using the NFT4Morons app, the other with the NFT4Suckers app. Which one is "the original"?
An NFT is ONLY that entry in the ledger. If I were so stupid as to pay $10'000 for that NFT, I would get the right to find some other sucker who will buy that NFT from me. And that is it.
Whereas, if you paid $10'000 for an NFT, you have NO property rights to anything. Only, when you scans a certain blockchain with a specific app, it will say "the image with this hash is currently assigned to this address". So what?
What difference does it make if someone creates an NFT from an image of the Mona Lisa?
Digital artifacts, eg images and videos, CAN provide clear value to the viewer. But he does not have to "own" them to enjoy that value.
Unlike an original physical object, millions can enjoy the SAME image, and get the same value, at the same time.
Collectables are physical artifacts. If I hold Marilyn Monroe's toothbrush, no one else in the world can hold it. That pile of atoms is valuable because they are the same atoms once held by Marilyn. >
People could make other piles of atoms that look superficially like that one, but they would be worthless because they would not be THE aroms once held by Marilyn.
So physical collectibles make sense (given human psychology) and are valuable to the extent that other people find the history of those atoms interesting.
It is perplexing to see that so many people fait to see the difference between a PHYSICAL OBJECT and a digital file. It would seem that they have been online for so long that they forgot that the world is made of atoms, not of patterns of light on a screen...
I am saying that "original art" is only the physical artifact that the artist put together -- the atoms of paint that he arranged on the canvas, the atoms of ink that he put down in the manuscript.Whereas a purely digital artifact -- a pattern of bits, like a JPEG image or an MP3 song file -- cannot be a collectible, because it can be duplicated EXACTLY trillions of times, and every copy is THE SAME as the original.
Not just "similar" or even "identical", but THE SAME THING.
In fact, even the "original" will inevitably have been copied many times from disk to memory to internet packets etc.
People have alleged that NFTs can be created by a company to serve as tokens for its services. For example, a videogame company could sell virtual game items, such as weapons or magic potions, in the form of NFTs. But companies have been issuing service tokens for ages, and there seem to be no advantages in using NFTs for that purpose -- only disadvantages.
The value of those "service" NFTs is not the digital file whose hash they contain; the value comes from the obligation that the company assumed, when it issued the tokens, to provide a certain service to whoever owns them. That is a centralized business, and the value is recorded in the company's ledger and software.
Sure, anyone may choose to grant specific rights to the holders of an NFT that was inserted in a specific blockchain by a specific app. But that is up to those guys. There are no legal rights.
Most crypto beleivers mistake "possession" with "ownership".
An NFT is basically a single-coin crypto without any pretense of real utility. NFTs became a thing only because there are a couple million suckers out there who have been brainwashed by coin gurus into believing that an entry in a clunky ledger, with no backing or legal standing, can be worth big $$$.
[1] Actually they once got in legal trouble because their marketing implied that their ledger was authoritative. They had to change it and make it clear that it was not.
Last edited on 2021-04-10 15:19:32 by jstolfi