Why You Shouldn't Buy NFTs
I wanted to try making an in-depth video on a vaguely current topic as part of the whole A Year Of Bad Art Thing. This was the result.
Links/Sources mentioned:
Ethereum site: https://ethereum.org/en/nft/
Memo Akten (environmental cost): https://memoakten.medium.com/the-unreasonable-ecological-cost-of-cryptoart-2221d3eb2053
Broader issues with Crypto, and why they may not be solved soon: https://everestpipkin.medium.com/but-the-environmental-issues-with-cryptoart-1128ef72e6a3
Joanie Lemercier (environmental cost): https://joanielemercier.com/the-problem-of-cryptoart/
Other estimates for environmental costs: https://venturebeat.com/2018/02/25/the-real-cost-of-mining-ethereum/
Seth Godin on the risks: https://seths.blog/2021/03/nfts-are-a-dangerous-trap/
Alternative view: http://sterlingcrispin.blogspot.com/2021/02/crypto-art-sky-is-not-falling.html?m=1
Time article: https://time.com/5947911/nft-environmental-toll/
Wired article: https://www.wired.com/story/nfts-hot-effect-earth-climate/
Not an exhaustive list by any means, so I encourage you to read up on it if you’re interested.
Transcript:
If you’ve been on the internet at all in the last few weeks you’ve probably heard of this thing called an NFT.
You may have heard the story about the founder of Twitter Jack Dorsey selling an NFT of his first tweet for $2.9million. Or the artist Mike Winkelmann selling an NFT for $69 million, what? What is happening here? What’s going on?
The hype tells us that NFTs are a way for artists to make money. That they’re like collectibles but, digital. That they’re a way for digital artists to create scarcity with their work that up until this point could be so easily copied online.
And they, have something to do with Cryptocurrency? Or Ethereum?
In this video, I’m going to explain what an NFT is, the promise that they offer and ultimately why I think you shouldn’t buy them.
What is an NFT?
NFT stands for Non Fungible Token. Fungible basically means mutually interchangeable.
Take standard money, one pound is replaceable by another identical pound coin. They’re worth the same amount. They can be described as fungible.
NFTs are, by definition, the opposite of that.
An NFT is basically a unique digital token - a long string of numbers - which is stored on a blockchain network, such as Ethereum (though other crypto networks support NFT transactions as well). We’ll get back to what this means in a moment.
Ok so it’s this little digital code thing, right, great, why are people making them? Who cares?
Because you can generate an NFT out of basically anything digital:
Images, music samples, gifs, video clips. Right now most of them have been made out of digital art.
Once you generate the NFT, you can sell it - and thus we have a new marketplace
So you might be thinking oh cool right I get it, it’s like selling a painting or a song, once you buy the NFT for that art you can see it right? You own the song, or gif, or whatever
Uh…. no.
You don’t need to own the NFT to see the image or listen to the music, or anything.
Obviously, I can show Jack Dorsey’s first tweet here, I do not own it. And I can also show Beeple’s picture that he sold for $69 million. I can copy these as much as I want and do whatever I want to them.
NFTs are basically a receipt, or like a trading card. You don’t own the thing, you own like a unique token, of the thing.
When you buy an NFT you’re paying for…. Bragging rights, essentially
The Promise of NFTS
You might be thinking OK… wait what? Why would I pay for something that has essentially no use? Why is there so much hype about this?
And for this you need to remember that humans, are irrational, sentimental creatures.
NFTs have a lot of uses outside of art, but lets focus on that for now.
Why do people pay through the teeth for Pokémon cards or old video games or vinyl records?
Because of the collectible value. Because of sentiment, nostalgia, love of the thing, reputation.
It’s why a Da Vinci is priceless, it’s why old furniture can be more expensive than modern more functional stuff. You can buy a poster of the Mona Lisa for next to nothing, but it’s worth less because it’s not the original.
The promise of NFTs is that with this technology artists finally have a way of monetising their art on the internet in a way that hasn’t been done before.
They can create a unique entity of their art, to be bought and sold.
You can’t really sell a jpeg, as soon as I show you the image you have a copy of it on your computer, artists have tried to get around this with watermarks and so on, but it never works so well.
NFTs offer to finally give power back in the hand of the artist. You can auction off these tokens and make a lot of money (is the promise).
Back to the blockchain bit - Because NFTs exist on a blockchain network, there are a lot of immediate advantages to how they’re bought and sold. It’s extremely secure - because of the distributed ledger involved in blockchain networks, it’s public knowledge when someone buys or sells an NFT - meaning it’s basically impossible to fabricate ownership or to steal an NFT. Plus, you can buy and sell these without any middle man or system, - blockchain networks are peer-to-peer - there’s no one single point of failure in the system, it’s always up and running.
And, depending on how you generate the NFT, the person who made the NFT can actually receive a cut of the transaction price every time an NFT is bought and resold.
So if you’re an artist, you can generate a bunch of NFTs, sell them for like $100 each. But in 10 years you’re super successful, and they sell for millions - in any other market you wouldn’t see any of that money, but for an NFT, you actually benefit from your increased fame and notoriety, not just art dealers. And you’re beholden to exactly no one while doing this.
And if you’re a buyer, well, it’s secure, an NFT is never going to decay or break, or get mouldy like a painting, it could be extremely secure investment.
This potentially might be a glorious new era for digital artists and buyers alike.
Potentially.
Why you Shouldn’t Buy NFTs
1. It’s not the thing
Look, NFTs are just digital codes. They aren’t the thing itself.
I know money only has value because we all believe in it - and this market might be entirely driven by belief.
But please recognise that owning an NFT is purely a status purchase. It changes nothing about what you can experience or consume. It’s a fiction, a fabrication. You have no rights to anything but your code. You don’t own the digital art’s rights, you don’t own the song, you own a code. A string of numbers.
Dude you can make those for FREE
But the real reason I think these may not work out in the long term is actually linked to irrationality -there is no easy way to show off that you own an NFT.
You can show off art you’ve bought in your house.
You can display or play vinyl no one else has.
But NFTs…. Just a code?
2. There is actually infinite supply
When you create an NFT, you can do a limited release - again, like cards, and say make 50 of a gif you’ve made.
There is nothing to stop you from making an NFT of the same asset later.
The NFTs will be different, in that they’ll all be different codes, and different releases, but you can always just make more!
And not just you, anyone can make NFTs. This isn’t like a baseball card or painting where it takes effort and process to create this stuff - you could make one in the next 10 minutes if you wanted to.
All this to say - there is currently a massive oversupply of NFTs. They’re all unique yes, but that doesn’t make them valuable.
Garyvee says 97% of NFTs won’t pan out as a good investment. I think it’s likely to be closer to 99.99%.
If you’re thinking of buying an NFT, please please please recognise the vast supply of these - most won’t be worth anything in the near future.
And even if you do buy an NFT right now of a piece of art that you love and is still relevant down the line, there is currently Nothing stopping the creator from making more NFTs OF THE SAME PIECE OF ART later. They won’t be the same, but lets face it, it’ll decrease the value of the one you have.
3. This is not a market of passion
I’m sure some people are buying NFTs now because they’re into new tech things and want to have bragging rights to support their favourite artists, and/or are collectors of art and are branching out into this new market.
But please recognise that right now there’s a huge bubble whereby people are buying all these NFTs not to support the artists, not for passion, but in the hopes that they can make more money down the line.
This is a market driven by greed, not love for art.
And this is astonishingly easy to prove. One of the main appeals of NFTs is allegedly to support the artists - which yes, it creates a space to do that, and the way they can get a slice of every trade transaction is phenomenal. But if people really wanted to support these artists, they could just give them money, rather than buy some digital code.
Now you might respond with come on Jack this is harmless, it’s easier to feel good about buying a thing than just donating, you said yourself humans are irrational, what’s the problem with buying an NFT as a means of supporting an artist?
Because there’s a cost.
4. The Environmental Cost
What you’re seeing here is a crypto farm.
These exist everywhere, in peoples’ houses, bedrooms, server rooms and more. They are computers who are processing information for blockchain networks such as Ethereum, to facilitate the transaction of NFTs and make some cryptocurrency in the process.
Cryptocurrency is generated because machines globally are solving problems, and are rewarded when they solve them. They are doing this by essentially guessing random numbers. These machines all running globally are what keep blockchain networks, like Ethereum, decentralised. They are what make NFT transactions work.
And they guzzle electricity.
There have been a bunch of articles examining the environmental cost of NFTs and blockchain networks generally and it’s staggeringly bad
Here’s a few examples:
Computational artist Memo Akten has calculated that the average Ethereum transaction has a carbon footprint of about 20kg CO2 equivalent.
It gets worse. A single cryptoart NFT ("non-fungible token" - which cryptoart folks have declared to represent the ownership of a digital artwork) involves potentially dozens of transactions. Akten analysed 18,000 of these tokens, finding that the average NFT has a footprint of around 211 kg of CO2 equivalent. That's the same as an EU resident's electric power consumption for more than a month, driving for 1000km, or a return flight from London to Rome. And that's just for keeping track of who owns it - it doesn't include the energy consumption used in the creation of the work, its storage, or the website it's hosted on.
The artist Joanie Lemercier, who has been making a point of making their work and living more sustainable, did an NFT release and found out that the 6 CryptoArt works released consumed in 10 seconds more electricity than the entire studio over the past 2 years.
2 YEARS WORTH OF ELECTRICITY IN 10 SECONDS, and some people are doing this on a whim!
Crypto as a whole is incredibly costly too, A recent study from the University of New Mexico estimated that in 2018, each $1 of Bitcoin value created was responsible for $0.49 in health and climate damages in the US and $0.37 in China.
Cryptos have only grown since then, NFTs use the same principles.
There’s a website called https://carbon.fyi/ which allows you to estimate the carbon impact of a single Ethereum address - playing around with this is harrowing.
This cost cannot be overstated. But it’s not even the final point I have to make and I could be here all day, and it’s been written about a bunch so I’ve linked a bunch more resources down below which are worth checking out.
So NFTs are just codes, not the art itself, there’s in theory an infinite supply, the market is driven by greed not passion, and they are helping burn the planet down. Wait, who is benefiting from this?
5. Who is actually making money?
Last point here. I think it’s always interesting to ask, who is hyping up a market?
Is it your digital artist who has finally made some money from this, or could it be, I don’t know, millionaires, business people etc, who stand to make a bunch of money from it?
Who are the winners here?
And lets not forget that the physical art market has also been used for decades as a way of money laundering.
Why would a bunch of extremely rich people be interested in a marketplace that is entirely unregulated yet exceptionally secure that could act as a perfect system for money laundering in a way that the old art market never could.
It’s a question worth thinking about.
In summary
Right now, if you’re thinking of buying an NFT, you’re either doing it to make money by selling it down the line or support an artist.
If you want to make money, please realise that NFTs are an exceptionally risky investment. That yes you’ll hear about the big wins of millions of dollars that have been made, but the vast majority of lottery players are losers.
If you’re doing it to support the artist, that’s awesome, but there are other ways of doing it - you could just give them the money, or support their patreon or buy a print or whatever.
The only certainty right now is the environmental impact of this marketplace.
If you want to sell NFTs to make money, look, everyone has to make a living, and in terms of the money involved, the cost of making an NFT is relatively small compared with the huge upside. But please recognise that if you don’t already have a big audience or reach, it’s going to be luck if you do manage to sell this.
Final thoughts
I think, despite what I’ve said here, NFTs are here to stay - at least in some capacity.
There are talks of ways of solving the environmental cost of cryptocurrency, the Eth2 network promises to be 99.98% more environmentally friendly.
And there are a lot of other uses of NFTs besides buying and selling art, they could really change a lot of ways contracts are set up in a variety of businesses.
They could be a really useful, valuable eco-friendly technology in the future.
But right now, as I’m filming this on Sunday, March 28 2021, buying an NFT is not a good idea for the average person. They are being hyped by millionaires and billionaires who are going to make money out of it, and you are the one paying the cost.