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25 Comments

NFTs are a dangerous trap

  1. 5

    I get the (big) downside of energy intensity of blockchain.

    That aside, I'm not sure I get what is the big trap here. Sure, NFTs are supertrendy right now. But that will cool down in time. But how is creating NFTs any different from creating traditional art and trying to be successful in that? Millions are probably doing that too. Most will fail. A few will succeed. Same with YT channels. Same with companies.

    I don't also see any inherent reason that traditional art should by definition be more valuable than NFTs. Why would I prefer a Rothko over a blockchain-minted Jack Dorsey tweet if both are worth $500k? What if I prefer tweets over oil paintings?

    1. 2

      But how is creating NFTs any different from creating traditional art and trying to be successful in that?

      The astonishing amount of energy required to mint and auction an NFT. That's the trap.

      1. 2

        There are blockchain networks that are very energy efficient, such as Cardano, Tron, etc. The problem is with PoW based blockchains such as Ethereum. It’s not the technology, but the implementation.

      2. 1

        I'm highly critical of crypto being energy intensive, but am also hopeful that developers will discover cheaper (energy-wise) means of operating them.

        https://spectrum.ieee.org/computing/networks/ethereum-plans-to-cut-its-absurd-energy-consumption-by-99-percent

        note - I didn't read this article, just grabbed the first one I could find since I was vaguely aware that these optimizations are being worked on

        1. 1

          There are. Check out Cardano, Tron and others.

  2. 4

    tl;dr don't chase the carrot, trust me I've burnt myself

    I got so much value and help from this group that I decided to share my story about NFTs cause I worked with them in the previous crypto wave in 2017/18 and this post might help somebody who's just starting out.

    The story begins in December 2017. I went to the beautiful snowy mountains of Slovakia to hike with my friends for a weekend. Before that, I had already been looking at the crypto space and made small investments here and there. On Friday morning, before I jumped on the plane, I wanted to transfer my ETHs from one exchange to the other, but the fees were incredibly high and the Ethereum network was congested. I quickly changed them to Litecoin, made the transfer but had to rush to the airport and forgot to change back my Litecoins to Ethereum. On that weekend, my funds doubled because of this mistake - Litecoin boomed out of nothing. Lol.

    On the way back to the UK, I read about why I couldn't transfer my ETHs and how CryptoKitties congested the Ethereum network. CryptoKitties -created by Dapper Labs, same company who created NBA Topshot- was the first collectibles project that gained massive following. I remember that people spent 10s of thousands of dollars only for transfer fees 🤯. I'm very technical - been programming since the age of 12 - and felt like I have to learn how to create NFTs. I recruited two friends of mine and we started to work in the evenings and weekends.
    Creating smart contracts from scratch is hard, fortunately, there are many open source examples that you can download, customize and deploy to the Ethereum network. After a month or so, we created an NFT for non profits and charities: pretty much like NBA Topshot, but when you trade them, x percent of the profits go to a charity. Unique idea, everything worked perfectly from the technical point of view, but the more I thought about the business model behind NFTs, the more unsure I was from a moral and ethical point of view...

    Basically, when you buy an NFT, you assume that the next guy or gal will pay more for the token than you did. It works fine until it doesn't. People will essentially move on to the next thing, journalists, podcasters and youtubers won't talk about it anymore and in a few months most of the buyers will be desperate to sell your digital cat/country/topshot/art to anybody etc. It happened in '18 and it is likely that this will happen again when this wave is over. The main issue behind NFTs is that many of them don't provide any extra value. Sure you can argue that they are unique but all digital video, music, picture, or text file can be copied somehow, therefore, imho there is no extra value that most of these tokens provide. After realising that I have basically built a hot potato business, I decided to shut down the project (had ~50$ revenue then). Sure enough, most of the early NFT projects died sooner or later after people got discouraged.

    What I found during the previous wave is that crypto journalism is full of crap. For the newbies, I would highly recommend watching the videos of Andreas Antonopoulos instead of reading an article on a news site. Most of those journalists are chasing clicks and likes anyway. On the other hand, Andreas is one of the quiet ones: a true, no bullshit guy with huge expertise in the crypto space. Here's a very good video from him: https://www.youtube.com/watch?v=qlAhXo-d-64&t=5s.

    So do I think that the whole NFT space is bullshit? Absolutely not, but I think most people are looking at the wrong thing. 90-95% of these NFT projects are worthless, they will likely die after the mania is over. BUT. The 5% of the remaining ones are going to be gold.

    I think there are three ways to create value and win in the NFT space:

    1. Find an application for NFTs that couldn't be created with a traditional database.
      Andreas Antonopoulos talks about the five pillars of open blockchains: open, public, borderless, neutral, and censorship resistant. What is an application that you can do now using the blockchain that you couldn't do before? For example, I love the idea behind Marriage Unblocked by Bjorn Borg. They provide a way to get married for same sex couples and get a certification as an NFT if they live in a country that doesn't allow them to marry. You couldn't do this without a blockchain.

    2. Create the picks and shovels
      There is a massive survivorship bias in the space. You will always find articles about the guy who was born in a cave but now is a crypto billionare etc. Most people and projects never make substantial money, because it is described by a Pareto distribution: a few individuals/projects win big, the majority does not or looses (look at the a16z article: there were $300m worth of NFTs sold last week - the majority was sold by 5 projects). In spaces that are described by the Pareto distribution, the safest way to make money is to find the picks and shovels (instead of looking for the gold). Here in the NFT space, picks and shovels could be like exchanges, hardware wallets, info products or paid communities.

    3. Flexification
      This is something that I still couldn't figure out. If you think about an artwork, many people buy them just to flex with them. 4Ocean is a non profit that sells plastic bracelets to raise money for their projects. People normally wouldn't care, but they buy the $20 bracelet because they can show their friends how cool they are. How would you create something that allows people to flex with their NFTs? A Metamask wallet won't be the final answer for sure... Maybe a digital frame that is connected to the blockchain somehow? I don't have the answer, but if you have an idea, I think there is a massive market for that.

    Hope this was helpful.

    1. 1

      I've thought about your point 3. Flexification as well, since this whole thing is about psychology. I'm not profound with ethereum, what would you say is the main obstacle in e.g. writing a node server to parse the eth blockchain and verify a users ownership of a particular NFT?

  3. 3

    Wouldn’t a “proof of stake” approach solve Seth’s concerns?

    1. 2

      Exactly. Somebody tell him, please.

  4. 2

    Maybe my information on the subject is incomplete, but I'm still not sure what problem cyptocurrency is trying to solve.

    1. 1

      Centralization, inflation, control, costs, efficiency. Everything that’s wrong with current methods. Removing the middlemen between you and me. Cheaper transactions, faster, from my wallet in my country to yours in your country, almost instantly without an intermediary.

  5. 2

    I'm too boomer for this stuff 😱

  6. 2

    My prediction for NFTs: the current form of "just" creating scarcity for digital art will lose in popularity sooner or later. NFTs won't disappear, but rather pivot to a form that can be used for tracking IP, ownership and the supply chain of physical items. Hopefully by then we will use a more energy efficient crypto, but the rate of adoption of crypto's that don't destroy the planet is surprisingly low

    1. 1

      more energy efficient crypto

      What are the energy efficient / ecologically sound options for crypto?

      1. 2

        Proof of Stake is one.

        1. 1

          Thanks. Will check it out.

      2. 1

        Check out Cardano. Currently number 3 behind Ethereum and Bitcoin. Probably the blockchain of the future. It’s still in development. Millions times more efficient than Bitcoin.

  7. 1

    anything new is perceived as dangerous. that's not a bad thing, necessarily.

    1. 2

      Anything new makes my son curious :)

  8. 1

    The real trap is missing the forrest for the trees. The "bubble" for the bath, if you will.

    If the internet wills digital art to be free and ubiquitous, NFT simply allows it to be scarce again. If nothing else, it's an empowering tool for creators.

    Re: eco-unfriendliness of blockchain... ok. Many people share these concerns, hence Ethereum is ditching proof of work entirely in the near future. Not to mention all the Layer 2 solutions...

    Beyond the obvious however, if you're going to argue against a new technology on grounds of "it's wasteful," you have to quantify the net waste of the legacy system it is replacing. Perhaps the new system, though "wasteful" in your view, is still energy-saving compared to the old. In the case of Bitcoin, the legacy system in question is "corruptible money." Good luck calculating net energy waste from that, and all its downstream consequences. But if you don't attempt to estimate, or even acknowledge the importance of such a comparison, then the whole argument is half-baked.

    1. 1

      Is there even a single way in which digital fiat currency wastes energy but Bitcoin does not? From where I sit, there's no pro/con list — Bitcoin is strictly worse when it comes to the environment.

      1. 1

        Banks consume a lot if energy, lots. When you hold your bank in your pocket, the energy amount is minimum. Assuming the blockchain uses PoS and not PoW like Bitcoin and Ethereum. You can run an entire blockchain in 5000 or so computers. How many computers and servers are banks running across the globe?

      2. 1

        I think the point is that you need to look at the big picture. With centralized money leading to opacity leading to corruption leading to polluting the environment, as an oversimplified example.

        1. 2

          But opacity and corruption are both issues with cryptocurrencies. My problem with “look at the big picture” as an argument is that without any specific examples, it feels very handwavey.

  9. -4

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