What are NFTs Anyway?

As the art world is eaten alive by digital tokens, who are the winners and losers in this Brave New Non-Fungible World? How should we navigate the present deluge of hype, spectacle, and orgiastic overconsumption? Aside from the uncertainty of the future, how do we reconcile the unpleasant histories and inconvenient truths glossed over in the midst of a digital gold rush? Then as now: Value, uniqueness, and authenticity matter, both for material and immaterial forms of art. Beyond technical roadblocks and conceptual learning curves, questions around power, control and fairness that dog the old world still linger. Speculative fervor unveils clear tensions between the manifestation of value for communal and individual endeavors.

The old art world is dying, and the new art world struggles to be born: now is the time of monsters (NFTs). (Le Jargonneur Cryptographique, 2022)

What are NFTs anyway?

Let’s start from the beginning. NFT is the ungraceful acronym for the even less elegant Non-Fungible Token. Fungibility largely boils down to interchangeability: That all the instances of an object — whether material, digital, or arising from some other metaphysics — are alike enough to be considered equivalent. Etymologically, the word derives from the Latin fungī, meaning “to perform,” and sharing an origin with “function.” A good example of a fungible object is money. The banknotes in your pocket are fungible if we ignore their serial numbers and other anti-counterfeiting features, which give them traceability by marking each with dedicated insignia.

More than two millennia ago, Aristotle determined five qualities for good money, with fungibility among them. Many early coins — from Ancient Greece and Rome to Medieval Northern Europe — were crudely forged and owing to the variability in their appearance would not be considered strictly fungible. Fungibility is not necessarily a binary phenomenon, but better thought of as a spectrum. Non-fungibility is a byword for uniqueness, and NFTs are a way to digitally instantiate such uniqueness. Bitcoin gave us digitally scarce objects with a high degree of fungibility, and more recently the art world (alongside everyone else) has been using NFTs as a way to create digitally scarce objects with a high degree of uniqueness.  

What about the tokens? Nothing new here either. Tokens have served as a means of record-keeping since time immemorial, and a way to settle debts and scores. Thousands of years ago, ancient Mesopotamians used reeds to inscribe Cuneiform glyphs on wet clay tablets. These pictographs recounted legends, whilst also serving to resolve mundane accounting disputes. The token medium has of course changed over time — from Sumerian clay to blockchain-based cryptography — but the end remains the same. 

NFTs today are unique, cryptographic units for record-keeping and accounting for virtual and/or material objects. An NFT can be thought of as a claim on ownership of an asset or access to a service, but what does this entail in practice? Does the owner of an NFT own the artwork it represents or merely a certificate of authenticity? The answer is: It depends on the situation. Access to a service might be rescinded or discontinued at any time. 

NFTs seem to resemble signatures. But what if an artist disowns a prior authentication, or indeed their autograph? You might have heard about the case of the “NFT Rug Pull,” where a pseudonymous artist by the name “neitherconfirm” altered the artwork associated with their NFTs from processed photographs of crypto-celebrities to a series of oriental carpets.

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Ownership (or otherwise) in the digital economy

Examples of work that probes this gray zone between possession, access and authenticity are most familiar from conceptual art. Sol LeWitt signed the algorithmic instructions to his “Wall Drawings” (1971) rather than the pieces themselves. In the process, he implied that the value of the work lay in its concept and preparation rather than the execution of the art object. Artists as diverse as Duchamp, Warhol, and the Wu-Tang Clan have also experimented with scarcity, certification, and reproduction. In 2015, the Wu-Tang Clan auctioned off a single-edition CD copy of “Once Upon A Time In Shaolin” (2015). It was bought by an American entrepreneur — subsequently convicted of securities fraud — and promptly sold on by the US Department of Justice to PleasrDAO for $4 million. 

...there is nothing new under the Sun (Ecclesiastes 1:9)

Token projects have sought to create scarcity and non-fungibility since long before the current craze. Indeed, one can trace a lineage of non-fungible art on the blockchain back to 2012 when hacky techniques like coloring coins sought to simulate uniqueness for a subset of Bitcoin tokens. Later, in 2014, a meta-protocol named Counterparty was launched on Bitcoin which allowed for facile tokenisation — typically for fungible pseudo-currencies. A collectible card game named Spells of Genesis (2015), following soon after, was notable for two reasons. Not only was the game playable “on-chain” — impractical today on Bitcoin and Ethereum owing to their eye-watering transaction fees — but the project relied on blockchain-based crowdfunding. 
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Other notable projects on Bitcoin and Counterparty include “Rare Pepes” (2016) as well as the agriculturally-themed Bitcorn Crops. Bitcorn is possibly the closest thing to a non-commercial collecting community yet seen in the crypto art space, motivated far more by memes and sh*tposting than any collective delusion that “we’re all going to make it.”

And then there’s Ethereum: At first slowly, and then all at once. Some of the Counterparty projects, like “Rare Pepes,” issued equivalent assets on Ethereum in 2017, alongside such projects as “Curio Cards” (2017). It was only shortly afterwards that the now-infamous Initial Coin Offering (ICO) catalyzed a wave of market mania with NFT collectibles like “CryptoPunks” (2017) and “CryptoKitties” (2017) riding the tide alongside a stream of copycat projects. The rest, as they say, is history.

Why now?

Given NFTs’ extensive prehistory, what has precipitated the mania of the past 18 months? Anti-COVID lockdowns arrived, and with them event shutterings and travel restrictions that both arrested the gears of the art world and many creators’ income streams. Countless numbers of artists, curators, collectors, and supporting professionals in the art ecosystem spent eternities in viral time stuck in silico. NFTs were a way for many in the creative sphere to readjust to their new financial reality by treading the boards of the metaverse. Most crypto-veterans didn’t see the craze coming, nor did they keep hold of the tokens they had created, consequently losing out on royalties from the secondary market. 

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Cui bono?

NFTs can be issued on a peer-to-peer network such as Ethereum fairly readily in the present day, with (pseudo-) standards for tokenization alongside tutorials, code templates, and platforms that guide creators through the process. But just because we can mint NFTs, does it mean we should? Whose opinions can we “trust” to have our best interests at heart? Should we move fast and break things when the “things” at stake are the careers of precarious workers? 

Rarity only works if it is enforced: Can cryptography compensate for the failures of the gallery system? Will the new token economy live up to its promise to liberate creators through crypto?  The blockchain affords new forms and configurations of creator economy: Complex revenue splits; access controls for digital communities and ephemeral happenings; digital fashion; persistent avatars and para-real identities; democratized access to venture funding without traditional gatekeeping; and lower operating costs — all without permission from a central authority with borderless, peer-to-peer technology. Sounds like a dream, no? 

No. Far from a rock-solid platform that will last a thousand years, the six-and-a-half-year-old Ethereum of today is still very much an experiment. Its native programming language, Solidity, now a de facto standard, is resolutely unfit for purpose. Re-entrancy attacks regularly exploit vulnerabilities that have been known about for years. Upgrading infrastructure that cannot be switched off is hard. The current network architecture is slated for a complete overhaul in the not-too-distant future. How this affects the NFT ecosystem remains to be seen, but many economic, technical, and social challenges remain.

In recent months, some distributed collectives have coalesced — often in the form of DAOs — in order to purchase NFTs and issue fractionalized claims on ownership to their members. This has both legal and economic implications. By fractionalizing an NFT, it effectively becomes more fungible and therefore begins to resemble more closely a security. Fractionalized NFTs don’t necessarily correspond to the securities of yore like corporate stocks, but rather a new mutant brood of regulatorily noncompliant species. We might do better to call them insecurities. 

Economic problems center on the organizational logics of DAOs and blockchains themselves. With the ledger publicly verifiable, knowledge of the latest state of the system is available to all, whether friend or foe. That’s how the ConstitutionDAO narrowly failed in its quest to acquire an original copy of the US Constitution, while SpiceDAO engineered a secondary pool of funds to circumvent this drawback. 

Numerous epistemic paradoxes and sleights of hand are presently being propagated, with many art world tropes — “collector,” “owner,” “supporter,” “edition,” “authenticity,” “exclusivity” — now drained of meaning. Within the interplay of artwork, collector, curator, and creator there has been a seismic but silent shift in the semantics of ownership, function and transaction. 

In today’s NFT culture, the cryptographically concretized, reified object is the only thing of any worth in the eyes of the market. By implication, anything outside of the token — including the “thing” itself — is ignored, externalized, or negated. The labor of the artist, the conceptual work, the technical work, the creative work — the “doing” — has been largely removed from the bargain. Patronage remains, but in a distributed, disconnected form far removed from the creative and productive efforts that drive the process. Have NFTs pornified abstract, creative labor? Only time will tell. 

Clarity begins at home

Finally, we must address the ecological ramifications of NFTs. There has been a slew of naive, uninformed, or just plain wrong takes on NFTs and energy costs recently. The most important thing to consider regards the marginal costs of tokenization. Proof-of-work networks such as Bitcoin and Ethereum require a lot of energy just to keep the lights on, even if the blocks are empty and no tokens are being minted. The differential in energy expenditure between tokenizing and not tokenizing is in fact a very small proportion of a network’s overall energy requirements. This is in spite of the fact that tokenization on Ethereum is at an all-time high in terms of volume and therefore effective energy spend.

For acclaim and relevance in today’s ekozeitgeist, artists (along with everyone else) are expected to care about the environment. Greenwashing one’s credentials is the new donor plaque in the named wing of the gallery. This same notion of energy marginality renders clear the on-the-ground impact that individual environmental actions can truly make. One big-name star swearing off air travel or minting carbon-offset NFTs isn’t going to reform today’s pervasive strain of extractive capitalism that does not value its surroundings. This is not to say that I am in favour of blockchain mining. Indeed, I call Bitcoin “The Indifference Engine” principally to foreground the inability of proof-of-work networks to sense with care their external environment as they seek to maintain the sanctity of their ledgers. 

What of the alternative technologies to proof-of-work? As usual with blockchain networks, everything has a price but sometimes the costs are denominated in a currency not immediately apparent. The leading contender to replace proof-of-work is referred to as proof-of-stake, but its lack of energy expenditure is both a boon and a headache. Without a costly resource being consumed (“nothing at stake”) it isn’t difficult for would-be attackers to create their own “malicious timelines,” ready to feed the virgin nodes joining a network. This usually requires mitigations such as economic penalties (slashing) for engaging in behavior deemed undesirable by the protocol designers, or the imposition of trusted sources of truth such as checkpoints or oracles, all at the expense of the property of blockchains that was initially prized above all: No gods, no rulers, only rules.

Conclusion: On token destinies

As wanderers above a sea of cryptographic fog, perhaps we can peer-to-peer over the horizon and catch a glimpse of the possible futures ahead of us. In our haste to vacate the wreckage of the old, we appear to have made it anew. There is a persistent failure of imagination in both blockchain and digital art milieus as to the networks, systems and architectures that spring forth into the world. As a result, the zero-slum technolibertarian imaginary of Bitcoin — an Austrian economics of scarcity and informal polities of concealed insiders — casts its puritanical shadow over everything that has so far come in its wake. That such a regressive movement is heralded as a savior for the worker is indicative of today’s dehumanization of digital labor.

The gentrification of cyberspace continues apace, not least because blockspace will always be limited and precious. Those who can pay more get what they want when they want it. Here in cryptoland the public good is built inside cryptographic enclosures. The twin terrors of spiralling technical complexity and unfixable UX nightmares continue to plague every project that dares to touch a blockchain. In such sophisticated systems, insiders will inevitably take advantage of those less familiar with the inner workings. Hype is real, but sometimes reality cannot deliver on the scale and scope of what is promised. Market cycles end abruptly like so many after-parties: Confusion, haze, exhaustion, and disappointment. A couple of questions to ask yourself in the midst of a gold rush: Who is selling the picks and shovels? And how did they get there?

On a more positive note: There is limitless potential for research into, and experimentation with the novel possibilities, aesthetics, imaginaries, ecological intertwinings, and economic modes of crypto art. In NFT projects such as Sarah Friend’s “Lifeforms” (2021) and terra0’s Two Degrees (2021) aspects of nature are incorporated into token logics to imbue contingency and ephemerality into their cryptographic progeny. Cullen Miller’s Claves Angelicae (2018), Nascent’s Timezone#4 (2021), and Harm van den Dorpel’s “Mutant Garden” (2018-present) produce NFTs which incorporate network parameters such as block hashes and mining rhythms to create endless novelty. Guile Twardowski, Simon Denny, and Cosmographia’s Dotcom Seance (2021) lays bare the reanimated corpus of Web1 with inventive use of the recently niftified Ethereum Name Service. Finally, Bitcorn Crops (2018-ongoing) reminds us that digital art can be fun, community-minded, and about more than just getting rich.