Can someone please explain NFTs to me?
July 29, 2021 5:17 AM Subscribe
Can someone explain NFTs to me? What they are, how they work, and how to make my own.
Previously. Lots of good refs showing how NFT is a really bad idea in terms of wasted energy/carbon footprint.
posted by SaltySalticid at 5:56 AM on July 29, 2021 [11 favorites]
posted by SaltySalticid at 5:56 AM on July 29, 2021 [11 favorites]
They were hot last month. I've heard nothing about them this month.
Its a way to say that someone owns something via one of the digital curry block chains. Content does not come along with it, usually a url. I read an article about how early nfts (as in earlier this year) were already suffering from link rot and the content the pointed to was mostly gone.
It does not say that whoever sold the nft in the first place had any right to sell whatever the nft is for. You could sell the Brooklyn bridge via nft if you wanted. You can create new nfts for things that already sold.
I'm of the opinion that it's a complete scam. Basically buying a receipt for whatever someone wants to sell, and receipts can be made infinitely.
posted by TheAdamist at 6:48 AM on July 29, 2021 [12 favorites]
Its a way to say that someone owns something via one of the digital curry block chains. Content does not come along with it, usually a url. I read an article about how early nfts (as in earlier this year) were already suffering from link rot and the content the pointed to was mostly gone.
It does not say that whoever sold the nft in the first place had any right to sell whatever the nft is for. You could sell the Brooklyn bridge via nft if you wanted. You can create new nfts for things that already sold.
I'm of the opinion that it's a complete scam. Basically buying a receipt for whatever someone wants to sell, and receipts can be made infinitely.
posted by TheAdamist at 6:48 AM on July 29, 2021 [12 favorites]
An NFT is a token with a URL in it. If you buy the token, it's like buying a trading card -- you own a pointer to the URL, but no legal rights to the content at the URL, just like buying a Star Wars trading card doesn't give you any rights to Star Wars.
That doesn't really explain why someone would pay thousands of dollars for a digital trading card. My feeling is that they're a fad or a series of fads, and people are buying them in hopes of selling them at the peak, so there's very little long-term value in them.
You can see this pattern in this volume chart, where there's a series of peaks in different types of NFTs as people move on to the next big thing. For fine art, you can look at the price of the B20 token, which represents shares in 20 Beeple works. The price of a share peaked at $28 the day before Beeple's work was auctioned off at Christie's, and has now dropped to $0.74.
posted by ectabo at 6:51 AM on July 29, 2021 [1 favorite]
That doesn't really explain why someone would pay thousands of dollars for a digital trading card. My feeling is that they're a fad or a series of fads, and people are buying them in hopes of selling them at the peak, so there's very little long-term value in them.
You can see this pattern in this volume chart, where there's a series of peaks in different types of NFTs as people move on to the next big thing. For fine art, you can look at the price of the B20 token, which represents shares in 20 Beeple works. The price of a share peaked at $28 the day before Beeple's work was auctioned off at Christie's, and has now dropped to $0.74.
posted by ectabo at 6:51 AM on July 29, 2021 [1 favorite]
Imagine a spreadsheet with two columns. The first column is a URL you can go to to download a picture of a work of art (or a video of someone doing a thing in a sports game, or whatever). The second column is a person's name. The title of the spreadsheet is "Ownership List". I keep the spreadsheet and will show anyone a copy whenever they want.
Every row on this spreadsheet is an "NFT", in that it associates a given person with a given "owner", and the things are all different from each other (hence non-fungible). If you "own" the NFT, meaning your name is in the second column, you can "sell" it by visiting my house and telling me to put someone else's name in place of yours in exchange for some money. This is literally the only right you gain from owning an NFT -- you own a row of a spreadsheet, not the work it refers to.
If we put this spreadsheet "on the blockchain", what that means is that instead of just me keeping the spreadsheet, thousands and thousands of people have copies of the spreadsheet that they all update at the same time, which means you don't have to trust me to not change it without telling anyone.
If you want to create an NFT, you go to someone who has one of these spreadsheets and you ask them to add another row ("mint an NFT"). The code that people use to update the spreadsheet at the same time also makes sure they agree on what the rules are for adding new rows, which will vary by which exact kind of NFT (i.e., who made the spreadsheet and set the rules for it). Here is the website of one such NFT service.
posted by goingonit at 7:48 AM on July 29, 2021 [10 favorites]
Every row on this spreadsheet is an "NFT", in that it associates a given person with a given "owner", and the things are all different from each other (hence non-fungible). If you "own" the NFT, meaning your name is in the second column, you can "sell" it by visiting my house and telling me to put someone else's name in place of yours in exchange for some money. This is literally the only right you gain from owning an NFT -- you own a row of a spreadsheet, not the work it refers to.
If we put this spreadsheet "on the blockchain", what that means is that instead of just me keeping the spreadsheet, thousands and thousands of people have copies of the spreadsheet that they all update at the same time, which means you don't have to trust me to not change it without telling anyone.
If you want to create an NFT, you go to someone who has one of these spreadsheets and you ask them to add another row ("mint an NFT"). The code that people use to update the spreadsheet at the same time also makes sure they agree on what the rules are for adding new rows, which will vary by which exact kind of NFT (i.e., who made the spreadsheet and set the rules for it). Here is the website of one such NFT service.
posted by goingonit at 7:48 AM on July 29, 2021 [10 favorites]
The underlying idea of cryptocurrency (which is fundamentally the same thing at its core as NFTs) is that there's a big public distributed record, very easy to add a line to and nigh-impossible to edit already-written lines (in theory, at least). The details of how this is implemented vary by currency and gets into the cryptographic weeds a bit, but basically imagine there's a place where annyone can write but nobody erase. For cryptocurrency, the things written are signed (again, cryptographically) certifications of transfer of a share in the public pool of value* which the participants believe is distributed amongst them. An unsigned transfer, or a transfer made against an account which didn't elsewhere in the register have a record of receiving enough shares to spend the quantity in question, won't be verified. "Bitcoins" (or whatever) aren't things you possess, so much as your current balance in this enormous register. So if I want to send you, say, 3 bitcoins, I post up a record in the public register that my account (confirmed by a digitally signed message) give 3 bitcoins to an account which is yours. This message is verified as valid by looking though the whole register and confirming that, since the birth of the register, I have gained a net value of 3 bitcoins so this transaction doesn't put me in the red. If that isn't true, my transaction is verifiably invalid so I haven't really sent you the bitcoins.
How does all this relate to NFTs? Well, the underlying principle of a permanent signed record doesn't only have to be just a ledger of financial transfers. You can put anything in there and people can verify it's from you and it can never be changed. Some of the currency-based blockchains (Etherium in particular, I think?) have experimented with using this as a contract-recording mechanism, where instead of just "I give so-and-so 3 BTC", the meat of the message is an actual contract. NFT is basically the same thing, except instead of either giving money or recording an agreement, you're recording a certification that someone owns something. For instance, if Alice records in a public ledger "I created a painting called 'Untitled #3'." and then "I give Bob the 'digital ownership' of the painting 'Untitled #3'." then, yes, that creates an NFT, which Bob could reassign by saying "I transfer ownership of 'Untitled #3' to Charlie." The system could even verify that to transfer a specific NFT you have to either own it or 'create' it.
This raises more questions than it answers, of course. If anybody can 'create' an NFT by recording such a creation, how do you ensure that NFTs correspond to real thngs, and that those real objects are ones that the NFT creator has the right to assign ownership of? How do you ensure that the NFT-to-real-thing mapping is unique, and that Alice isn't making 25 different NFTs all referring to 'Untitled #3'? And even beyond all that, even if you hash that out, what, if anything, does "ownership" mean? Does any legal system in the world allow you to assert rights over real things on the basis of NFT ownership? The answer to this last question appears to be "no" (almost certainly a good thing, because the answers to the other questions are so vague), which doesn't stop people from believing that NFT ownership has some value. Almost all such people are speculators, and so they're all in on risky investments that none of them has any real abiding faith in.
For better or worse, NFTs seem to be in a much more precarious position than either of the two things they are meant to resemble, cryptocurrency and unique art objects. Cryptocurrency is based on a public economic faith that value which is publlicly acknowledged can be placed in transferrable markers of no inherent value, which is a bit dubious but is dubious the same way fiat currency is in the real world, whereas art objects in physical form have both their (typically fairly tiny) material value and their (usually more significant) cultural/historical importance, and possession of a physical object with those properties is acknowledged and supported by legal and economic systems.
tl;dr: NFts combine the investment value of Beanie Babies with the tangibility of bitcoins (or, alternatively, they combine the investment value of tulips with the ecological impact of bitcoins).
posted by jackbishop at 9:43 AM on July 29, 2021 [5 favorites]
How does all this relate to NFTs? Well, the underlying principle of a permanent signed record doesn't only have to be just a ledger of financial transfers. You can put anything in there and people can verify it's from you and it can never be changed. Some of the currency-based blockchains (Etherium in particular, I think?) have experimented with using this as a contract-recording mechanism, where instead of just "I give so-and-so 3 BTC", the meat of the message is an actual contract. NFT is basically the same thing, except instead of either giving money or recording an agreement, you're recording a certification that someone owns something. For instance, if Alice records in a public ledger "I created a painting called 'Untitled #3'." and then "I give Bob the 'digital ownership' of the painting 'Untitled #3'." then, yes, that creates an NFT, which Bob could reassign by saying "I transfer ownership of 'Untitled #3' to Charlie." The system could even verify that to transfer a specific NFT you have to either own it or 'create' it.
This raises more questions than it answers, of course. If anybody can 'create' an NFT by recording such a creation, how do you ensure that NFTs correspond to real thngs, and that those real objects are ones that the NFT creator has the right to assign ownership of? How do you ensure that the NFT-to-real-thing mapping is unique, and that Alice isn't making 25 different NFTs all referring to 'Untitled #3'? And even beyond all that, even if you hash that out, what, if anything, does "ownership" mean? Does any legal system in the world allow you to assert rights over real things on the basis of NFT ownership? The answer to this last question appears to be "no" (almost certainly a good thing, because the answers to the other questions are so vague), which doesn't stop people from believing that NFT ownership has some value. Almost all such people are speculators, and so they're all in on risky investments that none of them has any real abiding faith in.
For better or worse, NFTs seem to be in a much more precarious position than either of the two things they are meant to resemble, cryptocurrency and unique art objects. Cryptocurrency is based on a public economic faith that value which is publlicly acknowledged can be placed in transferrable markers of no inherent value, which is a bit dubious but is dubious the same way fiat currency is in the real world, whereas art objects in physical form have both their (typically fairly tiny) material value and their (usually more significant) cultural/historical importance, and possession of a physical object with those properties is acknowledged and supported by legal and economic systems.
tl;dr: NFts combine the investment value of Beanie Babies with the tangibility of bitcoins (or, alternatively, they combine the investment value of tulips with the ecological impact of bitcoins).
posted by jackbishop at 9:43 AM on July 29, 2021 [5 favorites]
Response by poster: I understand how this would work with digital items like visual art, but not how it could work for physical objects, like baseball cards or bridges. And especially how someone would make one for something they don’t own like a bridge.
Also, forgive me, but what’s a blockchain?
posted by jitterbug perfume at 10:25 AM on July 29, 2021
Also, forgive me, but what’s a blockchain?
posted by jitterbug perfume at 10:25 AM on July 29, 2021
The NFT is just a record of ownership. Instead of the URL in the token pointing you to the art work, it could just point you to, like, the picture of a bridge. The point is that in no case does owning the NFT give you rights to the thing that it's an NFT "of", so it's easy to make an NFT "of" anything.
A "blockchain" is a list of transactions maintained in a cryptographically secure, digital format. It's designed such that it's very hard to "fake" a transaction, even without having a person who everyone trusts store all of the records, because thousands of people are storing the records of all the transactions across their different computers. For purposes of this discussion, blockchains are just the tools that everyone uses to record who owns which NFTs.
posted by goingonit at 11:15 AM on July 29, 2021
A "blockchain" is a list of transactions maintained in a cryptographically secure, digital format. It's designed such that it's very hard to "fake" a transaction, even without having a person who everyone trusts store all of the records, because thousands of people are storing the records of all the transactions across their different computers. For purposes of this discussion, blockchains are just the tools that everyone uses to record who owns which NFTs.
posted by goingonit at 11:15 AM on July 29, 2021
I understand how this would work with digital items like visual art, but not how it could work for physical objects, like baseball cards or bridges. And especially how someone would make one for something they don’t own like a bridge.
That is, indeed, a problem. Artists have found their art showing up in NFT auctions that they had nothing to do with. There's no technical means to prevent this, so it's a problem. Verifying the the person who minted the NFT is actually the artist is a good idea, but that can be quite difficult, so it's not that hard to sell NFTs for stuff you didn't create and don't own.
posted by BungaDunga at 11:27 AM on July 29, 2021 [4 favorites]
That is, indeed, a problem. Artists have found their art showing up in NFT auctions that they had nothing to do with. There's no technical means to prevent this, so it's a problem. Verifying the the person who minted the NFT is actually the artist is a good idea, but that can be quite difficult, so it's not that hard to sell NFTs for stuff you didn't create and don't own.
posted by BungaDunga at 11:27 AM on July 29, 2021 [4 favorites]
So, just speaking to NFTs in art: people buy art for a lot of reasons - because they like it and want to be able to display it, or because they want to give money to the artist, or because they want to invest/speculate (i.e. they buy art at one price and hope that it increases in price), or for other reasons I can't think of off the top of my head. Probably a lot of people buy art for a combination of reasons.
Some types of art don't really lend themselves to being "investments," for example digital art. If I sell you an original painting, it's relatively easy to tell whether the thing that you have in your house is the original painting or a copy of the original painting (extremely high-quality forgeries aside). On the other hand, if I make a digital drawing and then sell it to you, that digital drawing that you own is infinitely copiable, and because digital copying is basically perfect no one will ever be able to tell the difference between your "original" and any copies that are made. You could sell the original and keep a copy, and no one could ever say with certainty which was which.
One of the ways NFTs are used by artists is as a way to let art investors/speculators buy and speculate on art that does not have an output that can be uniquely possessed and bought/sold (e.g. digital art, performance art). Some people are more willing to pay artists if they get this token (which can be resold) in return for their money, even if they don't get a physical object. It can be a way to create artificial scarcity for things that are easily copiable (in general things that are more scarce are worth more money), or it can be a way for people to "purchase" a thing that doesn't have a tangible presence.
Anyone can make/buy/sell an NFT, and ultimately they're worth what the market thinks they're worth. An NFT can't stop anyone from copying your work (basic copyright law still covers you in this case). Basically the fundamental features of an NFT are that it's unique and people can buy and sell it.
If you have a market of people who are interested in buying things from you, you could sell them NFTs, or you could just sell them actual stuff (like prints, pins, tickets to your performance, copies of your zine, etc.). If you don't have people who want to buy things from you, NFTs are not particularly useful to you.
posted by mskyle at 1:29 PM on July 29, 2021
Some types of art don't really lend themselves to being "investments," for example digital art. If I sell you an original painting, it's relatively easy to tell whether the thing that you have in your house is the original painting or a copy of the original painting (extremely high-quality forgeries aside). On the other hand, if I make a digital drawing and then sell it to you, that digital drawing that you own is infinitely copiable, and because digital copying is basically perfect no one will ever be able to tell the difference between your "original" and any copies that are made. You could sell the original and keep a copy, and no one could ever say with certainty which was which.
One of the ways NFTs are used by artists is as a way to let art investors/speculators buy and speculate on art that does not have an output that can be uniquely possessed and bought/sold (e.g. digital art, performance art). Some people are more willing to pay artists if they get this token (which can be resold) in return for their money, even if they don't get a physical object. It can be a way to create artificial scarcity for things that are easily copiable (in general things that are more scarce are worth more money), or it can be a way for people to "purchase" a thing that doesn't have a tangible presence.
Anyone can make/buy/sell an NFT, and ultimately they're worth what the market thinks they're worth. An NFT can't stop anyone from copying your work (basic copyright law still covers you in this case). Basically the fundamental features of an NFT are that it's unique and people can buy and sell it.
If you have a market of people who are interested in buying things from you, you could sell them NFTs, or you could just sell them actual stuff (like prints, pins, tickets to your performance, copies of your zine, etc.). If you don't have people who want to buy things from you, NFTs are not particularly useful to you.
posted by mskyle at 1:29 PM on July 29, 2021
Response by poster: But what gives people the right - and HOW - does someone make something they don’t own into an NFT? Or anything physical?
posted by jitterbug perfume at 8:01 PM on July 31, 2021
posted by jitterbug perfume at 8:01 PM on July 31, 2021
The thing about NFTs is that they don't really make sense unless you're already deeply invested in cryptocurrencies. So, if they don't make sense to you, you may have understood them correctly.
There's a database (the blockchain), where anyone can pay to write down anything they want in a database entry, and people can buy and sell those database entries. An NFT is just a database entry with a URL in it. It's not worth anything except what I can convince someone else to pay for it.
So if I wanted to create an NFT for a physical object, I could take a picture of it, upload it to a URL, and make an NFT of the URL. I now own that NFT and I can sell it. Or I could make an NFT of https://en.wikipedia.org/wiki/Brooklyn_Bridge. It's not really making the object into an NFT, because the object is still there.
The hard part is that to get someone to buy that NFT, you have to convince them that there's something special about that NFT. That's why NFTs were touted as a way for artists to make money -- if an artist makes an NFT of their artwork and promises to only create one, that's special enough that someone might buy it. Again, it's like trading cards. A picture of Michael Jordan on a card isn't worth much, but a signed rookie card is worth a lot because the rarity and the connection to Jordan makes it special.
posted by ectabo at 9:04 AM on August 1, 2021
There's a database (the blockchain), where anyone can pay to write down anything they want in a database entry, and people can buy and sell those database entries. An NFT is just a database entry with a URL in it. It's not worth anything except what I can convince someone else to pay for it.
So if I wanted to create an NFT for a physical object, I could take a picture of it, upload it to a URL, and make an NFT of the URL. I now own that NFT and I can sell it. Or I could make an NFT of https://en.wikipedia.org/wiki/Brooklyn_Bridge. It's not really making the object into an NFT, because the object is still there.
The hard part is that to get someone to buy that NFT, you have to convince them that there's something special about that NFT. That's why NFTs were touted as a way for artists to make money -- if an artist makes an NFT of their artwork and promises to only create one, that's special enough that someone might buy it. Again, it's like trading cards. A picture of Michael Jordan on a card isn't worth much, but a signed rookie card is worth a lot because the rarity and the connection to Jordan makes it special.
posted by ectabo at 9:04 AM on August 1, 2021
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