In defense of NFT’s

Hi.

I am a dapp (decentralised app) developer on Ethereum and artist (not necessarily a good one).

Ever since discord decided to check the temperature on Ethereum integration and found the temperature too high to continue, I have been talking with many (let’s say) sceptics about blockchain tech, cryptocurrencies and NFT’s in general.

I have sent hundreds of tweets and spoke with dozens of people so I wanted to share my thoughts. I tried to organise them as best as I could, but I have a cold and my brain is not working at full capacity, so apologies up front.

Most of the critics I have read seem to be in this video by fantastic artist Cat Graham:

so I will be addressing arguments from that video.

Watch it if you didn’t and jump back here.

Valuing art

Art is valued for a variety of complex reasons and one of them can be that you just love art or the artist.

For example I love Dali and would pay a lot more to own Dali than Picasso or Michelangelo.
Persistence of memory might be one of my favourite paintings of all time (maybe because of nostalgia as this was the first painting that captivated me for whatever reason)

https://www.wikiart.org/en/salvador-dali/the-persistence-of-memory-1931

This has always been an issue for digital artists because only way they could make money is through commissions or if they worked as illustrators on games, comics and so on.

Platforms like Patreon have made this a lot easier, but something was always missing from digital art.

Issue with traditional digital art

It always missed that “history”.

Every artwork has its history of who painted it, who owned it and how it came to where it is now.

Digital art never really had that.

NFT’s offer that. Immutable, provable history to the world.

More important than prof of ownership you can see who owned that particular artwork before you.

Take for example this particular artwork from Beeple:

https://opensea.io/assets/0xdd012153e008346591153fff28b0dd6724f0c256/100010001

…you can check here history of ownership and bidding here:

OpenSea screenshot from https://opensea.io/assets/0xdd012153e008346591153fff28b0dd6724f0c256/100010001

or directly on blockchain who owned it before:
https://etherscan.io/token/0xdd012153e008346591153fff28b0dd6724f0c256?a=100010001

Etherscan screenshot from https://etherscan.io/token/0xdd012153e008346591153fff28b0dd6724f0c256?a=100010001

I would argue this more than anything gives value to NFT’s.

Giving additional value

Let’s get back to Beeple. If you buy Beeple artwork you get physical device with screen where you can see your artwork in a way Beeple intended.

Taken from Beeple’s tweet: https://twitter.com/beeple/status/1386670544322449415?s=20

Then, NFT is there to help keep track of who owns that now and increase perceived value. Cat has addressed this in the video, as this can be replaced as value is in NFT and not in physical case.

Here’s a video of what you get when you buy Beeple NFT:

Money laundering

Many people are right that art is often used for money laundering.
And they are right when they say that blockchain makes it easy.
However, blockchain is public and every transaction from beginning of time is written on it.
If there is foul play it is also very easy to detect as CoffeeZilla has done multiple times in his videos.

Still, getting large amounts of Ether needed to buy expensive NFT’s is really hard to get without going through central exchanges where your identity is known.

Here is homework for you.

Try obtaining Ether without giving your identity away and come back to me with result. How much money you got and where?

That means that it is also a lot easier to detect money laundering schemes than previously.

NFT’s supporter claims

It is hard to succeed as an artist in general.
It is true that many NFT artists are not making that much money, if any.
Success in art world is in a lot of sense marketing.
I know a lot of fantastic digital artists who are not nearly as successful as some others who had better marketing and more interesting/intriguing personality.

This is true everywhere and isn’t that different with NFT’s.

However, for established artists NFT’s offer this advantages:

  1. You can add Discord channels for people who bought your NFT’s and let them in without you doing any work with 3rd party tools. They could also have different colors or attributes so that people who support you financially can wear it with pride.
    Discord wanted to do this integration more directly but got scared when people boycotted it.
    Fan would just log into Discord with their Ethereum wallet and they are in with all the perks you give them.
  2. Your supporters will be able to put your art as PFP on Twitter and will have a badge showing that it’s an NFT making it easier to recognise your supporters.

Minting low price art is not that economically viable currently.
Gas fees are high now as they depend solely on traffic.
Ethereum is very in demand chain and a lot of things are being built on it.
So, more usage, higher fees.
Almost everyhing that you hear that somebody is building on the blockchain it is either Ethereum or one of the chains which use Ethereum for security.

You can check here what uses Ethereum chain most at the moment:
https://etherscan.io/gastracker

We have solutions right now with Layer 2 tech which is basically a chain on top of Ethereum (I really don’t want to go into detail on how it works.)

However, community is prioritising on solving energy usage and then focus will shift on reducing gas fees.

NFT’s are pyramid scheme

Here I have to give biggest pushback. This claim shows that many people including Cat don’t know what Pyramid scheme is.

Pyramid schemes means two things:

  1. Earnings have to be mostly from bringing people in where you earn more by bringing someone in than by selling the product.
  2. There has to be person on top who earns most and earns its money from people who bring other people in.

There are gyms with affiliate marketing. On the surface, it seems to be a pyramid scheme but it isn’t.
They can definitely be set up as such, but deeper look is needed.
Me buying something in hopes of being able to flip it for more money later is not Ponzi or Pyramid.
For example, me buying gold because historically on average price went up so that I can sell it in ten years is neither Ponzi, nor pyramid.

That said, that doesn’t mean that there are no NFT scams.
That would be disingenious.

However, current data shows that most transaction on Ethereum (99% in 2020) are completely legal.

Image taken from https://blog.chainalysis.com/reports/2021-crypto-crime-report-intro-ransomware-scams-darknet-markets

More data is needed, but until someone gives me different dataset this will be my opinion.

Criticism of NFT platforms

Platforms can take cut of up to 15%.

Cat misunderstood this.

OpenSea and Rarible take 2,5% but you as an artist can set to earn 10–15% from reselling of your artwork.

So, if somebody buys your art and in a few years you become big in-demand artist and can’t take any new commissions you will earn percentage you have set when your artwork gets resold.

It is very transparent and can always be checked on the blockchain.

Also, Rarible is decentralised.
Each time you buy or sell artwork you receive Rari tokens which you can use to vote or propose changes in protocol.
That means you pay 2.5% to platform that gives you Rari tokens which have some value.
Imagine if every time you took Uber or drove someone with Uber you received part of Uber stock that you can use to vote and propose voting.

I think that’s pretty cool

Energy usage

Yes, Ethereum uses energy.

Entire Ethereum ecosystem with billions of dollars of value inside, millions of users and hundreds of decentralised apps.

These are protocols with most money in their treasuries:

Ethereum uses 0.05% of worlds energy which might be high but conversation is centered as if it was ten times more.

In the meantime:
https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change

Regardless, criticism is legitimate and Ethereum community is aware of it.
Ethereum developers have been researching low power security mechanism (Proof Of Stake) since its inception.
We are finally closing in on this and devs are confident we will have low power energy sometime next year.

You can read more here:

or for more technically inclined people:
https://blog.ethereum.org/2021/05/18/country-power-no-more/

My pitch for NFT’s and Ethereum

Today is 27th of November 2021.

Here is my pitch of what will for example an artist be able to do.
They can do this now as well but gas fees make it a lot harder, so this is my pitch for when Ethereum movers to Proof Of Stake and manages to reduce fees by leveraging L2’s.

Somebody asks you for a commission.

You create it and mint it on Layer 2 (because it will be basically free).

Somebody buys it and you transfer NFT to them.

They now have history of that artwork which goes back to you the artist and they can always prove that you made them this.

The fact that they have your NFT means that if they connect their Ethereum wallet with Twitter (this is a coming soon feature) they get small ethereum icon which makes it easier to check it their PFP is really done by you.

Here is one of the devs displaying functionality:

If you log into Discord (probably coming after POS) you just need to login with your Ethereum address and you get access to additional channels and special privileges.

If you sell that NFT you lose all of those privileges.
NFT’s will be new way we show to which tribes we belong.

Merch in the streets, NFT’s in the … internet. I apologise

Okay. So now we turn to artist.What do you get from that?
You received Ether.

Now what?

You can go to Zapper:

which is decentraliced finance onboarding app and check which protocols offer best yields and put your money there to make it even more productive.

You could also go to protocol like Aave and lend your asset for a percentage.

In Aave it doesn’t matter how much money you have, everyone gets the same rate because everybody’s money is in a pool which determines the rate (so,basically your bank which previously ripped you off needs to play by the same rules if they want to make any money).
Aave is decentralised so that means that by using it you get Aave tokens which means you can vote on what happens in protocol.
If you are not interested you can always send those tokens to someone who is interested.
Hopefully with time, more places will accept Ether or at least some stablecoins.

Conclusion

People often say that fake scarcity is bad and a lot of arguments I feel come from that place.
I don’t see that when people talk about limited edition merch. Creator can make as much of that merch as they want but chooses not to for variety of resons.

I hope that this article has shed a light on what can happen when you leverage NFT’s properly and that NFT’s could be seen for digital creators basically as digital merch.

You can write your comments here or throw praise/shade at:

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