Non Fungible Tokens

[Seeker]

NFTs - I keep seeing this term pop up and decided to investigate what they are. Firstly "fungible" means replaceable by another identical item, mutually interchangeable. So I suppose non-fungible means it cannot be replaced by something similar; it's unique.

I found this explanation on a spoof news site, so it may (or may not) be accurate of a purchase of an NFT for you (a person called jacobgalapagos in this example). The rainforest bit is included because everything is held on a server somewhere and these server farms consume lots of power.Imagine if you went up to the Mona Lisa and you were like “I’d like to own this” and someone nearby went “Give me 65 million dollars and I’ll burn down an unspecified amount of the Amazon rainforest in order to give you this receipt of purchase”.
So you paid them and they went “Here’s your receipt, thank you for your purchase” and went to an unmarked supply closet in the back of the museum and posted a handmade label inside it behind the brooms that said “Mona Lisa currently owned by jacobgalapagos” so if anyone wants to know who owns it they’d have to find this specific closet in this specific hallway and look behind the correct brooms.
And you went “Can I take the Mona Lisa home now?” and they went “Oh God, no. Are you stupid? You only bought the receipt that says you own it, you didn’t actually buy the Mona Lisa itself, you can’t take the real Mona Lisa, you idiot. You CAN take this though.” and gave you the replica print in a cardboard tube that’s sold in the gift shop.
Also the person selling you the receipt of purchase has at no point in time ever owned the Mona Lisa.
Unfortunately, if this doesn’t really make sense or seem like any logical person would be happy about this exchange, then you’ve understood it perfectly.

[garynortheast]

Well, I'm glad you cleared that up Seeker. It now makes as much sense to me as the whole bitcoin thing!

[Biker Biggles]

NFTs - I keep seeing this term pop up and decided to investigate what they are. Firstly "fungible" means replaceable by another identical item, mutually interchangeable. So I suppose non-fungible means it cannot be replaced by something similar; it's unique.

I found this explanation on a spoof news site, so it may (or may not) be accurate of a purchase of an NFT for you (a person called jacobgalapagos in this example). The rainforest bit is included because everything is held on a server somewhere and these server farms consume lots of power.Imagine if you went up to the Mona Lisa and you were like “I’d like to own this” and someone nearby went “Give me 65 million dollars and I’ll burn down an unspecified amount of the Amazon rainforest in order to give you this receipt of purchase”.
So you paid them and they went “Here’s your receipt, thank you for your purchase” and went to an unmarked supply closet in the back of the museum and posted a handmade label inside it behind the brooms that said “Mona Lisa currently owned by jacobgalapagos” so if anyone wants to know who owns it they’d have to find this specific closet in this specific hallway and look behind the correct brooms.
And you went “Can I take the Mona Lisa home now?” and they went “Oh God, no. Are you stupid? You only bought the receipt that says you own it, you didn’t actually buy the Mona Lisa itself, you can’t take the real Mona Lisa, you idiot. You CAN take this though.” and gave you the replica print in a cardboard tube that’s sold in the gift shop.
Also the person selling you the receipt of purchase has at no point in time ever owned the Mona Lisa.
Unfortunately, if this doesn’t really make sense or seem like any logical person would be happy about this exchange, then you’ve understood it perfectly.





Ahhhh:D

[daktulos]

That is actually an incredibly accurate analogy of NFTs. Along with cryptocurrency, it's fascinating and has the potential to change trade fundamentally, but has a massive environmental cost which people don't understand.

It's not that everything is on a server somewhere, it's because millions of people using their computers to try and crack a difficult calculation and a small amount of the currency is given away for success (mining). Chances of success are so low, everyone joins a pool, so the rewards from mining is more or less proportional to the processing power you provide. As you'd expect, market forces means that the value of currency and cost of electricity matches.

Where the electricity is cheap (e.g. China) or free (stolen) it's worth mining, anywhere else and you're more likely to lose money. It means that cryptocurrencies (and therefore NFTs) are at best an environmental nightmare and at worst a way of funding organised crime.

https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html
The process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million.

For reference, 91 TWh = 3.5 million 3kW kettles running 24 hours a day, 365 day a year, and that's just one crypto-currency.

[Ruffy]

For reference, 91 TWh = 3.5 million 3kW kettles running 24 hours a day, 365 day a year, and that's just one crypto-currency.
To put it another way, GB annual electricity usage is c. 350 TWh, so we're talking about three months of powering the entirety of England, Scotland and Wales here!:smt119

I have to admit, I don't understand NFTs either.:confused: It seems to me to be just another mechanism for those who have managed to accumulate too much 'money' to comprehend (in the real world that most of us occupy) and now just want to keep it. I really can't see how it's putting the 'wealth' to good, productive use - but that's probably a whole other debate!

[daktulos]

Blockchain, which is the technology behind NFTs and crypto-currency has the potential to be revolutionary. It's basically a decentralised ledger which permits trade between remote individuals. NFTs are just an entry in the ledger and because the ledger is public, you can see who currently owns it.

That's it. It's just a receipt which anyone with enough technical knowledge could verify is yours. It says nothing about what the receipt is for.

Again, the idea behind them is sound - if you're an author you could sell the original manuscript. A painter only has one original copy of each painting, but if you create something in the digital world which can be copied perfectly and infinitely, what value does the first one have? NFTs are used as a digital receipt for it, giving an additional value to it - it's like numbered prints of paintings, there's no physical difference between them and unlimited prints, but they're priced higher simply because their availability is artificially limited.

This is where the Mona Lisa analogy breaks down - it has intrinsic value, which is different to the type of art NFTs were designed for. The real problem is because people don't understand NFTs, or because they have novelty value, they're massively overpriced.

If I was a struggling digital artist, I'd no doubt be selling NFTs, because they would give me the opportunity to sell something for more than the value of a digital copy, but I'd still be upset about the environmental cost.

[Ruffy]

Nope, I still don't get it. Why do we need a decentralised ledger to permit trade? It seems to be built on a constructed fallacy that subjective interpretation/opinion should have universal value, or that 'money' has value in itself.

Especially in the digital world I get the hard challenge about copy protection so we can preserve a concept of tradeable 'assets'. That's what NFTs seem to be trying to be - new assets that can be bought and sold. But why try to replicate the physical-world marketplace and hold on so tightly to the notion of 'things'? (Especially when they're actually 'nothing'.)

Even with physical items, why is the original piece of art more valuable than a copy image (quality of reproduction aside)? As it happens, I've seen the Mona Lisa in the Louvre, I've seen copies of the image too, I'm not moved by one any more than the other. Equally, I don't fail to appreciate the skill and effort that went in to creating the original by looking at a (good) copy. It's intrinsic value though is not much more than the price of a few pieces of wood/canvas and a bit of oil and colour pigment dust.

Really, is an NFT any more useful than an old-world handwritten receipt- isn't it just a unique proof of something at the end of the day, with an attributed value like an IOU? Except that in the case of an NFT it's not really tied to a widely understood and agreed unit of worth and so is probably more exposed to the vagaries of subjectivity. That doesn't sound revolutionary to me, it just sounds crazy or risky. A solution looking for a problem IMHO.

[daktulos]

Nope, I still don't get it. Why do we need a decentralised ledger to permit trade? It seems to be built on a constructed fallacy that subjective interpretation/opinion should have universal value, or that 'money' has value in itself.

It doesn't permit trade, you can still meet up with someone and exchange goods. Money permits you to do it remotely, but relies on the government/central bank to guarantee its value. The blockchain gets rid of that central control and lets individuals trade without meeting. There's probably more to it than that, I wouldn't say I'm an expert in it ;-)


Really, is an NFT any more useful than an old-world handwritten receipt- isn't it just a unique proof of something at the end of the day, with an attributed value like an IOU?

The difference is that a handwritten receipt is meaningless unless you saw someone write it out, and even then it's your word against theirs.

If you showed the IOU to a court, who would they believe? With the blockchain, there are thousands (millions?) of people around the world who can all independently validate and guarantee your IOU is genuine.

[shiftin_gear98]

WTF are you lot talking about....I really hope I don't ever have to understand :p.

[garynortheast]

WTF are you lot talking about....I really hope I don't ever have to understand :p.

I'm with you here Martin!

[Ruffy]

... It's basically a decentralised ledger which permits trade between remote individuals. ...

... Why do we need a decentralised ledger to permit trade?

It doesn't permit trade, ...
Aargh, I was just picking up on your words - my head hurts!;) I'm not claiming to have any understanding or expertise on this! I'm genuinely confused and asking questions to try to understand. Unfortunately, all I get to is "dot com bubble" parallels being created in my head when I think about it - just a hyped idea that actually isn't that different when you strip away the 'new'. I'd be happy to learn I'm wrong but I'm still healthily skeptical and needing to be educated.

you can still meet up with someone and exchange goods. Money permits you to do it remotely, but relies on the government/central bank to guarantee its value.
I'm not convinced that the reliance on government/central bank is actually necessary anymore, ever since fractional reserve banking was allowed and 'fiat currency' introduced? The system runs pretty close to purely on confidence. We've been programmed to think we still need a central reserve to back it up but already in reality there isn't a big enough reserve so we could conceptually just get rid of it if we could control our fear of losing out. (That's why there's always problems when 'runs' occur when everyone wants 'their money' in a crisis - there simply isn't the actual prime reserve available to back up all the money in circulation.)

The blockchain gets rid of that central control and lets individuals trade without meeting. ...

The difference is that a handwritten receipt is meaningless unless you saw someone write it out, and even then it's your word against theirs.

If you showed the IOU to a court, who would they believe? With the blockchain, there are thousands (millions?) of people around the world who can all independently validate and guarantee your IOU is genuine.
I find it intriguing that the majority of current civil contract arrangements are managed perfectly well by reliance on signed documents like contracts, and often done remotely. It's not really centrally controlled, just centrally referenced maybe.

It seems quite sad that there is such a high level of assumed erosion of trust that it's alleged we need a wholesale different form of record keeping. Are we making a mountain out of a molehill?

Above all, I don't understand how proof of ownership preserves value in any system. Buying something at price £x doesn't mean it will always be worth that. Market forces and fashions don't disappear in the digital world. Of course revealing a fake will dramatically affect value (and maybe blockchain helps with preventing fakes/fraud?) but the risk of a genuine NFT losing (changing) value is just as real as a physical item isn't it?:confused:

It's quite a philosophical challenge isn't it - ultimately, value can only be established by trading agreement where two or more people agree what is a fair exchange: Do we really need to relate everything to a common reference (which is all that 'money' does in essence)? To illustrate that, how often do we hear "how much is my SV worth?" One of the usual answers is "whatever someone will offer to pay you for it". Does it really matter what all the previous (or future SV sales will be?

I'm not a total luddite. I can see vast potential merit in better digital certification and signing becoming more widepread - to reduce email spam and risk of online credit card fraud for example - but this whole "blockchain" thing ... nope, still don't get it.:confused:

[Ruffy]

WTF are you lot talking about....
I'm with you here Martin!
I need editors like you - brevity not one of my strong points!:lol:

[daktulos]

Ruffy, I'm not exactly an expert either, and please excuse any inaccurate wording, but I'm trying.

I find it intriguing that the majority of current civil contract arrangements are managed perfectly well by reliance on signed documents like contracts, and often done remotely. It's not really centrally controlled, just centrally referenced maybe.

The contracts are usually made between people who know each other. Signatures are also often witnessed to provide additional reassurance of trust.

It seems quite sad that there is such a high level of assumed erosion of trust that it's alleged we need a wholesale different form of record keeping. Are we making a mountain out of a molehill?

I don't think blockchain is designed to replace any of it, but if you want to exchange something with someone anonymous you've never met before, how confident would you be?

Above all, I don't understand how proof of ownership preserves value in any system. Buying something at price £x doesn't mean it will always be worth that.

The value of crypto-currency is based on its rarity - the total amount of available goes up as it's mined and down as it's lost (which happens a lot). It's better than physical currency because it can't be forged, is often traceable and all transactions are logged and verifiable.

The value of a NFT is based on hype, but essentially it's the same thing - it has rarity, so has value to someone, and that value will change. What the blockchain allows is for everyone to agree the ownership of something completely virtual, not what it's worth.

At the end of the day, a ledger doesn't say anything about the value of something, just how it's been transferred. If I'm buying something from someone anonymous on the Internet, they can still vanish without fulfilling the order, but they can't claim I didn't pay them.

[Ruffy]

Ruffy, I'm not exactly an expert either, and please excuse any inaccurate wording, but I'm trying.
No apology needed. You're helping me - thank you, it's appreciated. I'm pushing back strongly but it's not to demean or offend you, only to draw out detail to educate me. Please accept my apologies if I came across as having a go at you - I do try not to 'shoot the messenger' but often fail miserably!:(

The contracts are usually made between people who know each other. Signatures are also often witnessed to provide additional reassurance of trust.

I don't think blockchain is designed to replace any of it, but if you want to exchange something with someone anonymous you've never met before, how confident would you be?
I partly agree. There's sometimes a relationship of sorts but I'd suggest many contracts are still between parties who have little true knowledge of each other really. That is a weakness that opens the system to scamming by fraudsters. Yes, 'caveat emptor' ('buyer beware') is always good advice before parting with your "hard-earned"!:thumbsup:

The value of crypto-currency is based on its rarity - the total amount of available goes up as it's mined and down as it's lost (which happens a lot). It's better than physical currency because it can't be forged, is often traceable and all transactions are logged and verifiable.

The value of a NFT is based on hype, but essentially it's the same thing - it has rarity, so has value to someone, and that value will change. What the blockchain allows is for everyone to agree the ownership of something completely virtual, not what it's worth.

At the end of the day, a ledger doesn't say anything about the value of something, just how it's been transferred. If I'm buying something from someone anonymous on the Internet, they can still vanish without fulfilling the order, but they can't claim I didn't pay them.
That makes sense to me. I think it may have been my main mis-understanding - that blockchain somehow defines value for stuff. I do see usefulness in being able to better prove transactions that have taken place - anonymous or untraceable exchange does risk fraud & other crime. But I still wouldn't call it revolutionary in the way some seem to tout it (as above, my criticism not aimed at you daktulos). And when I say that, it's important to be aware that I'm not a particular fan of the current mainstream banking system either - I'm wholly enthusiastic about seeing improvement there.

I'm left wondering about the ability to hack the chain to forge things and I'm also now wondering if the ledger always needs to be an inefficient complete 'chain' or if instead it could be innovated to be a series of uniquely linked lists that could be processed separately and far more efficiently to an extent, but I don't really know enough about modern computer technology to sensibly go down that rabbit hole...:scratch:

[daktulos]

I'm left wondering about the ability to hack the chain to forge things and I'm also now wondering if the ledger always needs to be an inefficient complete 'chain' or if instead it could be innovated to be a series of uniquely linked lists that could be processed separately and far more efficiently to an extent, but I don't really know enough about modern computer technology to sensibly go down that rabbit hole...:scratch:

The way it works is that when someone generates a block, some sort of consensus is gained and everyone starts working on the new block. It is possible that two people generate different blocks, but one of them would be abandoned.

It only works because the generation of a block is so difficult. If it was easier, I think there'd be a chance of hacking it, but don't know the protocol in enough detail.

I think the problem is, if it's trivial to create a block (which would make it environmentally better) there'd need to be some sort of central control to protect it - perhaps an authority with a private key. But, central control is really what the blockchain was designed to avoid.