Fungible – raise your hand if you had heard this word before the hype around NFTs – non-fungible tokens. I sure had not (I first thought it had something to do with mushrooms). It means exchangeable, as in it can be traded for something. Money is fungible. So non-fungible then means it is not exchangeable, but fixed. Which brings us to cryptoart, but first some de-tours.
I used to be rather enthusiastic about the opportunities brought by blockchain technology to enable “transfer not copy”. The internet is often described as a great copy machine, the drawback is that the scarcities that can make economic value are difficult to uphold. (See also the late David Bowie’s 2002-prediction of music as a utility.) However, Bitcoin and blockchain hasn’t really saved copyright yet, instead new challenges have arrived.
The biggest criticism is around energy use. Blockchains require massive amounts of electricity, Bitcoin alone on the same scale as The Netherlands. This is because of something called “proof-of-work”. Simplified: the number of blocks (or coins) on the chain are limited, new blocks are released every five or ten minutes and distributed in a sort of lottery. “Tickets” for this “lottery” are awarded based on proof-of-work; “mining” – the computer solving difficult math puzzles. As more miners mine, more electricity is needed to win the lottery. The value of the block can be thought of as the total price of the electricity put in by all miners. The electricity consumption is built into the proof-of-work system, and it keeps growing. (Longer read on the topic here.)
Never mind the climate, can crypto save art? The non-fungible token is – as the name suggests – a token: what is sold and bought is a token, not the artwork itself. A connection is needed between the token and the artwork. That connection relies on things other than technology: social contract, companies keeping records, the legal system. Rather than replacing copyright or creating a new market for art, the token is at best a piece of evidence that could be useful in claiming the right of ownership. It does not limit copying or re-distribution, thefts have happened, even re-distribution with the artist’s name (more here).
Other markets for digital items, such as assets in video games, have existed for a long time and are operated by for example games companies, without taking the detour around the blockchain. A convincing case why this is a better model has been made by Gamesindustry.biz.
It appears to this writer as non-fungible tokens are yet another example of the pipedream that technology will bring simple answers to difficult problems. If people want to trade NFTs, fine – trade away! The hype is there. Surely some will make some money. The business around crypto-currencies is booming, as represented for example by the IPO of crypto-trading-platform Coinbase this month. The impression is still however that more transaction is being done in Bitcoin than with Bitcoin.
So keep your crypto-powder dry, the old saying is still true: in a gold rush, you want to be selling shovels.