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]

Originally Posted by 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.

Ahhhh

[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/...ectricity.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]

Originally Posted by daktulos

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!

I have to admit, I don't understand NFTs either. 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]

Originally Posted by 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.

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 .

[garynortheast]

Originally Posted by shiftin_gear98

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

I'm with you here Martin!