An African Skeptic's Guide to NFTs
Look, I get it. It's all very dubious. I'm not here to convince you, either.
(Pictured above: a Yolo Dice NFT, owned by yours truly.)
It was JK Rowling, I believe, who once wrote that you should never trust a thing that thinks for itself if you cannot see where it keeps its brain. As advice found in children’s books about anosmic wizards and prophetically selected boys go, it’s pretty good advice. Before I can continue writing this, I must show my hand, telling you the numerous ways I’m not an untainted, dispassionate observer of the NFT landscape.
For starters, I’m a creative. Over the span of my existence thus far, I’ve made drawings, animations, written fiction, poetry and created a webcomic of dubious fame known as Obaranda. As a result, I’m clearly biased in favor of any mechanism that puts money in the pockets of creatives - as you probably already know NFTs do.
I’m also a software engineer - more specifically a web developer, down in the web2.0 trenches, and looking for an opportunity to cross over into web3.0. I obviously hope that NFTs and crypto-associated innovations are not fads. That would be severely disastrous for my career prospects.
Finally, and more importantly, I am an NFT artist. At least I believe I qualify to call myself one, having listed eight NFTs (and sold six). I’ve also bought NFTs. I have no cryptopunks or Bored Ape Yacht Club NFTs to my name, but I’m pleased with my purchases. If the words ‘cryptopunks’ and ‘Bored Ape Yacht Club’ have you confused, you absolutely have to keep reading.
With that said, I understand the skepticism around NFTs. They’re a head-scratcher for people who don’t share the Common Origins of the backers, evangelists and pot-boilers of the NFT space.
My job as I see it is to attempt to share with you some of those common origins, so you can see where the enthusiasm for NFTs is coming from, and decide for yourself if you’d like to point in that direction as well.
First, a definition of terms
NFTs mean ‘non-fungible tokens’.
There is a technical way to define this, but I’m going to err on the side of simplicity here. When you hold a N100 note in your hand (‘N’ representing the naira, Nigeria’s de facto fiat currency), the value of that N100 is the same as the value of N100 in my hand. I can give you my N100 note, and I can take yours, and we’d each still be holding N100.
This means that the N100 notes are ‘fungible’ - a word that simply means one thing can be replaced with another identical item. It’s a quality of money that makes money an efficient means of exchange.
On the Ethereum blockchain, we have ERC-20 tokens. These are the ‘fungible’ tokens based on the ERC-20 standard, which is fancy speak for the code that defines the behavior of tokens created under its rules. You don’t have to think too much about this. If you know ETH, you know ERC-20, because ERC-20 tokens behave like ETH (and ETH is clearly fungible).
Note: you can create your own tokens in the ERC20 standard, and a lot of the coins you see trading on DEXes (decentralized exchanges) are ERC-20 tokens. Just remember: if you can exchange 1 TOKEN for another TOKEN, they’re both fungible tokens.
Then came ERC-721, the standard behind what you know as NFTs. Unlike our FTs (fungible tokens), NFTs are unique because they have something called a tokenId. Think of this as a unique number that no other token can have, which means you cannot exchange one token created under the ERC-721 standard with another token.
We can then think of it like this:
Imagine we create our own ERC-721 non-fungible token. Let’s call it the MOGWAI token, with its symbol being $MOG. Say I mint 500 $MOG tokens. That’s 500 tokens with ids ranging from 1 to 500.
Let’s assume that I mint a random $MOG NFT and get tokenId 123. It means that there lives an NFT contract on the blockchain that will mint 500, and only 500 $MOG NFTs with unique token ids ranging from 1-500. I minted the 123rd NFT, and there will never be another number 123 $MOG on that smart contract.
As Farza from Build Space puts it: ‘when you see people go crazy for NFTs, that’s all there is to it: it’s a token and a piece of metadata.’
‘Metadata? What’s that about?’ I hear you ask. Good question, and incidentally, a perfect segue into the ‘art’ part of an NFT (which we’ve now established is a token-metadata combination).
Stick with me here:
There are things in the real world that we are unique by design, and designed to be collected. An example is plane tickets. All numbers on your boarding pass are unique and they help define where you sit. If they weren’t unique, you’d have two people with tickets number 33, who’d have to lap each other the entire trip. In this regard, plane tickets are non-fungible. Ditto the keys to your apartment - you can’t just slot in any key and twist the knob. If that were the case, you need to evaluate your understanding of home security.
Non-fungible things like the above can easily have their non-fungibility represented digitally with the use of NFTs. Associating an NFT to a specific plane seat means only the holder of the related NFT can sit there. We could then theoretically do away with boarding pass checks and even airplane quibbles where you come to find someone in your seat (imagine a digital mechanism where the seat itself has bumpy spikes for everyone except for the associated NFT holder. Dystopian, I know, but this is merely an illustration).
NFTs, therefore, are a programmatic way to capture uniqueness and rareness on the blockchain.
But, you protest, almost every use case for NFTs has been art related. Digital art, no less! The most infinitely replicable thing possible. What gives, you squeal!
It is now time for us to look into the Common Origins I mentioned earlier.
Let’s start with the practical implications of NFTs. Remember when I said the tokenId is what’s unique? Yeah. How sexy is that? ‘Look, ma, I own this sexy string of numbers. Just me in the whole wide world!’
Not very exciting.
That’s one of the reasons why the digital art world and the NFT world became a match made in heaven.
Here’s a case study: Consider Larva Lab’s CryptoPunks, possibly the most influential culture leader in the crypto space.
It’s a collection of 10,000 algorithmically generated NFTs. This means that an artist drew things like eyes, hairstyles, accessories like eyeglasses, hats, etc, and an algorithm combined these in random ways to create 10,000 unique pieces of art.
These pieces were then minted. Minting is a fancy word for saying that NFTs (the actual tokens, remember? The unique string of numbers?) were created and then associated with each art piece.
Let’s have a look at this CryptoPunk below.
It’s called CryptoPunk #441. That number, ‘441’, is the token ID (which incidentally means it was the 441st mint of the collection of 10,000).
You see what’s happened, don’t you? It’s two-fold:
We’ve made an NFT - that is, the token itself - a lot more interesting than plain numbers. Now the token has come alive, it has a face!
We’ve also made an otherwise replicable JPEG unique as well.
So the owner of an NFT owns both the token and the asset/image bound to it. You may copy and paste it, but what you’re doing is just that - holding a copy, not the original.
This is one reason why digital (specifically, digital and visual) art has been such a hit with the NFT movement.
In the same way we have unique faces and ID cards that identify us, these NFTs become tools of identity in the decentralized web. I am a member of several DAOs (decentralized, autonomous organizations - basically, companies whose authority and governance rules are baked into code, not mercurial human agents), and for some of them, the only way to join is to hold an NFT created by the DAO. I’m gonna try to keep this article about NFTs as I intend to write about DAOs in the future, but you can see how this can make NFTs supremely valuable:
If there are only 5,000 NFTs minted by this DAO
And the DAO becomes increasingly profitable
It means its members become wealthy as well
And outsiders will gladly pay top dollar to buy the NFT off the hands of the OG owners.
So there’s economic incentive right there.
(Aside - and I promise I’m gonna stop talking about DAOs now - DAOs sometimes combine ERC-721 and ERC-20 tokens to distinguish between roles of the members. So you can have a DAO where the NFT holders have a say in governance, and holders of the fungible tokens can only vote on options selected by the NFT holder.)
NFTs allow creators to add value to digital items that are tough to make rare. In the physical world, we have mechanisms for doing the same, with artists creating ‘limited edition’ prints of their work. It’s the same thing at play here: by minting your art (again, this just means associating an ERC-721 token with the art), you’re effectively making it unique, rare, and worth collecting. It gives your fanbase an incentive to collect your work and pay you for it, and it even gives them the opportunity to profit from it, since if you continue to create, your work will get valuable, and original holders can sell them to new, interested fans along the way.
There’s something interesting I read once, that eludes me currently, about how to think about NFTs as art vis-a-vis blockchain money, like ETH: they’re both technical quantifiers of value, with cryptocurrencies capturing (perceived) objective value, and NFTs capturing subjective value. In this regard, they’re complements of each other. In the real world, there are things we value not because of financial worth: our favorite wool sweater, the first music record we ever purchased, that Groot funko pop I bought in France once. Our indulgence and the sentimental value this brings makes them unique items (even if there are a million versions of the sweater, the music record and the funko pop).
We’ve made them non-fungible.
NFT 2.0: Our Year of Interoperability
From the outside peeking in, it looks like all NFTs are the same, and that the only value marker is in artificial rarity and what the community around the NFTs do to hype up the value of the NFT.
Yet, there’s more to this. A new wave of NFTs (which I like to call NFT 2.0) is more interested in the meta-game. It’s not just enough to create NFTs, these NFTs must be extendable (that is, people must be able to derive their own NFTs from the original NFTs). One NFT begat five, which begat 25, and on and on…
I like this idea, though it may be a bit annoying and unnerving to follow. Packy M calls it The Great Online Game. I call it extending the NFT metaverse. You can just think of it as one NFT project being the LEGO blocks, and other NFT projects extending and deriving cool NFTs based on the original projects. It’s an infinite game, and the ticket? Holding a unique tokenId in your wallet.
There are a lot of concerns about NFTs, and Twitter is pretty vocal about them. I share a lot of these concerns, so I’m going to note them:
There is currently no rigorous way to ensure that someone doesn’t just copy your JPEG and re-mints it as another NFT. This means that the only way to verify an NFT is created by the original creator is to trace it back to the original creator. Edit/update: Adobe is working on a way to have have a piece of art signed/linked to the address of the person who created it. Think about it this way: before digital art is created, it’s a WIP (work-in-progress) image. Only the creator of the piece of art can have the WIP, which means the artist can link their address to the one true piece of art by their WIP. This way, there’s a distinction between the creator of a piece of art and a minter of a piece of art (right now there isn’t, as far as NFTs are concerned). Read all about it here.
NFTs consume incredible processing power to mint, and many have condemned this as irresponsible, especially given our dire climate change prospects. ‘All that energy for a jpeg?’. The standard pushback is ‘not for long! Ethereum is gonna switch from a Proof of Work mechanism to a Proof of Stake consensus mechanism and energy costs will be better.
Sometimes it feels like a ponzi scheme, with NFT shills pumping the value of an NFT to high heavens, selling it off to another person, who pumps, then sells off to another, ad infinitum. Some form of png-enabled Greater Fool Theory.
Some have said NFTs are used as a channel for money laundering. The obvious response to this is that this isn’t native to NFTs: it’s native to decentralized money, and therefore the distributed ledger.
Let me know. This is my first Craft Overflow article, and I assure you they’ll get better. Please share liberally. I like the idea of having 1,000 readers a month.