What’s an NFT, you ask? Oh sweet summer child. Join me for a stroll through the garden of crypto idiocy while I try to explain this new and exciting form of money laundering.
What is an NFT?
An NFT, short for Non-Fungible Token, refers to a unique cryptographic token with its ownership and provenance verified by a blockchain. This makes them loosely equivalent to cryptocurrencies like Bitcoin and Ethereum. Indeed, many (most?) NFTs are managed by the Ethereum blockchain. However, there is a key difference between an NFT and a Bitcoin, and it’s right there in the name: they’re non-fungible. One NFT does not equal one NFT. It’s tied to a specific digital file. Files like this $3,600 Gucci ghost:
One obvious problem with NFTs, which I just illustrated, is that the file in question is… a digital file. I can copy it. I just did. Christie’s just auctioned off a .jpg for $69,000,000. Here it is (warning: very large file). Now you too can own a copy. I just saved you millions of dollars–you’re welcome.
Wait, then what are people buying?
A certificate of ownership. In other words, nothing that couldn’t be a row on a spreadsheet. While blockchains have some advantages for storing certain kinds of data, those don’t really apply here. A blockchain is intended to facilitate agreements between people who cannot trust each other. They do this by incentivizing users to verify each other’s transactions. The incentive? If you pick the right random number while you’re doing this, you get a tranche of the currency. Or, to put it flippantly,
imagine if keeping your car idling 24/7 produced solved Sudokus you could trade for heroin
— urbit expert (@Theophite) August 16, 2018
As the tweet alludes to, these computations are very resource intensive. It’s perhaps less bad than it once was, as more and more “miners” move to renewable energy sources, but it’s still pretty wasteful. NFTs piggyback on this system, but not for any good reason, informationally speaking. A password-protected spreadsheet that Christie’s owns would be just as trustworthy. But that wouldn’t be very cool, now would it?
Wait, this is only a thing because they’re cool?
Welcome to the world of cryptocurrency. Cryptocurrencies are cool, they’re hip, they’re allegedly untraceable (they’re not). And, just like their physical counterparts, crypto-backed art pieces are fantastic for money laundering. I don’t have a link for that, since the exposés are presumably still being written, but it’s not very hard to write one in your head for now. In the modern world, art is good for many things, including washing your dirty cash. This is known.
Where the hell did these things come from??
CryptoKitties. You read that right. In 2017, a Canadian studio introduced a new kind of virtual pet that was stored on a blockchain. Much like their contemporary descendants, CryptoKitties soon went full tulip, and the rest is history.
What’s next for NFTs?
I don’t know, but there’s one thing you can take to the bank: it will be even stupider. Some have joked that cryptocurrencies are a solution to the Fermi paradox; that they are a great filter that prevents intelligent life from becoming spaceborn; that life invents cryptocurrency and then destroys its planet “mining” the stuff.
May this remain in the land of jokes!
Open thread, I suppose.