The collective tech press has been workshopping a way to describe this field to the uninitiated for a few years now. The best we've all come up with is something like:
NFTs, or 'non-fungible tokens', are a way of applying the same principle behind cryptocurrencies like bitcoin to digital assets which are intended to be one-of-a-kind – or at least, not substitutable for each other.
When you get cash, be it a pound coin or a bitcoin, it doesn't matter which specific coin you get. That's the definition of "fungibility". But most things aren't like that: if you buy an artwork, it matters a lot which artwork you get. And so NFTs are, well, any tradable cryptocurrency-like digital asset which incorporates that "non-fungible" nature into the system.
That, though, isn't really the sort of explanation most people want, and so a better one – better, at least in terms of providing something clear enough that people will nod their head, say "ah, I see", and then feel free to use their mental capacity for more important things – is "NFTs are bitcoin but for art".
The field isn't new; in principle, it's as old as the rush of people pivoting to talk about "the blockchain" shortly after the first big bitcoin crash in 2013, and in practice, it's been around since at least 2017, when Cryptokitties and Cryptopunks were both launched.
Those NFTs, both of which are still going strong today, are closer to "trading cards" than a full blown digital art market. The kitties and punks themselves are algorithmically generated, with various measures of rarity defined by the protocol itself. Cryptokitties self-describes as a "game", and while I sort of understand the desire to collect the kitties, I absolutely do not understand the desire to pay more than pennies for them.
But recently, the interest in the field has also expanded to protocols, including Zora and SuperRare, which aim to provide a more general service for creating and trading any digital asset imaginable. These are, for the most part, what people have been discussing in the last week or so: services which let you take, well, anything digital – a song file, image, poem – "mint" it as a new token, and then sell and trade it using, generally, the Ethereum blockchain.
(If you're not up to speed with the wider cryptocurrency world, it's easiest just to think of Ethereum as version two of bitcoin. It's basically the same in the important plumbing, but easier for developers to tweak to build novel applications on top of.)
Before we really dive deep into this, it's worth addressing the elephant in the room: the present interest in this field is because of a dumb speculative bubble that is flowing over from the dumb speculative bubble in cryptocurrencies in general. I really don't mean to prejudge my conclusion, here, but the cryptocurrency sector has exploded in value for basically the same reason Gamestop did – which is to say, a few people have sincere beliefs that they're good and valuable, and a lot more people have money kicking around and a desire to get rich. NFTs might be the future of, well, something, but they're certainly not being discussed today because we only realised their potential in the last week.
That's not the only way that the conversation maps over from the wider cryptocurrency discussion, though. There's another important similarity, which is that NFTs are built on top of an edifice which is explicitly created to use as much electricity as possible, and be resistant by design to efforts to reduce its power load.
I wrote about Bitcoin's carbon footprint a few weeks ago, and much of what I said there applies to NFTs too: some of the electricity used to power the Ethereum blockchain is renewable, by no means all of it is, even renewable electricity can still be used unsustainably, and no matter what you think the potential of the sector, it is inarguable that the current energy drain is out of whack with the current economic benefits. We're talking "burn a lifetime's worth of electricity to sell a digital edition of 1000 artworks".
For me, and many artists who would otherwise be interested in the sector, that's enough to render it undesirable from the off. And this is, to a certain extent, unfixable: proof-of-work requires energy costs to provide security for the network; proof-of-stake, an experimental replacement, has never seen widespread use in a major protocol.
But what confuses me about the current rush for NFTs is that, even if you ignore that huge rot at the heart of the sector, I'm incredibly unclear what the benefits actually… are.
Cryptocurrencies, at their root – below the speculation, the get-rich-quick-schemes, and so on – have a genuine pitch: a decentralised currency is protected from censorship, both governmental and otherwise. Personally, I think "government-free digital money" isn't an obviously good thing, because I enjoy the ability of governments to levy taxes to pay for things, to block obvious financial crime, and to run central banks which can use monetary policy to keep the economy on an even keel. But I accept that there is debate there, and I understand why people who think otherwise enjoy the fact that bitcoin chips away at those foundations.
But the thing about NFTs is that the market they're trying to disrupt is already decentralised – and that the benefits of NFTs effectively relies on the existence of a powerful centralised state.
In the UK, as with much of the world, there is no central copyright registry. I own an artwork when I create it. Even in the US, as I understand it, the copyright registry is semi-optional; failure to register a creative work doesn't mean it's not covered by copyright, although it does affect term limits and obviously makes proving ownership more of a faff.
But, ultimately, if I create a work of digital art, I own it. If I sell that work of digital art, I create a bilateral contract with the new owner, and then they own it. This already existed before NFTs.
Now, if I sell that work of digital art as an NFT, the buyer certainly has a record of ownership which is much harder to dispute than a contract. But it is by no means impossible to dispute, because the act of minting an NFT in the first place is disputable. (If I download a JPG of some one else's digital art, mint my own NFT from it, and then sell it, there's a legitimate dispute there as to who owns what.)
These disputes pervade the entire system. It's fine to sell an NFT and tell the buyer "you can do what you want with it, you own it". But if the buyer discovers someone else is selling t-shirts with their fancy artwork on it, there's no computational dispute resolution possible. You just have to… go to court. Just like you would if you'd bought the digital artwork by signing an old fashioned contract.
NFT protocols only really provide their advantage within a completely closed system, where the desire isn't to "own the art", but to own the NFT of the art. Because the only thing holding the NFT proves, in itself, is that you hold the NFT; for everything else, be that proof of authenticity, enforcement of copyrights, or simply a guarantee that the artist won't just mint a second version of the token they told you was one-of-a-kind, you're relying on the same social structures that traditional copyright and contracts rely on.
That's why the most successful protocols to date have all been of the trading card variety: because trading cards, like NFTs, take their value from being part of a rigidly prescribed system, but unlike most digital art, the bilateral, contractual, decentralised way of trading physical cards doesn't map onto the digital world. There, there really is a double-spend problem that is fixable with cryptocurrencies. (The alternative, just as with digital money, is centralised digital trading cards, and they're a multimillion industry in their own right.)
In a way, this is like debating how many angels can dance on the head of a pin after acknowledging that God doesn't exist. The usefulness of NFTs is such an incredibly unimportant question compared to the sustainability of the sector that it feels silly to discuss the two in the same breath. But while it's bad enough to burn the world in order to destroy state power, I at least understand that there are people who have considered that trade-off and still want to do it.
For NFTs, the deal is you burn the world in order to sign your copyright license with a private key rather than a signature. I'm not sure anyone who takes that deal has really thought about it.