Why NFTs Really Matter

The good-bad NFT debate misses the point

Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Feb. 18, 2022 Was this newsletter forwarded to you? Sign up here. Supported by   You either love or you hate NFTs.    That seems to be where the cultural conversation has ended up around non-fungible tokens (NFT). This week's column looks at what advocates and critics get wrong in this debate and offers some historical analogies to show that, whatever anyone says, NFTs are a big deal.    NFTs also dominate this week's podcast episode. My co-host Sheila Warren and I talk to Eathan Janney, a co-host of the "Edge of NFT" podcast, and musician/technologist/entrepreneur Scott Page about the artistic innovation that NFTs are unlocking and what it means for the music industry.    Have a listen after reading the newsletter. 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NFTs Change Everything Rachel Sun/CoinDesk It's striking how wide the cultural gulf has become between NFTs' many vociferous supporters and an equally loud contingent of NFT critics.   To the former, NFTs are about freedom – a ticket to a brighter Web 3 future in which creatives and users liberate themselves from the internet platforms.    To the latter, NFTs represent all that's wrong with late-stage capitalism: rampant greed, an incentive to fraud, wanton disregard for the environment.    Both are wrong.    The boosters wear rose-colored glasses. Many elements of the Web 3 vision must be in place before it will evolve in the wider interests of humanity. Without those solutions, we'll end up with a system that temporarily delivers extravagant profits to a few early opportunists.   And the critics? They have a static view of technology. As with many flawed attacks on crypto, they assume the current snapshot of the industry's development – of Ethereum's high transaction costs and limited scalability, for example – is permanent. This betrays an ignorance of how innovation occurs within open-source systems and assumes that thousands of motivated developers haven't already recognized the same elephant in the room and started maneuvering it out the door.    My own view: NFTs are vital building blocks for a new creator-centric digital economy in which our data is no longer mined by internet platforms and in which artists, musicians, photographers, journalists and publishers are able to connect directly with their audiences. But they are only that, building blocks.    What we build on top of them is up to us. It could be liberating. Or it could be evil. The choice is ours.    Our Digital Present   To understand the role NFTs will play in this, it's useful to look at the present and past of property rights. (Before smarty-pants legal scholars start @ing me, I am not saying NFTs, in and of themselves, represent property rights. Far from it. I'm saying they are a necessary but insufficient element of the digital and legal infrastructure needed to establish such rights.)   First, the digital present: Until now, we've had no means to define unique digital objects. We couldn't label something as a piece of digital property, not in terms of how "things" in the analog world – such as a house or a car – are viewed as standalone "assets" that a person can own and control.    We've continued to recognize and (tried to) enforce intellectual property concepts such as copyright in the digital age. But IP is not digital property per se – it exists outside of both the physical and digital realms, even if the law demands that it be exercised within those realms.    Enforcement is comparatively easy in the physical realm, because the vessels in which copyrighted concepts are distributed – such as books, or LP records – cannot be so easily reproduced or pirated and so are identified as separate assets from the intellectual property.    In the digital realm, the abundant replication and sharing of PDFs, MPEGS and JPEGs has rendered this equivalent notion unworkable online. It's why early in the internet era the legal profession gave up on trying to apply "the first sale doctrine" – which permits the resale of, say, a used book but not the unlicensed sale of the copyrighted ideas within it – to digital files.   The core point is there's really no such thing as digital property. By extension, there's no such thing as digital property rights – not in the sense of a right to own and resell a digital file.    This is why the invention of NFTs, which have the potential to become the online equivalent of a serial number for digital content files, are so important. They offer a framework for identifying property and, by extension, for building other solutions that will allow us to establish and enforce rights.   Read the rest of this column here. Off the Charts Self-Fulfilling Prophecy? This week we learned the U.S. Producer Price Index – a leading indicator of consumer inflation measuring the cost of inputs for retail goods and services – was up 9.7% in January from a year earlier. That's close to a record for the PPI going back to 2010.    Whether this is just the "transitory" inflationary impact of the coronavirus pandemic's supply chain disruptions will depend to a large extent on whether such alarming numbers are creating a self-fulfilling prophecy. Are they, by breeding expectations of future inflation, encouraging pre-emptive price and wage hikes that will, in turn, prompt others to institute further price hikes in a vicious cycle? One potential measure of that effect: Google Trends data.   It seems searches for the word "inflation" have surged to their highest level since 2004, following an almost two-decade period in which the frequency never really fluctuated that much. Needless to say, this is not a good sign. Perversely, talking about inflation is a good way to breed inflationary expectations.    Whether you should treat bitcoin as a hedge against this news depends on whether you think the U.S. Federal Reserve has the technical capacity and political will to lower the inflation rate at any cost, or whether you think it will balk at engineering a recession and so let the price cycle continue.    In the first case, you might want to sell bitcoin because it will continue to follow stocks and other, policy-sensitive traditional assets lower. In the latter, it could be a buy, a source of protection against a more sustained period of inflation and political impotence.   The Conversation Another Day, Another Critique Prominent tech journalist and social activist Cory Doctorow called it one of the most lucid, wide-ranging, cross-disciplinary critiques of cryptocurrency and blockchain he'd yet to encounter: a lengthy dump on crypto by veteran technologist David Rosenthal. The author's core argument was that cryptocurrencies, as a libertarian invention, disregard the social and environmental externalities that impose unsustainable costs on these systems and ultimately render their models of decentralization impossible.    Whether or not you find Rosenthal's critique compelling, he cited very little, if anything, that was new. The crypto community was underwhelmed.    Bitcoin advocate Jameson Lopp, who was cited in Rosenthal's article, tweeted: "I can confidently say that it's highly biased and leaves out pretty much every possible counterpoint," and then provided a link to a prior-written article containing his "list of "refutations."   The Twitter account @sakeblues systematically critiqued Rosenthal with multiple takedowns, including the point that it "doesn't give any merit to having global 24/7 digital currencies with predictable and auditable monetary policies, that are censorship-resistant and can be used by people struggling repression or constant debasement."   As forthright as these counter-arguments were, it was hard not to feel as if the divide over these issues is irreparable.  When crypto developer Felipe Farinha suggested the externalities are worth it because the world needs a system that allows uninterrupted funding flows to political activists such as the Canadian truckers – a classic bitcoiner position that's probably viewed by Rosenthal and Doctorow as libertarian and naive – the gulf seemed irreconcilable. That was confirmed when Doctorow blocked him. Brave Wallet is the first secure crypto wallet built natively in a web3 browser. No extensions required.   Store, manage, and grow your portfolio, get NFT & multi-chain support. Even connect other wallets and DApps. All from the security of the best privacy browser on the market.    Whether you're new to crypto, or a seasoned pro, it's time to ditch those risky extensions. It's time to switch to Brave Wallet.  Download Brave today, and click the Wallet icon to get started. Relevant Reads Truck Month The trucker protests in Canada may have become a crypto turning point. "Emergencies Act" measures by the government of Prime Minister Justin Trudeau to seize donations to the protesters, including funds sent via bitcoin and other tokens, has energized the crypto community. The seizures have become both a symbol of why censorship-money is important and a reminder of how much more still needs to be done by crypto developers to truly attain that goal.    CoinDesk's coverage started with a quick-breaking news item from Stephen Alpher on Monday evening, as the Canadian government invoked the 1988 Emergencies Act for the first time and took the unprecedented step of extending anti-money laundering rules to apply in this case.    A next-day column from Daniel Kuhn analyzed why, despite the elegance of Bitcoin's peer-to-peer payments system, the "last mile" problem continues to be a human issue that offers governments and other centralized authorities a chokepoint to exploit.   It didn't take the government long to turn its words into action. On Wednesday, as Aoyon Ashraf and Danny Nelson reported, it announced sanctions against 34 crypto wallets tied to the trucker "freedom convoy." On Thursday, CoinDesk columnist (and Canadian) JP Koning lamented both the fact his government went to such extreme lengths and that the cause that has united bitcoiners is not one that is, at the end of the day, illegal.  Money Reimagined A newsletter from CoinDesk Were you forwarded this newsletter? Sign up here. See Previous Editions Copyright © 2021 CoinDesk, All rights reserved.  250 Park Avenue South New York, NY 10003, USA Unsubscribe | Manage your email preferences | Opt out