Debunking NFT myths

Non Fungible Tokens (NFTs), cryptographic tokens which are unique and not mutually interchangeable, are being hyped right now on social media and in traditional media. I have read many dumb takes promoting crypto since 2009, but the NFT ones are the dumbest. And no, this is not because NFTs “consume a rain forest each time you mint one”. This argument is twice irrelevant as public blockchains consume the exactly right amount of energy for the security and economic benefits they provide, and NFTs would still be overhyped even if they needed zero energy to produce.

Let me state that it’s perfectly OK for creators to sell their work on their website, or on a third party platform. It’s also OK for fans to spend their money the way they want. My only issue with NFTs is that they are based on a lie. If NFT promoters weren’t lying about their product, I wouldn’t care.

NFTs aren’t really scarce

Not only the digital creation that NFTs represent can be copied at will (an exact copy bit for bit), but NFTs themselves are not intrinsically scarce:

  • You only have the word of the creator and issuer that only 1 or 100 tokens will be produced. They could mint some more if they wanted, no “blockchain” can prevent this.
  • NFTs are bound to one smart contract on one platform. Similar contracts could be deployed on the same or other systems.
  • Public blockchains are regularly forked, meaning that the tokens will inevitably be duplicated.

NFTs aren’t transparent

I looked at the below original creation by Grimes, that I downloaded with a right-click and “save as”:

It was sold on this website, where you can find the token ID, and the alleged history of transactions. The website says it was bought for $7,500, then re-sold one time. I challenge you to find the corresponding transactions in the Ethereum blockchain. They should represent an amount of 4 to 5 ETH depending on the price at that time. This is the corresponding token to start your quest. Good luck!

NFTs aren’t linked with the original creation in a verifiable way

An NFT is actually a serial number generated by a software. The same software records that “this token ID” belongs to “this address”. In most cases it is impossible to verify that the token ID is actually linked with the digital creation (JPG, MP4…), because the token doesn’t embed a hash of the digital creation, nor does the digital creation embed a digital signature or watermark that could be verified. At best, NFTs include a link to the original creation, but links are worth nothing as they can be broken (including IPFS addresses). I say at best because in the Grimes example above, the token points to a JSON file on the Nifty website [facepalm emoji]. This means that NFTs are some kind of “digital certificates” or “digital receipts” that can only be attested by the third party issuer. As an illustration, see how this artist was able to change his creations entirely with no impact on the corresponding tokens.

If NFTs were digitally signed by the creator, they would be the digital equivalent of autographs. At least one platform aims to provide autographed digital content (tweets), even though it’s not clear what the digital signature is exactly and how to verify it independently before buying the NFT. It seems that the “signature” is the assurance that to sell a tweet you must use your twitter credentials to connect to the cent/valuables website, meaning that the owner of the twitter account actually launched the selling process. It looks weak to me, as I expected an actual digital signature to be embedded in the token that could be verified using a public key. If this weak link is confirmed, the cent/valuables token would be closer to an “unwashed worn sweatshirt” meaning that they is some kind of personal “link” between the creator and the token (but it’s not a digital signature).

NFTs don’t protect intellectual property

I am not a lawyer, so I let you check this thread by Nelson Rosario. That piece by Andrés Guadamuz makes great sense as well, except the embedded tweet at the end of the article.

NFTs aren’t decentralized, they’d work the same with an SQL database on a website

Theoretically, individuals could mint tokens themselves, and use “sufficiently” decentralized auction and discovery services through trusted open source clients. This is not the current situation however in the case of Nifty and other platforms:

  • The minting process (“primary market”) is entirely managed by a third party. That third party acts as an agent, taking a cut in the process. That third party could be faking it, make mistakes, or be hacked. This denies the benefits of using a public blockchain in the first place.
  • The reselling process (“secondary market”) is also managed by the same third party. In effect, you can’t do peer-to-peer trading of unique objects. You need a centralized platform where the discovery process takes place between buyers and sellers. They have to register on the third party website to make buying and selling offers and communicate together.
  • The public blockchain is merely used as a recording system. Those serial numbers, transactions and users could be recorded more efficiently in an SQL database. You can be sure that the websites of the NFT issuers store their data in an SQL format anyway, so why duplicating the data and the effort?

Finally, NFT platforms have forms that allow people to report a piece of content and have it taken down. If an NFT sale can be taken down, how is it different from a sale on a regular website?

Bottom line

When people buy an NFT, they buy exactly that… a token. At best this token represents a digital receipt, digital autograph or digital unwashed worn sweatshirt. Currently, most of NFTs are simply “blank digital claims” that have no legal value and no verifiable link with the actual creation but the word of the third party issuer. The use of public blockchains doesn’t bring anything more than a regular database coupled with a PKI, accessible through APIs. If the content is not cryptographically signed by the creator, then it should be sold on the creators’ websites. They can organize auctions, set up a secondary market, and offer actual exclusiveness. Typically, a photographer shows low quality pictures or watermarked pictures on his website, and provides the clean high resolution pictures only when the buyer paid for them.

NFTs aren’t trustless. It comes down to the fact that nothing that isn’t native to a public blockchain can be managed in a trustless manner. As soon as you re-introduce agents (creator, issuer, market place) and external assets somewhere in the process, then you fall back to traditional trust mechanisms. Again, it’s perfectly OK for creators to sell their creations on a third party website, and it’s people’s right to buy artefacts for emotional reasons. Just don’t be fooled by the “revolution” narrative spread by unscrupulous NFT promoters that are in it for the money, or don’t have the technology background to understand the difference between a real blockchain and a fake “blockchain-based” service.

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