Kugler on NFTs and Digital Art

Non-fungible tokens (NFTs) are far and away the flavor of the year in Nakamoto’s happy kingdom.  I think that there is tremendous synergy, because the psychology of collectibles and collecting meshes so well with the psychology of Nakamoto land. In NFT land, anything is possible and wealth falls from the sky without effort (or even a plausible plan).

Like many successful inventions, NFTs take an existing technology and invert one of its features. The key feature of Bitcoin and other Nakamotoan cryptocurrencies is that they are like “coins”—every Bitcoin is interchangeable with any other Bitcoin.  They are fungible (substitutable).

NFTs are, in contrast, each unique and, importantly, only one person (entity?) can “own” a given token at one time. They are essentially signed certificates of authenticity.

This technology has been mashed up with “collecting”, to digitize the business of dealing in collectables, especially “collectable” digital objects. 

Being digital means the certificates can tie into other digital technology including executable contracts (for buying and selling NFTs, but also for royalty schemes), as well as linking to other code to create complicated multimedia objects (e.g., Berkeley’s patent disclosures).

Cool!  Interesting twists on old business models, plus some people making zillions!  No wonder this is hot stuff this year.

This summer Logan Kugle discusses the impact of this technology on “art”, i.e., art markets [1].  The big news, he says, is that this technology makes it possible to prove ownership of a specific digital object, e.g., a bit of digital art.  You may be able to endlessly copy the bits, but you can’t forge the NFT that proves who owns it.

This technolgy is changing how artists are paid, especially for digital art.  One interesting thing that NFTs can do is implement royalty schemes.  E.g., the original creator might automatically receive a cut of each subsequent sale of his or her work.  Even better, blockchain apps are low overhead and potentially available to every creator. You don’t have to work through galleries or get “representation” to sell your art. You just need a computer and the Internet.

Kugle notes that these digital certificates also make buying and trading easier.  It is relatively easy to reliably validate ownership without special access or technology.  Buyers don’t need to go to galleries in order to authenticate the art. And, of course, digital trading can be low overhead and borderless.

So this is all good.

What can possibly go wrong?

First of all, NFTs may make is possible to buy and sell art, but they don’t make art, good art, or even salable art.  Creators still have to create stuff that people want.  Which is still hard, no matter how you actually sell it.

Second, the value of “art”, digital or not, NFT or other, is subjective.  Worse, markets are competitive.  On the Internet, there is one giant, planetary scale art sale.  Your stuff has to compete for attention and buyers with all the artists in the world.  That’s hard, and NFTs have leveled the playing field and made things even harder in this way. The Internet is one giant sidewalk sale–huge, chaotic, and crowded.

Third, NFT markets generally operate via Nakamotoan cryptocurrencies.  Royalties likely are paid in Ethereum or some other cryptocoin.  Kugler comments that, to date, these tokens aren’t terribly useful without converting to real world assets and/or conventional currency.  It isn’t always easy to convert, and the exchange rates have been insanely volatile. 

At the moment, NFTs are a notable, and I’d say “unexpected”, success story for blockchain technology.  They have created a big “bump” in the digital art market.  And, Kugler says, this has in turn created a bump in the use of blockchains.

And if this is one of the few truly successful use cases for Nakamotoan blockchains I know of; I have to say that neither Satoshi Nakamoto or Vitalik Buterin anticipated it.  This is not what Bitcoin or Ethereum or anything was created to do.

Which makes the NFT art scene even more interesting, no?

---

1. Logan Kugler, Non-fungible tokens and the future of art. Communications of the ACM, 64 (9):19–20,  2021. https://doi.org/10.1145/3474355

Cryptocurrency Thursday