What are NFTs, and why are people paying millions of dollars for them?
How NFTs work
NFTs are digital certificates that authenticate a claim of ownership to an asset, and allow it to be transferred or sold. The certificates are secured with blockchain technology similar to what underpins Bitcoin and other cryptocurrencies.
A blockchain is a decentralizedalternative to a central database. Blockchains usually store information in encrypted form across a peer-to-peer network, which makes them very difficult to hack or tamper with. This in turn makes them useful for keeping important records.
The key difference between NFTs and cryptocurrencies is that currencies allow fungible trade, which means anyone can create Bitcoins that can be exchanged for other Bitcoins. NFTs are by definition non-fungible, and are deployed as individual chains of ownership to track a specific asset. NFTs are designed to uniquely restrict and represent a unique claim on an asset.
And here’s where things get weird. Often, NFTs are used to claim “ownership” of a digital asset that is otherwise completely copiable, pastable, and shareable – such as a movie, JPEG, or other digital files.
So what is an authentic original digital copy?
Online, it’s hard to say whatauthenticityandownershipreally mean. Internet culture and the internet itself have been driven by copying, pasting, and remixing to engender new forms ofauthentic creative work.
At a technical level, the internet is precisely a system forefficiently and openlytaking a string of ones and zeroes fromthiscomputer and making them accessible onthatcomputer, somewhere else. Content available online is typically what economists call “non-rivalrous goods,” which means that one person watching or sharing, or remixing a file doesn’t in any way impede other people from doing the same.
Constant sharing adds up to a near-infinite array of material to view, share, copy or remix into something new, creating theeconomies of abundanceon which online culture thrives.
TikTok is built around reimagining common audio loops with seemingly endless but uniqueaccompanying visual rituals, which are themselves mimicked in seemingly endless variations. On Twitter, tweets are only valuable to the extent they are retweeted. Fake news onlyexistsinsofar asFacebook’s algorithmdecides sharing them will increase engagement via driving more sharing.
Information wants to be free
The life and longevity of digital content has depended on its ability tospread. The internet’s pioneering cyber-libertarians had a motto to describe this:information wants to be free. Attempts to stop information from spreading online have historically required breaking aspects of technology(like encryption)orlegal regimeslike copyright.
NFTs, however, bring code and culture together to create a form of control that doesn’t rely on the law or sabotaging existing systems. They create a unique kind of “authenticity” in an otherwise shareable world.
What’s next?
Nearly 40 years ago, Canadian science-fiction writer William Gibson famously described cyberspace as a “consensual hallucination” in which billions of users agreed that the online world was real. NFTs take this to the next level: they’re a consensual hallucination thatthisstring of ones and zeroes is different and more authentic thanthat(identical) string of ones and zeroes.
NFTs work by reintroducing a mutual hallucination of scarcity into a world of abundance. There is no shortage of buyers: the NFT market is already worth hundreds of millions of dollars. Even humblesports trading cardswill never be the same.
Are NFTs different enough to break the internet?
The real function of NFTs is to create a clear delineation between ordinary creators and consumers of online content and those privileged enough to be paid to produce content or claim to own “authentic” work. The internet decentralized content creation, but NFTs are trying to recentralize the distribution of culture.
NFTs facilitate the exchange of fungible money for non-fungible authenticity. It’s awell-known movethat occurs in all sorts of industries, and one with a long history in, well,art history.
How the culture-code of NFTs will evolve isanyone’s guess, but at the moment, it is opening a lot of new ways to makenew moneychange hands.
At first take, it might seem that this presents artists everywhere with a recourse to get paid for their otherwise copy-pastable work. Yet creating normative rules around paying for content online has not so far gone smoothly: think of thelacklustre paymentsmusicians receive from streaming services like Spotify.
NFTs have also beencriticizedfor their profligate energy consumption, because they depend on a lot of computer power to encrypt their tokens. According to the online calculator atCryptoArt, the computations required to create NFTs for each of Grimes’ animations would have used enough electricity to boil a kettle 1.5 million times – and resulted in around 70 tonnes of CO2emissions. I’m not sure that cost for future generations was priced into the current market value, or any appreciation as tokens cryptographically change hands.
Other than their tonnes of CO2emissions, what’s real about NFTs is how their creation of technical scarcity enables a new cultural agreement about how something can be authentic and who controls that authenticity. NFTs create new forms of hierarchy, power, and exclusion on the wider web. They have already created a new type of haves and have-nots.
This article byLuke Heemsbergen, PhD, Media and Politics,Deakin Universityis republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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