NFTs are blamed for everything from tacky art to economic inequality and environmental destruction. But, the arguments by critics dont add up, writes Something Interestings Knifefight.
For every minute you are angry, you lose sixty seconds of happiness.
Ralph Waldo Emerson
Toward the end of January, one of my favorite content producers on the internet Dan Olson (aka Folding Ideas) published a video titled Line Goes Up The Problem with NFTs outlining his complaints about nonfungible tokens, or NFTs. At the time of writing,Line Goes Up has accumulated over six million views almost twice as many views as his next most successful video. Thats an impressive reach for a 2.5 hour documentary with very little marketing behind it.
In the film, Olson lays out the following argument:
To be honest, the movie bums me out. It is not because Olson doesnt like NFTs it is perfectly reasonable not to like NFTs. It bums me out because one of my favorite things about the Folding Ideas canon was how much sympathy he brought to previous subjects. Consider how hard Olson worked to humanize flat earthers or 50 Shades of Gray. In contrast, Olson describes NFTs as incomprehensibly tasteless and cryptocurrency enthusiasts as terrible people with poor judgment and low social literacy. He calls Ethereum founder Vitalik Buterin a butthurt warlock. He summarizes the entire space as Amway but with ugly ass ape cartoons.
In short, NFTs make Olson angry. He is not alone.
super normal discourse pic.twitter.com/ejLsaOmGMH
— (@SHL0MS) January 28, 2022
To be clear, I agree with a lot of Olsons criticisms of the space. It attracts gamblers, fraudsters and fools. Motivated reasoning and dishonest marketing are everywhere. I have written extensively about what I think are the fatal flaws of Ethereum,I am very skeptical of DAOs and I dont think the current generation of P2E games is compelling.
Olson describes a lot of examples of shitty behavior and, for the most part, they are accurate descriptions there are certainly plenty of similar examples that he could have used to make the same points. The history of crypto is littered with failed projects and overt scams.
The problem is not that Olson is wrong about the examples he identifies, the problem is that he is wrong about the conclusion he draws. Some people misunderstand cryptocurrency, but that doesnt make cryptocurrency useless. Some people make bad art with NFTs, but that doesnt make NFTs bad art. Explaining the value of NFTs by finding the worst possible examples of how they are used is like explaining the value of the internet by making a list of the worst possible websites.
Olson sampled the NFT projects he describes by accepting random spam discord invites roughly like evaluating average website quality by clicking on every spam email link. Its a foolish way to measure average quality and average quality is a foolish thing to measure in the first place. The quality of the average website doesnt really mean anything and doesnt matter anyway what matters is the quality of the websites you choose to interact with. The same is true of NFTs.
A common complaint about NFTs is that they are ugly. In Line Goes Up, Olson describes them as fugly, garish and incredibly cringeworthy. But, to anyone who understands NFTs, it is immediately obvious that the criticism makes no sense. Not just because art is subjective and no one has the authority to dismiss a genre of art as unworthy, but because NFTs are not a genre of art at all. NFTs dont look like anything. They can be associated with literally any visuals or with no visuals at all. NFTs arent a style of art, they are a tool that artists can use.
There are NFTs for portrait photography, generative art, songs, virtual real estate, poems, memes, mood stones, video game items, financial contracts and athletic accomplishments. There is even an NFT that represents a work of 1010×1010 transparent pixels arranged recursively. Anyone who tells you that NFTs are ugly is telling you more about the limits of their imagination than about the limits of NFTs. It is like someone who has only ever watched Marvel films confidently asserting that movies are inherently unrealistic.
Olson opens Line Goes Up with a description of the 2008 mortgage crisis and how Bitcoin emerged from it. His criticisms of Bitcoin are weak but are mostly not relevant to the argument he is making about NFTs if you are curious to explore the case for Bitcoin in greater detail, I recommend Letter to a Bitcoin Skeptic. It is interesting, though, to examine the broad strokes of the argument he makes because it is symbolic of how he misunderstands NFTs. According to Olson, Bitcoin does not solve anything. As he puts it:
Crypto does nothing to address 99% of the problems with the banking industry, because those are problems of human behavior. They are incentives, they are social structures, they are modalities. The problem is what people are doing to others not that the building they are doing it in has the word bank on the outside.
It is true that Bitcoin does not eliminate banks or the excesses of capitalism but, in fairness, I am not aware of any technology that does that. The idea that Bitcoin was meant to eliminate banks is a weirdly ahistorical strawman argument. Satoshi himself talked about how banks would use Bitcoin. The purpose of Bitcoin was never to fix every problem in the economy it was to make it impossible to debase wealth or censor transactions. Reasonable people can disagree about whether those problems are worth solving, but Bitcoin does solve them.
Bitcoin may seem useless to Olson, but it is useful to Alexei Navalny and the political opposition to Putin. It is useful to citizens of countries with struggling local currencies like Nigeria, Venezuela and Turkey and to ordinary people trying to flee Ukraine and Russia. It is useful to feminist protestors in Africa who were debanked by their governments and to women in Afghanistan who are not allowed bank accounts at all. Olson calls Bitcoin the hobbyhorse of a few hundred thousand gambling addicts, perhaps because he does not know that Coinbase alone has millions of active users worldwide.
You dont have to believe that Bitcoin is good to believe some people find it useful. But, anyone claiming that Bitcoin is useless is ignoring the many ways it is already being used. Line Goes Up keeps returning to variations on this flawed approach: Olson lays out a problem he says NFTs were meant to solve, shows how that problem isnt solved and then concludes that NFTs are therefore useless without examining why people are actually using them.
Olson argues that NFTs are pointless because they do not work as advertised. The images they reference can be lost or replaced. The same image can be minted into more than one token or into tokens on more than one chain. NFTs dont prove that the token creator was the artist and they dont stop anyone else from having access to the image even without the token. Olson (correctly) points out that NFTs are not useful for proving authenticity and then (incorrectly) concludes that they arent useful at all.
NFTs cannot prove the authenticity of art because authenticity is a subjective assessment by the audience, not a quality of the art itself. Different people can disagree about which version of a work of art is the most authentic or how much authenticity should matter. There is no technology that can prove authenticity because authenticity is not a technical property. That was never the point of NFTs.
What NFTs can prove is who made the token, who has held it and who owns it now. Olson explains that isnt the same as authenticity but that doesnt make it worthless. Documenting provenance for fine art is an expensive and valuable service despite its limitations.NFTs can provide the same service with much stronger guarantees.
When viewed through that lens, it becomes clear as to why the critiques above are not interesting. Some NFTs have malleable images, some have permanent images and some have no images at all. Whether there are images and whether they can change is not a property of NFTs is the result of choices made by the artists. Concluding that NFTs are useless because the artist might surprise you with their choices is like concluding that paintings are useless because Banksy shredded one at an auction once.
Of course, the argument that NFTs are pointless and bad art would be incomplete by itself because there is lots of pointless and bad art in the world there is nothing wrong with that. Two-thirds of Etsy would qualify as pointless and bad but no one would make (or watch) a two-hour-long documentary about it. Arguing that NFTs are not good is not enough. Olsons real argument is that NFTs are bad. He argues that NFTs are bad for three reasons:
Lets consider them one at a time.
The environmental impact of cryptocurrencies, in general, is a large and complicated topic that we dont have space to do justice to here. If you are interested, Ive written in greater detail about the energy impact of Bitcoin mining and why we dont need to be alarmed by it. But, for the sake of argument, lets suppose that proof-of-work mining was bad for the environment. What would that mean for NFTs?
How much energy miners spend to validate the network is a function of how much money they make mining the better miners are paid, the more willing they are to mine. Anything that increases miner revenue will increase the network’s energy footprint, and anything that decreases miner revenue will reduce that energy footprint. To reduce the environmental footprint of proof-of-work mining, make mining less profitable.
When users trade NFTs back and forth they pay transaction fees to miners, which somewhat increases the revenue for mining. But, those fees are in proportion to how often/urgently NFTs move, not to how valuable they are. For example, the most expensive NFT collection at the moment, Bored Ape Yacht Club, has generated around200 transactions a day since its launch. For context, Ethereum processes around 1.2 million transactions per day.
On the other hand, NFTs are priced in ETH so anyone buying an NFT is selling ETH. When a lot of NFTs go up in price that means a lot of people are selling ETH, and a lot of people selling ETH pushes the pricedown. Miners are paid in ETH, so anything that puts pressure on the price of ETH is putting pressure on their revenue. In other words, every time an NFT project goes up in price it is actually bad news for Ethereum miners. Want to discourage people from mining Ethereum? Buy some monkey JPEGs.
Of course, the real story is more complex. NFTs get a lot of mainstream attention, which attracts more users to Ethereum. Different NFT projects will have different prices and create different transaction volumes. Even the same project may look different over time as it evolves. Anyone who tells you a simple story about an economic system is oversimplifying. But, NFTs are only one part of a large and complicated ecosystem, and it is far from clear whether they make mining more profitable or less overall.
Over the course of Line Goes Up, Olson swings back and forth between contempt for the people who own NFTs and a paternalistic fear of being taken advantage of by scams and fraud. He cant seem to decide whether hed rather blame the technology or the user base. Personally, I think we should blame the scammers. Frauds and scams predate NFTs and would be here in a world where NFTs never existed.
Overpromising naive investors and pocketing their money is nothing new and didnt particularly transform when scammers started adopting NFTs. Fyre Festival didnt need NFTs and neither did WeWork. The (still) unlaunched MMORPG Star Citizen raised more than $400 million since its initial Kickstarter in 2012 before NFTs even existed. There are definitely scammers using NFTs to execute old playbooks in a new market, but NFTs arent really enabling anything new or different about the scams. NFTs are just a trend scammers are attaching themselves to.
Part of the fear here seems to stem from a technical misunderstanding where Olson claims that NFTs can contain hostile code that will live in your wallet forever like a landmine that is fundamentally not the case at all. NFTs dont contain code and they dont exist anywhere. When someone sends you an NFT, what actually happens is that a record is sent to the blockchain that causes the smart contract for that NFT to give your address new permissions.
Nothing is put anywhere and the NFT itself is just a record written into the blockchain, not a payload of potentially dangerous code. The goal of scammers who send unsolicited NFTs is not to inject code, it is to convince victims to go to an attackers website and sign a malicious transaction. An NFT like this is like a spam email that lures victims to a phishing site its not the attack itself. Its just the bait.
Olson (correctly) observes that bad people are using NFTs and then presents that as evidence that NFTs must be bad but, that is the wrong conclusion. Bad people use lots of tools that good people use, too. Drug dealers use dollars, terrorists have cell phones and Hitler wore pants. When bad people use a technology, all that tells you is that the technology must be useful.
The last major argument that Olson makes against NFTs in Line Goes Up is the idea that NFTs are actually bad for artists. Thats a commonly held belief, but it is also an extraordinary one given that the third-highest paid living artist of all time (Beeple with $69 million) made his money almost exclusively from selling NFTs.
Olsons argument is that the Beeple sale shouldnt count because a buyer of Beeple,MetaKovan,is also the creator of a fractionalized Beeple token called B20. Thats a funny argument for a couple of reasons. First, regardless of how sincere you think the valuation was, Beeple received $69 million of actual money. This sale was undeniably good for the artist.
Second, if you look at the relative valuation of B20 and Beeples $69 million-worth Everdays NFT, there is absolutely no way that MetaKovan turned a profit by flipping B20 tokens. There was just never enough volume to make that profitable. So, it is reasonable to think MetaKovan might have been biased, but it was ultimately MetaKovan who paid for the bid.
Finally, another bidder was ready to pay that price:Justin Sun of the Tron network posted a video of him trying to outbid the winner but hitting a website error. So, even if you ignore MetaKovan entirely, there was still a buyer ready to pay $69 million to Beeple for the Everydays NFT. $69 million may be a surprising price, but it was real.
Olson uses the example of the Beeple/MetaKovan sale to build toward a broader claim that most sales in the NFT space are wash trades, where the seller buys from themselves to fake interest or price in their art. To someone unfamiliar with NFT markets, that might seem like a legitimate concern, but it is pretty naive to anyone who knows the space. A little more investigation into the mechanics of the proposed trades would have made that obvious.
OpenSea charges a 2.5% fee per transaction plus miner fees, so wash trading is quite expensive. NFTs are also subject to capital gains taxes, so anyone creating fake profit for themselves is also creating very real tax obligations. Its also largely pointless it is much easier and cheaper to fake Discord and Twitter activity for a new project that hasnt launched yet than market volume for a project that has. There is a lot of shadiness in NFT markets, but there isnt that much wash trading.
That means most of that money is really going to the project creators, which is why so many artists like Beeple have found NFTs to be a lucrative new opportunity. Olson asserts without evidence that most artists have lost money in NFTs, but it is hard to see how. Minting NFTs has always been cheap to do and, more recently, has become possible to do for free. Not everyone finds the NFT market is lucrative for them, but making NFTs that never end up selling is not expensive. If an artist is losing money in NFTs, its as a buyer not as a seller.
So, artists who sell their own work are benefiting from NFTs but what about the artists who havent or dont want to create NFTs? Art theft has been so rampant in NFT markets that DeviantArt had to launch a dedicated tool for detecting stolen art and issuing takedown notices. Doesnt that mean that NFTs are being used to exploit artists?
Art theft is reprehensible but blaming NFTs for stolen art is like blaming RedBubble piracy on the existence of t-shirts. The problem is the theft of art, not the medium stolen art is sold on. NFTs dont make art any easier to steal and they dont make stolen art more valuable. In fact, NFTs are actually less useful to thieves: It is impossible to distinguish between a print sold by the artist and one sold by a pirate, but it is possible to know conclusively who created which NFT. Anyone who cares about whether they are buying the authentic version will buy the original and anyone who doesnt can mint their own version for free. The art thief doesnt have anything useful to sell.
Stolen NFTs make very little sense. They are like buying a certificate of authenticity from someone who has no authority to issue them, like John Cleeses NFT of the Brooklyn Bridge except less funny:
Hello! It is time you meet my alter ego “Unnamed Artist” I’m delighted to offer you the opportunity of a lifetime. I’m selling my 1st NFT. Though bidding starts at 100.00, you can BUY IT NOW for 69,346,250.50! https://t.co/Vuyx4trvPE pic.twitter.com/aC4oSVfGHF
— John Cleese (@JohnCleese) March 19, 2021
More sophisticated scammers dont focus on selling stolen art so much as using stolen art to sell a broader scam, like pretending it is concept art from an upcoming video game. But, just like more primitive RedBubble pirates, the problem is the art theft and fraud not the specific thing fraudsters trick their marks into overvaluing. NFTs arent critical to the scam at all, they are just a way of getting the attention of a group of wealthy potential targets.
To be clear, I am not arguing that everyone should understand or value nonfungible tokens. It is entirely reasonable to not care about them and not understand why other people do either. But, I dont think anyone should be upset about NFTs and I think Line Goes Up is a particularly good example of how that misunderstanding happens.
Throughout the movie, Olson blames NFTs for everything from tacky art to economic inequality. The result isnt a coherent argument against NFTs so much as a long list of things Olson dislikes about the world and personally associates with NFTs. Guilt by association has led him to the wrong conclusions. NFTs dont cause scams, theft or ecological disaster. They are good for artists and often genuinely loved by collectors. Theyre not bad art because they are not a type of art at all. They are a tool artists can use.
NFTs are not the final boss of late-stage capitalism. Theyre just a file type. If youve never been angry about JPEGs, then you dont need to be angry about JPEGs people can own.
2021, Crodl - Discord Trading Community - Not Financial Advisors