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Last active Apr 7, 2021
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NFTs: A Bitcoiner's Perspective

NFTs: A Bitcoiner's Perspective

Non-fungible tokens (NFTs) are becoming a popular way for artists to monetize their content. Recently, many bitcoiners have maligned the model as illigitimate, calling them scams or the like. As someone who attempted the same model with colored coins in 2012, I would have thought bitcoiners would understand why this model not only fits within the ethos of bitcoin, but is very likely to succeed for similar reasons. I believe success in the NFT model only improves the likelihood of mainstream success of bitcoin. Ironically, bitcoin influencers are using the same arguments made against bitcoin to denounce NFTs. Let's examine each of these arguments and how they have been applied to bitcoin in the past. My hope is that this will sway bitcoiners to not write them off as a mere phase akin to ICOs, but as a growing part of the virtual economy and a sign of things to come.

Addressing Technical Concerns

Technical implementations are not the issue

Some bitcoiners take issue with NFTs simply for being built on Ethereum. I think it's important to separate the concept of NFTs from the platforms on which they are currently issued as of this writing. For our purposes we might as well assume they are just colored coins stamped with hashes of digital content and signed by some artist's private key. The files may be kept on any peer-to-peer network like IPFS. My point is that the implementation does not matter, no more than the concept of a stock market depends on the New York Stock Exchange.

Access is not ownership

Another criticism is that because the data itself is infinitely copyable, NFTs themselves must have no value. The problem here is the conflation of access and ownership. This mindset stems from the notion of "digital piracy", where merely downloading a song is considered stealing and grounds for litigation, the reason being that the song data has value which is not being remitted to the rights owner. Platforms like iTunes further solidified this view by their terms of service which explicitly revoke the right of resale.

Bitcoin was a paradigm shift in that it separates data access from data ownership: the blockchain gives you access to the complete history of bitcoin ownership back to the very moment of their minting, but copies of the blockchain have no value. Because Bitcoiners understand this, they were the first to denounce the hype around "Blockchain over Bitcoin". Bitcoiners encourage each other to run full nodes, even going so far as to broadcast the blockchain from space, not because they love blockchains as a data structure, but because doing so ensures that their coins are always valid and accessible.

In NFTs, you have a similar dynamic, whereby JPEGS, MP3s etc are all data structures that provide access to content, but they are not what gives the content value. The value is the mind of the holder. Therefore, copies of those data structures provide access to the content, but they can not degrade the value of the thing itself. On the contrary, providing widespread access promotes their value in two ways: First, hashing the content in part allows their tokens to be validated (the other part of validation is ensuring that link back to the artist, which we'll get to later). The second purpose copies serve is to spread awareness of the content. This is analogous to opening an art gallery and allowing patrons to access content without owning it: this is done to promote the work and reach potential buyers who are in the market for ownership. So, if mere access destroyed the value of content, you would never know the smile of the Mona Lisa.

Digital signatures establish provenance

Another criticism is that NFTs are merely digital signatures and are not even "tied" to the art at all. However, in fine art a work's provenance is the historical record of ownership leading back to the original artist, who often sign their work upon completion. NFTs attempt to establish just such an historical account. This concept may seem crazy for someone new to crypto, but cerntainly not to bitcoiners:

In bitcoin, digital signatures are the basis for all bitcoin transactions. However, the signature itself is not what gives bitcoin value, which is only in the mind of the holder. Holders believe 1) their coins have value 2) are willing to exchange goods and services just to obtain more of them and 3) that the act of transferring tokens via signature somehow embues that value on the tokens they receive. Even though every bitcoin is technically traceable to its origin, we still believe they are all worth the same (i.e. fungible).

Market incentives promote content availability

A claim is that NFTs reference hashes on ipfs and that there is no guarantee that people will keep such content on their machines. However, there is a market incentive to host content that you own and value. You might as well complain that if everyone stops running bitcoin nodes, then all bitcoins will be worthless! That may be technically true, but the value of the token would have to go to zero before people stopped hosting it, not the other way around.

Addressing Centralization Fears

Centralization concerns should be put in context of the current state of affairs in the digital arts industry, every aspect of which is entirely centralized. NFTs, by comparison are a vast improvement, because they afford the artist with a level of control that no traditional content platform can. We will look at the various places where centralization may be a concern and how they may ultimately be mititgated.

Token issuance is a business decision

A concern is that artists might release additional tokens for the same asset, either on the same network or on another platform, thus devaluing the tokens held by their investors. First, the market will determine the relative value of original and reissued NFTs. When the Bcash fork occured the market recognized that the two coins were distinguishable, even though they shared the same history. There may be hundreds of bitcoin forks, but that does not mean bitcoins themselves have inflated. Second, token reissuance is no more dangerous than a company releasing additional stock, and there are legitimate business cases for doing so. For example, if an artist wanted to obtain certain features from some other platform, they could offer to trade their newly minted tokens in exchange for old ones. Or, consider a band in need of cash to go on tour and promote an upcoming album. Such promotional activites may actually increase the overall value of their tokens, so investors may accept this as a risk they are willing to take.

NFTs allows for competitive forms of authentication

Another concern is that artists rely on central authorities to validate their authenticity. First, there is no barrier to entry in providing authentication services, so competition between such services should drive down costs for artists wanting to release "bona fide" content. Second, artists themselves could authenticate each other's work via Web of Trust. While more technically demanding, this identity model allows artists to support and promote each other and without necessarily revealing their identity to the wider public.

Addressing NFT valuation

Physical utility is not the issue

Gold bugs like Peter Schiff have said for years that bitcoin has no value because you can't hold it in your hand, wheras gold is shiny and yellow and has some utility. Bitcoiners reply that even though products like Casascius coins and hardware wallets allow you to do just that, these are just novelties. It is said that Bitcoin is even better than gold because of its virtual nature: "Imagine if there were a metal you could transmit across the world in 10 minutes and reconstitute it in someone else's brain - what would that be worth?" Well, imagine if there were some magical paint that could preserve every atom of your artwork in perpetuity while being instantly accessible? A physical display is no proof that the physical thing gives the virtual thing value, at least no more than Casascius coins prove virtual bitcoins are worthless.

How does one value NFTs?

The above arguments against NFTs are mostly bad from a bitcoiner's perspective, but that does not mean all NFTs will hold value long term. Just as with every new asset, it will take time for the market to price new content, and in the meantime the NFT market as a whole will be volatile. However, there are a few reasons I think NFTs could be less risky than ICOs or even stocks.

NFTs are arguably easier to evaluate for a layperson than stocks or ICOs. You don't need to be a CPA or read a white paper. You look at a painting or listen to a song and decide if it's worth something to you. This is actually not far from the pay-what-you want model introduced by Radiohead when they released In Rainbows. I recall paying 20 GBP at the time. Years later, I don't even know where those mp3s are. But I wonder how much would I have paid if there was the option of reselling later? As with all investments, pay what you think it's worth and risk only what you're willing to lose. Personally, I look forward to a time when content is valued for its originality as opposed to what is most popular.

Addressing Moral issues

Artists should never sell for less than they think it's worth

One claim is that artists don't really believe their stuff is worth that much, so NFTs must be illigitimate. However, this sentiment exists whenever anyone sells anything: When you sell something, you are in effect saying "this is not worth as much to me as it is to you". Artists especially understand this because they are constantly trying to decide just how little they're willing to sell for. But bitcoiners know this as the subjective theory of value and the basis on which all free trade is based.

Attribution is ultimately the responsibility of the artist

One claim is that it's too easy to forge NFTs. On the one hand, investors should be leveraging identity services before making any purchases: otherwise they risk buying an asset that turns out to be a fake, just as one could buy a forgery that has no established provenance. However, some artists may simply refuse to use NFTs, and they may complain that their work is stolen if someone else releases their work without attribution. This is basically an intellectual property issue and has the same reprecussions as plagiarism, patent rights and the like: you either rely on the state to resolve the issue for you or you make some effort to time stamp your work before someone else does. Bitcoin's blockchain is especially useful as a time stamping mechanism.

The environmental impact of NFTs will be similar to bitcoin's

One claim is that because NFTs are minted on blockchains, then they are bad for the environment. I haven't heard any bitcoiners make this claim, but it's worth mentioning for the sake of completeness. Obviously the same arguments apply to bitcoin, and they've been discussed elsewhere.

Addressing Historical Context

One claim is that if colored coins have failed to become an industry standard, then the NFT model itself must be invalid. This conflates the technology from the business model around it. While most bitcoiners know what a colored coin is, they probably never heard of the businesses that attempted to use them the way NFTs are issued today. As a founder of one of those companies, I can at least address the business model.

Why Ariagora failed

I founded Ariagora in 2012, and our goal was to tokenize the music industry. I believe Ariagora was the first company trying to mint colored coins for digital content -- I would constantly scour the web for other companies doing similar projects, but no one else was attempting it until recently. I probably should have taken that as a sign that we were too early rather than worry that we might be too late. I could point to various technological and regulatory hurdles, but that really wasn't the problem.

On paper, I thought our pitch was simple: if a digital currency can have value, why not anything else? But first you had to introduce people to the concept of digital scarcity in Bitcoin, that it uses this thing called a blockchain, and that tokens can be minted on blockchains and maybe those can have value too. Also, artists need to learn how to do cryptographic signatures. And then you need some kind of crypto exchange where these things can be easily traded and hopefully not be deemed securities. Then you needed a critical mass of fans who understood all of the above and were willing to invest. About 10 impossibly unlikely things had to happen before you could do this practically. I think the model simply wasn't viable then, but it's an idea whose time has come.

Why bitcoiners should care about NFTs

I've tried to make the case that many of the arguments against NFTs are very near to those made against bitcoin, and this is one reason bitcoiners should have an interest in the conversation around them. If NFTs go mainstream, then they will have solved many of bitcoin's education woes. Therefore, we should be giving artists the tools to do the same on bitcoin and all the advantages that brings.

Art has long been used as a store of value, which happens to be Bitcoin's main selling point, but that does not mean we have to respond defensively or be jealous of other platforms where the notion is taking off. I think we should be listening to what artists are saying and try to stay humble, because they're doing our job for us. They're the ones risking their reputations and even getting death threats over the same environmental concerns levied against bitcoin.

Finally, if bitcoiners want to win hearts as well as minds, then they should see NFTs as a rare opportunity to influence culture and society at large. By becoming patrons of the arts, we could usher in a new Renaissance, one that speaks to our values and principles, one that inspires others to build a better world. Ultimately, artists will forge ahead with or without our approval, but, frankly, we need them more than they need us.

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