What's wrong with NFT?

A wealthy art collector shows impeccable taste with the display of my ultra-rare artwork.

I really don't think NFTs are going to turn out to be beneficial to the artistic community. Here's why:

Firstly, all of the big money being pumped into the recent high-profile sales is not coming from art lovers or even fans of well-known artists. It's coming from crypto investors, who are taking some of the big gains that they have made in crypto in the last three months and using those to hype the market for NFTs with these eye-popping sums.

This is not a grassroots movement in any way, it's a PR exercise designed by big players to make headlines and keep crypto in the news. It has nothing to do with art. It's a marketing scheme designed to drive speculation in crypto, of which NFTs are a subset.

Artists are understandably intrigued by the possibility of being able to monetise their work. However this is not the opportunity they are looking for, because the fundamentals simply are not there.

Why not? Well to answer that question we need to look at the concepts that underpin both NFT and crypto in general.

What is the problem that NFT purports to solve? Essentially it's the same one that crypto itself sets out to solve: how to create scarcity in a world of limitless digital abundance.

NFT does this by assigning values on the blockchain, to say that person x owns asset y.

But this is not linked to the artwork (or whatever is being sold) in any meaningful way. It's nothing more than an entry on a database. It's a ledger that has no correlation with the actual real world, and no legal underpinning at all.

It's as if I created a spreadsheet on my computer to assign ownership of various assets to random people. For example I could enter you, dear reader, as the owner of the Brooklyn Bridge in my spreadsheet (congratulations BTW), and your uncle Peter could be assigned complete ownership of the Moon. For myself I would also claim ownership of the colour red and the number 5.

This spreadsheet of mine has as much legal weight as the NFT that was auctioned at Christie's for 69 million dollars.

Now of course at this point the crypto advocates will be grinding their teeth, furious at me for misrepresenting the technology in such an ignorant way. Because what they love to do is to explain the finer points of the technology, how the Blockchain works, and how it infallibly assigns ownership without recourse to traditional legal structures.

But all of this is nothing more than technological fancy dress. Because conceptually my spreadsheet and NFTs are identical, the rest is nothing more than an elaborate disguise, designed to confuse and dazzle with fake sophistication.

An entry on a ledger is completely meaningless if it doesn't have any legal backing. When disputes arise the blockchain cannot resolve them, only our traditional legal system can do that. If someone steals your work and sells it as an NFT there is nothing you can do about it beyond the existing rule of law: the technology itself will not be able to help you. And of course, this is already happening, with many artists seeing their work being used and abused on the NFT market.

So what problem exactly doe NFT solve? None, is the answer. NFTs do not comprise ownership in any meaningful way, and are ill-equipped to replace traditional legal constructs such as contracts and copyright. They are utterly meaningless and useless.

So what is their actual purpose? Their purpose of course is to raise awareness of cryptocurrency and to help legitimise it in the minds of the public.

Which takes me to the next question: what is the purpose of cryptocurrency.

Let's take Bitcoin, since that is the biggest and most important cryptocurrency.

What technological problem does Bitcoin solve?

Money is already digital. The banking, financial, and payment systems are fully digitised and highly efficient. Is there any aspect of the technology that Bitcoin can do better?

The answer is no. The existing financial infrastructure is exponentially more efficient than Bitcoin.

And that's because Bitcoin is not a technological project, it's an ideological one.

The purpose of Bitcoin (like NFT) is to create artificial scarcity. That is its one and only purpose.

All of the technological underpinnings that crypto advocates love to explain are just window-dressing. Bitcoin is fundamentally nothing more than a digitised reincarnation of the Gold Standard, a technological incarnation of Austrian hard-money economics.

And that's fine, as long as we honestly recognise it for what it is. The technological details are completely subservient to the ideological foundation. If you are a believer in Austrian economics then by all means you can and should also support Bitcoin. But be honest about it, don't dress it up as some technological innovation or some unstoppable force of progress, because that's not what it is. It is designed to be an artificially scarce digital commodity, whose entire premise is based on a fundamental belief in the value of scarcity.

So the entire foundation of cryptocurrencies rests on the belief that scarcity, the gold standard, and Austrian economics are accurate and useful beliefs. The eventual success or failure of the project rests to some extent on the accuracy of these beliefs.

But if Bitcoin is not setting out to solve a technological problem, how can it be expected to replace the existing financial infrastructure? The faithful believe this will take place when our existing fiat monetary structure breaks down due to inflation or hyperinflation. 

Seeing as the entire world has been running on pure fiat currency for half a century, without running into unmanageable inflation, this seems to be quite a risky bet to take. But if you believe that Bitcoin is the right bet and that fiat currency is doomed to failure then make your bet by all means. Just don't pretend that any of this is really about technology, because it isn't. It is pure ideology.

Finally, why does Bitcoin even matter when it comes to NFTs? Surely NFTs and Bitcoin are not related, and one can succeed even if the other fails?

Maybe, but likely not. NFTs are for the most part traded in a cryptocurrency called Ethereum. Ethereum, like most cryptocurrencies, closely tracks the price of Bitcoin:

Ethereum (pink) and Bitcoin (orange) over the last 12 months:

If Bitcoin crashes, as it did in 2018, so will Ethereum, and that will likely take the entire market in NFTs down with it. Essentially NFTs are a derivative of Ethereum, which in turn is a derivative of Bitcoin.

In fact cryptocurrencies are nothing but a new shadow financial sector, designed with the express purpose of escaping regulatory oversight. NFTs are just the latest addition to the speculative bubble, and the entire system is based on the price of Bitcoin, which is extremely volatile. There is no indication that any of this points to a rosy future for the platform, and in my view artists would do well to steer clear of the whole thing.

Now of course no-one knows the future, least of all me. So take my strong opinion with a pinch of salt by all means. Time will tell. If in five years this article turns out to be an embarrassment, then so be it. But as things stand now, I'm not optimistic about the benefits of NFTs for artists.