On the heels of "Reddit vs. Wall Street" comes the latest money-making tech innovation: the NFT, or "non-fungible token." The simplified explanation: using blockchain technology (the same that's used for cryptocurrency like Bitcoin), NFTs are digitally generated and tied to a specific digital item, such as a JPG file or Twitter tweet. It's the digital equivalent of an "official" ownership certificate for a physical item.
NFTs entered mainstream news recently with some high profile sales. Most prominently, an NFT of Twitter CEO Jack Dorsey's very first tweet (that launched the service) has been sold for $2.9 million (with proceeds going to charity). Other forms of media have also grown interested in NFTs. For instance, DC Comics now offers NFTs for a line of "Batman: Black and White" statues... while also sending a letter to their comics' creative staff not to use DC-owned characters in digital art tied to NFTs.
The problems with cryptocurrency
Why the interest in NFTs? Basically, it's for speculative reasons, i.e. a way to "get rich (fairly) quick."
The NFT, however, is a pretty deeply flawed concept as it currently exists. On top of that, the NFT collectible shares the flaws of both cryptocurrency and of the worst aspects of collectibles.
I've written before about the flaws of cryptocurrency, but basically:
- It's not backed by the government, like government-issued currency. The government regulates currency and banking, and even provides insurance on bank accounts. Meanwhile, good luck if you lose access to your Bitcoin.
- It's difficult to use for most real-world transactions, unlike normal currency. My landlord, the vending machine at work, and the supermarket near my house don't take Bitcoin. I also can't easily send my niece cryptocurrency for her birthday (even if she could find a toy store that'd accept it). Basically, cryptocurrency fails at regular currency's job of being ubiquitous, widely accepted, and easy to use.
- For the "we need an alternative to commercial banks" crowd, we already have that: credit unions. They're still regulated and secure, but are non-profit, and thus lack most of the flaws of the likes of Wells-Fargo or Bank of America. For more on credit unions, see this Two Cents video.
- Finally, and the worst aspect, generating cryptocurrency (via "mining" on computers) requires a lot of electricity use to generate. The BBC reports mining Bitcoin requires 121.36 terawatt-hours of power a year, or slightly more than the annual electricity usage of Argentina (and putting Bitcoin in the top 30 global energy consumers). This makes cryptocurrency horrifically wasteful and ecologically destructive, especially during a time when climate change is on most countries' minds. The same goes for NFTs. Time magazine notes the cryptocurrency many NFT marketplaces rely on, Ethereum, requires 26.5 terawatt-hours of power per year to generate, or almost the annual electricity usage of Ireland.
The problems with NFT collectibles
Along with the flaws of cryptocurrency, the NFT as a collectible also has other flaws:
- It has the same downsides of collecting anything for speculative reasons—Beanie Babies, baseball cards, stamps comic books, etc. For those over 30, remember when Beanie Babies were the "hot" collectible in the 90s?
- An "official" certificate for a digital item isn't much better than, say, the "official" certificate that came with Cabbage Patch Kid dolls in the 80s. Again, given the environmental downsides of NFTs, it's actually worse?
- You still don't own a physical item. This is a big reason why some comic book readers refuse to buy digital comics—they want a physical paper comic to own.
- Concerns about pirates selling NFTs of someone's intellectual property.
Overall, there's no reason for most people, including content creators, to get into NFTs. If you really want to own a collectible, you're better off buying a physical item from someone. Also, if you want to support someone who creates digital work, you can pay them for such: buying a digital copy; buying a print version of their digital work; donating to their Patreon or Ko-fi; etc. All of these see money go to creators, and without supporting an ecologically destructive process relying on a digital currency of questionable value.
Image by vjkombajn (Pixabay).