The delirium of NFTs will lead us to the end of the world
Sotheby's First Physical Exhibition of NFTs, New York, Jun 2021. Photo: John Angelillo/UPI/Shutterstock

The delirium of NFTs will lead us to the end of the world

If it is possible for anyone to obtain the Beeple's digital artwork with a `Ctrl + C`, `Ctrl + V`, why would anyone pay millions for a certificate of ownership that has no legal backing and can disappear at any time? Rodrigo Ghedin's analysis of NFTs for LABS

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If Walter Benjamin were alive, he would have a lot to think and write about the digitization of culture, services like streaming, and all the kinds of business that gravitate around the arts, such as NFTs. In the absence of the 20th-century German thinker, you will have to content yourself with me, a mere observer without Benjamin’s talent or knowledge, to try to understand this last one, the NFT (Non-fungible token), the great 2021’s market sensation or fraud, depending on whom you ask.

At first, I should explain, or try to, what an NFT is. I will do this but avoiding the technical details that generally do not contribute so much. Some people argue that the supposed complexity of the thing is a prerequisite to sell it, but the NFT is, in its essence, much simpler than it seems. If the basic investment tip is to know what you are investing in, this purposeful difficulty in understanding NFTs turns on the red alerts. 

In simple, or understandable, terms, NFT is a record in a distributed database (the blockchain) that assigns ownership (and therefore intrinsic value) to a digital item.

NFT is a weird business because it reneges on the defining characteristic of digital even though it is itself digital: the perfect reproducibility at negligible cost. You can do a test yourself on your computer: open Windows Explorer, select a file, make a `Ctrl + C`, `Ctrl + V`. Congratulations, you have created a perfect copy of a digital item. There are even mechanisms to certify the perfection of the copy, to attest that the zeros and ones of the new file are exactly the same as the “original”. In digital, the perfect copy is so trivial that we are not even aware of it in everyday life.

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The ownership of an NFT is recorded on a blockchain, another technology that is hard to explain and, so far, useless. (Note a pattern.) The buyer receives a JSON file with a brief description of the item and some URLs. These blockchains are created or borrowed by the startups trying to get NFT technology off the ground, and there is nothing to guarantee that they will be around in ten years, on the opposite – it is statistically unlikely, given the high mortality rate of startups in general. If (or when) the startup that owns the blockchain where your NFT has registered breaks down, bye-bye to your NFT as well.

The registration of an NFT is intended to certify that a certain digital file has an owner. It can be a drawing, a song, a Twitter post. This text you are reading, for example, is actually an HTML file with some dependencies (other CSS and JavaScript files) stored on the LABS server and displayed as soon as requested by your web browser. For it to become an NFT, all it would take is for someone to register it on a blockchain. Yes, it is that simple. Another striking feature of digital is its versatility. Today, anything can be digitized, therefore anything can become an NFT.

There is no time to get into that tiresome discussion about what art is. And it doesn’t even matter when it comes to NFTs. Actually, what matters least about NFTs is the object itself that is being traded. 

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The parallel with art used to defend the importance or necessity of NFTs is almost perfect… until the moment I do a `Ctrl + C`, `Ctrl + V` on that Beeple painting sold for millions of dollars, but in cryptocurrency. It is not as if I have the equivalent of a mug with the Mona Lisa painted on it. The more accurate comparison is that by doing this I have the Da Vinci painting itself, without spending a dime. The power of digital. 

In the world of NFTs, the anonymous buyer and I have, in theory, the same file, but he can say he “owns” the art and whoever wants to believe it, believes it. 

Not that traditional, analog art has anything godlike about it, nor has it ever been used to launder money and reputations, among other questionable uses. Far from it. It’s just that in NFT there is not even the concern to keep up appearances, nor any valuation beyond the financial, nor any advancement or questioning of the objects it turns into merchandise.

When Benjamin, our German philosopher from the beginning of this column, focused on technical reproducibility and the loss of “aura” in art in his famous article in the 1930s, he addressed the new possibilities and challenges that cinema, recorded music and printing copies of the Mona Lisa opened up. Digital has brought a plethora of new possibilities in this regard. NFTs? Zero. It is an “evolution” of the market, it has nothing to do with art.

Cryptocurrencies, the basis of delusion

In his best-seller “Sapiens: A Brief History of Humanity,” Yuval Noah Harari argues that money and religion are the greatest fictions that human beings have ever created. Think about money. Those pieces of paper (banknotes) and numbers on the screen (in computerized systems) have value because of the unshakeable and universal belief that they have value. NFTs, and by extension cryptocurrencies, also rely on faith. They merely migrate the object of belief to an algorithm, because, they believe, the algorithm would be “neutral” and therefore fair.

If it is possible for anyone to obtain the Beeple’s digital artwork with a `Ctrl + C`, `Ctrl + V`, why would anyone pay millions for a certificate of ownership that has no legal backing and can disappear at any time? The answer could involve noble purposes, like promoting art, or even selfish ones, like being able to brag yourself and say “it’s mine”, and maybe there is some of that deep down inside, but let’s face it, the real reason is the same that has led more and more people to “invest” in cryptocurrencies: the belief (!) that the value of these digital assets will rise in the future.

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Another parallel could be drawn here, with the stock market, whose fluctuation and profitability are also based on the expectation of future appreciation. The difference is that stocks have a ballast in reality, the reality of companies, which every three months present results and share profits with their shareholders after manufacturing products or providing services. NFTs and cryptocurrencies don’t go that far. They are imaginary “riches”.

(The other day I heard about people selling tokens of shares of listed companies, such as Tesla, Apple and Amazon, on cryptocurrency platforms. They are “synthetic versions”. Fascinating.)

I wouldn’t go that far, so I was relieved when Jemima Kelly, columnist for the Financial Times, made it crystal clear that: “If such a system [of cryptocurrencies] reminds you of a Ponzi scheme, that’s because it is.” She acknowledges some differences between the two, such as the decentralization of cryptocurrencies, but both crypto and Ponzi schemes only fulfill their functions as long as there are new people, or new believers, joining the scheme. One day, naturally, people run out and then the scheme collapses.

In an interview with LABS, Jorge Stolfi, Ph.D., professor of Computer Science at Stanford University and tenured professor at Unicamp, classified NFTs as “the absurdity of cryptocurrencies squared”. A staunch critic, he had already equated cryptocurrencies to Ponzi schemes before Jemima and, to illustrate such absurdity of NFTs, published a post of a hilarious fictional conversation, imagining how an art collector would show his collection of NFTs to a curious person.

“Owning a physical painting has meaning because only one person can have it. Only that one painting has a history. The atoms that are there are the same atoms that Rembrandt took from his palette and put on the canvas, whereas the electrons and photons that are in a digital image on your canvas are not the same ones that the artist put and, on the other hand, they [the copies] are all equally good, they have the same history,” Jorge explains. “They are copies of the pattern of electrons that the guy put into memory when he was painting on the computer screen. Even when he painted on the canvas, the image was in memory. As soon as he saved the image on the disk, he made a copy from the memory to the disk. What is on the disk is not even original, it is already a copy.”

Lest you say I’ve only listed staunch skeptics in this critique of crypto-actives, just the other day Jackson Palmer, co-founder of Dogecoin, a “shitcoin” embraced by Tesla’s Elon Musk, himself a technocratic believer, answered a question that everyone often asks him, whether he would ever mess with cryptocurrencies again:

A bright future, but for whom?

Fiat money, that fiction we all believe in, has its many problems but solves many others, particularly the exchange of goods between human beings. And it circulates, it instigates people – sometimes too much – to act. I can buy a loaf of bread and pay the rent with what I receive in exchange for my work. With cryptocurrencies? There is no possibility of fruition or disposition. If I want to earn more money, I can work and/or undertake. Want to earn more with cryptocurrencies and/or NFTs? Sit tight, literally. At most, post on Twitter that buying cryptocurrencies is too good.

The huge values achieved by cryptocurrencies in the last few years and in 2021 in the NFT auctions have made people in the traditional market, from financial institutions to auction houses, take digital assets seriously, because today “money” is the defining argument of what should be taken seriously. The first cryptocurrency ETF from the Brazilian stock market B3 was launched the other day and is already one of the most popular in the country, and maybe I’m not exaggerating if I say that every two or three days I receive a press release from someone launching an NFT in Brazil. 

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“Do you know the Maddof story?”, Jorge asked me. Bernie Madoff made his fortune on Wall Street in the second half of the 20th century with a fraudulent scheme that lasted almost 30 years but eventually collapsed. For the professor, cryptocurrencies revive that scenario, where a highly profitable scheme is presented and so many turn a blind eye, from institutional investors to governments, to the glaring loopholes. “I won’t venture to predict the end of cryptocurrencies,” he continued. “If it goes past that [the time that Madoff’s scheme lasted], then I’m going to start thinking it’s taking too long. It might be over in a month, I don’t know. I’m not going to risk making a prediction.

Maybe it’ll last longer, maybe cryptocurrencies and NFTs will live on and become perennial presences in investment portfolios and… well, only there, because within lawfulness, they’re only good for speculating. That is, of course, until the world becomes a wasteland hostile to human life, not without the help of blockchains and their fabulous waste of energy, and we have to worry about more immediate issues, like fighting over drinking water and food and escaping from deadly heat waves or devastating floods. But, hey, by then that NFT of yours will be worth a lot of money. Or not.

Translated by Carolina Pompeo