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The fascinating bubble of NFTs

By @Wicho – April 6, 2021

I’ve been following the NFT thing with curiosity for some time. But since the auction for the equivalent of about 65 million euros Everyday: The first 5,000 days of Beeple I follow rather with a mixture of fascination and terror. A bit like when you see that an accident is going to happen but you can’t stop looking. And I think someone is going to end up hurting themselves. Although at the same time I believe that well-used NFTs have enormous potential for people who create works of any kind to make money from it. Of course, as I always say, when Apple brought out the original iPod, I believed that they had been wrong from beginning to end and were going to end the company. So don’t pay too much attention to me. Or if. Buyer beware and such. Even if I don’t want to sell you anything.

Let’s start at the beginning: what is an NFT? It comes from the acronym in English for non-fungible token. That to understand us is like a kind of digital certificate of originality it can associate to any digital item. It doesn’t have to be an image, which is what you see the most lately. It can be a video, music, a text … in general, anything that is in digital format; it can even be a photo or scan of a work that has been created in Real World ™. This based on blockchain technology, usually in that of Ethereum, although there are other more minority options. But unlike cryptocurrencies, each NFT is unique, hence it can serve as proof of authenticity. It is as if in Real World ™ you have a Banksy that, in addition to being signed by him, is accompanied by a Pest Control certificate that authenticates it. An NFT also has the advantage of allowing you to track your transaction history associated as these are automatically saved.

I think it is very important to be very clear that NFTs, due to technical limitations, cannot normally contain the digital works they certify. So what they do is a ñapa: they contain a link to a copy of that work which is on some server accessible through the Internet. It is told by Anil Dash, one of the creators of the NFTs in NFTs Weren’t Supposed to End Like This.

NFTs that disappear

The NFTs point to a copy that is available on the Internet … or should be. Because … what happens if that server goes down? Or if the company from which you bought the NFT disappears and with it its entire online presence? Although for this we tend to use the IFS (Interplanetary File System), which is supposed to work even if there is no specific server, as in P2P networks. There is also a certain mess of formats when it comes to storing and representing the NFTs that can cause them not to be seen in depending on which electronic wallet.

And it can also happen that the copy of the work that the NFT points to is deleted because whoever uploaded it I did not have the rights; it is something that is already happening. Although it is a bit of the silly genre to sell an NFT over which you have no rights because being based on blockchain pulling back all associated transactions can be followed. Of course, it is of little consolation for those who have bought it, who will necessarily have an easy time getting their money back, be it virtual or “real”.

In What do I get when I buy an NFT? there is a very detailed explanation of the intellectual property aspects that surround all this.

«Originals» in a perfectly copyable world

Having said all this, my first problem with the NFTs, or at least with the prices that some of them are reaching associated with certain works, is if it gives me something as an admirer of someone’s work to have a copy of one of their works associated with one of them. And more when, by definition, works in digital support are infinitely copyable without loss of quality. Moreover, who assures me that millions and millions of NFTs will not be produced with the same work that I have paid for if the purchase contract does not specifically say so? After all, they are much easier to produce than a limited edition of prints, for example. Except the ecological cost to produce them, of course. More on this below.

And as much as they can assure me that no more NFT is going to be done based on a certain work, it is impossible to know if someone has done one. screenshot –Or the file displayed online was downloaded– while it was for sale or auction. That just doesn’t have the same resolution as the original but it doesn’t matter that much either. Or not at all. In the case of Beeple’s work, for example, the “original” NFTeado is a 21,069 × 21,069 pixel jpeg. But it’s easy to find copies out there. In fact, on the Christie’s website itself, which was where it was auctioned, there is a copy at just over 6,000 × 6,000 pixels that is more than enough to see on the vast majority of digital devices. Anyway, for 65 million euros that, in any case, I do not have, I am very clear that there is no NFT that is worth it.

NFT image of a Kevin Rose column - New York Times
An NFT of this image from a Kevin Rose column in the New York Times sold for $ 560,000

However, I think at reasonable prices could be a way of show my appreciation and support to those people who create works that I like. They can also be a relatively simple way for these people to charge for their creations that are sold, for example, within a game –skins, accessories, etc–, or even that they are exhibited in a digital museum. Another thing will be to convince someone to enter that museum when the safest thing is that they can find copies of that work in a thousand other places without having to pay for them. Although I have always been to pay; I believe that creators have every right to try to make a living from their work. But it is also true that there are ways of charging that do not have the ecological cost of NFTs: a credit card, PayPal, Patreon, etc., to name a few examples.

Furthermore, NFTs may have clauses associated with them that ensure that in a first sale they charge everything – or everything except the corresponding commissions the person who created it – and that in successive sales they charge a certain percentage of each of these transactions.

NFT de Overly Attached Girlfriend
An Overly Attached Girlfriend NFT sold for almost $ 420,000

Other risks

Another thing is the volatility associated with the value of cryptocurrencies and that the people who have created the original work see how much of what they have earned disappears. Or not, but it is still an added risk if they do not soon convert that crypto money into “real” money or goods. It is not that it is Monopoly money, as I have seen affirmed in some places, because, at least today, they change it without much problem. But it is an added risk.

The NFTs, as I said before, are also associated with a not inconsiderable ecological cost related to the huge consumption of electricity and resources necessary to generate the NFTs themselves and to later manage their purchase and sale, either directly or through auction, as well as possible subsequent auctions.

Anyway, I’m sure that a thousand things and nuances escape me, but it seems to me that the bubble that is forming around the NFTs has to explode sooner rather than later. In the style of the tulip in the Netherlands in the seventeenth century, as Alvy anticipated a few days ago. And that only those who have speculated at the beginning – I doubt that what is happening can be described differently – will be the only people to benefit. ¿One red pixel for $ 900,000? ¡Amos, you!

I leave you with a few links on the subject that I have been compiling in addition to those that I have already used in the text:

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