This is the part that I’ve struggled with the most. The disconnect between what is actually sold (essentially a unique spot in a database) and the art or whatever it is that is supposedly associated with it.
To help clarify my understanding, if you did want to confer copyright rights with an NFT would you do something like write up a contract stating something like “whoever owns token XYZ123 on blockchain ABC has these specific usage rights”? If Jane Doe owns that database entry they get those rights… is that different from an NFT-free contract that just says “Jane Doe has these rights”? I suppose the NFT contract implicitly allows for transferability but I’m guessing a regular contract could be written like that too?
If I’ve got that right (and I don’t feel certain about that at all) then I’m not sure what NFTs bring to the table in terms of proving ownership of usage rights. You’re still gonna have to fall back on however we prove these things outside of the blockchain. At best the blockchain is evidence you own token XYZ123 on blockchain ABC.
Some of the game companies are experimenting with selling game assets (e.g. artwork or virtual items) as NFTs. Presumably they’re not giving away the copyright rights to these assets. If I’ve understood that correctly then essentially all they’re selling is a unique position in a new database they made up? They’ve associated it with a specific “asset” but that association only exists while they credibly say that it does. I’m not sure why they couldn’t just sell that unique association without the blockchain. Cynically I feel that they can’t do that because it’s so obviously a stupid thing to buy, but if you throw NFTs and blockchains and “I’m going to miss out on the shinyness!!!” into the mix maybe people don’t realize that? Am I wrong?
The key point is supposed to be the decentralization, but that’s not something everybody gets.
If I manufactured widgets and individually numbered them, then I could have a central database of all widgets that everybody could reference. I am the ultimate arbiter of the list. There’s nothing stopping a person from making their own fake database of widget serial numbers and put fake widgets on it. But the “authentic” widget list would still be the one I held.
With NFTs, there is no ‘central’ database. It’s decentralized. But at the end of the day, it’s just a ledger. And fake entries can be put on ledgers. And there’s nothing that says the contents of the ledger have to have any real value. That’s not unique to blockchains. The same could be true for a central database.
Where things go sideways is that most people don’t really get that. Executives are excited because it’s a potential source of revenue that doesn’t cost a lot. They don’t have to understand how they work. Some consumers don’t have to understand how they work, either. It’s just something related to the interwebs and new technology. And there’s evidence that a lot of people in NFTs are treating them like tulip bulbs, i.e they don’t personally value them but see them as a get rich quick scheme.
I’m still confused by this though. In the centralized numbered widget database I see two problems that are solved (assuming you trust the arbiter): a link to a specific owner AND an associated link to a specific numbered widget. Both problems are solved with the centralized database and rely on the credibility of the arbiter.
But the decentralized version of this involving NFTs is only half decentralized. You’ve got a decentralized link to a specific owner, yes, so there’s no arbiter you need to trust on that one. But surely you still need something that links that specific owner (i.e. the NFT token) to the actual numbered widget. If that link is meaningful (e.g. gives you some usage rights to the specific widget) I can’t see the decentralized solution to that. You still have to trust the arbiter.
That seems to be the case with all the real life NFT uses I’m aware of: your NFT is associated with a specific artwork because the URL encoded in the NFT currently links to a webpage that hosts it; your token is associated with a game “asset” because the game company says it is. Etc., etc.
Let’s say I bought a special limited edition printing of the latest Dean Koontz book from Cemetery Dance (the publisher of his limited edition books), which comes with a page saying this is copy B of 26 books labelled A to Z. Obviously buying the book doesn’t confer any copyright. I can sell that particular book to someone else, but I can’t make a bunch of copies and sell them. The book itself, however, does have some value.
Here’s what gets confusing to me. In this analogy, the NFT isn’t the book itself, with its special leather binding, artwork, Dean Koontz’s signature with gold ink, etc. In this scenario, the NFT is the receipt from Cemetery Dance that I bought that particular book. Yes, the receipt is important if someone questions my ownership of the book, but it doesn’t have the value that the book itself has.
Is this analogy close to being correct, that an NFT is basically like a unique receipt or proof of purchase, rather then the actual product itself?
Sort of, and this is where a lot of people are having problems finding an actual problem blockchain solves that doesn’t already have a solution.
The link to the specific owner is provided by a cryptographic key. It says that a specific keyholder is linked to a specific ledger entry. Centralized or decentralized, the owner is only linked to the ledger entry, not to a specific item. I can write down in my ledger that Joe Q Random owns Widget #A89314BFU. That doesn’t mean Joe Q Random has that Widget. It just means the entry exists in my ledger. But there’s usually some kind of incentive (I own the Widget factory, for example) that makes it worth my while to keep an accurate ledger.
For NFTs, it relies on a crowd of people all holding copies of the blockchain to keep them honest. The concept/conceit of the blockchain is that once the crowd (a sufficient majority of the holders of the blockchain/ledger) agrees on the ledger entries, that’s enough to establish the validity of the ledger entry. In a centralized scheme, only one person - the holder of the ledger - needs to do this.
With a single ledger controlled by a single person, the validation part is easy. If some random hacker in Russia makes their own widget ledger, it can be ignored pretty easily in favor of mine. But with a decentralized one, you need a big enough crowd, and this can be tough in some cases. But once you get to that point, it’s also hard for a single bad actor to corrupt the ledger, while with the central widget ledger, it’s only as trustworthy as I am.
The central ledger is still generally better in many real world cases, but I can see the rationale for decentralization, at least. But ultimately, blockchain seems to be a solution looking for a problem.
You can do NFTs that encode the book into the blockchain itself. So it can contain not only the proof of purchase but also that copy of the book as well.
But in most real world examples, NFTs generally contain a link to a website rather than the work itself. There are a few cases where the artwork has been embedded into the blockchain but they’re the exception.
Even if this is the case, I don’t get where the value comes from. Maybe I’m too old fashioned, but it seems to me like one digital copy of a book, or piece of artwork, or music, is the same as the next one. What makes Jimmy Fallon’s copy of whatever monkey picture NFT he bought any more valuable than the one I could get by right clicking on a picture I find on a Google image search?
What gives the Mona Lisa more value than the cost of the physical materials? Beyond the physical effort and materials, value is whatever people mutually decide it is.
I don’t value NFTs particularly high, so I wouldn’t pay a lot of money for any. But I recognize others do place some kind of monetary value on them.
Likewise, I don’t value baseball cards (also in a bit of a speculative bubble that may just now be deflating), so I wouldn’t pay a lot of money for them for myself. But I recognize others do place some kind of monetary value on them.
I fully expect most NFTs to lose most of their value eventually, i.e. it’s in a big speculative bubble. But I recognize there is ‘value’ by some definition. To me, the more useful question isn’t about value, which has a large subjective component, but about the utility of the blockchain and cryptos in general, and I haven’t seen a good use case for them.
I understand this part, and ownership for the token itself is clearly decentralized and not subject to the whims of a single arbiter.
My confusion is that this doesn’t seem like it’s enough to be useful or add any value. So I can prove 100% that I own token XYZ123 on blockchain ABC. Perfect. I go back to the widget manufacturer with proof of this token ownership to claim my numbered widget or permission to use the widget. What happens now? The manufacturer has to decide if they’re going to give me access. Possibly they’ll look in their own centralized ledger for a link between the token and widget. Maybe they have a stack of invoices they can check. Or maybe there’s a signed copy of a contract that both parties keep in their respective safes. Or maybe there’s enough circumstantial evidence (email chains, etc.) to convince a court that the token implies widget ownership. Either way, we’re back to the old school centralized mechanisms to close the loop.
As I noted, I see it as a solution looking for a problem.
Clearly, there are some people who think there’s something there, but it’s far from a universal opinion. And I have yet to see them actually come up with a novel or interesting use case. It’s tended to be more of the ‘have faith, some smart/enterprising person will come up with something eventually’.
I’m of the opinion that somebody smart and enterprising already has - separating gullible people from their money.
That said, I do think distributed database schemes can be useful but just not in the ‘this will revolutionize the world’ sense.
From what I understand, that’s because the NFT doesn’t really prove that you own that particular widget. All it does is prove that you own the receipt for that particular widget. Why anyone would want to prove they own a receipt is beyond me.
But if I paid my employees in bit coin, then that 1 bit coin would represent value because a bunch of burger flippers spent 4,400 hours flipping burgers to earn that coin. This really isn’t a reason that dollars are better than bit coin.
The two things that give bit coin value is
People seeing them as valuable.
The inability to manufacture them cheaply.
There is not particular reason that the first of these should hold for bit coin, but that is true of a whole lot of other investments and currencies. For whatever reason (see also below) bit coins over time do appear to be increasing in value, and those who have invested in them have made money. Yes its all built on clouds, but as long as bigger fools exist to buy coins at higher prices who can then sell them to people for even higher prices to even bigger fools ad inifinitum whose to say that they are actually being foolish.
The second is where the block chain fits in. It prevents people from flooding the market with bitcoin. Unlike Casino chips, dollars or monopoly money you can’t just up and print a whole bunch more on a whim. In order to make a bit coin you have to provide proof of work waste. So you can’t just make coins out of thin air
Today that means that in order to get a bit coin you have to run around 15 high powered computers for a year, using the power equivalent of 76 tons of coal randomly guessing numbers. It takes a bunch of money to waste that many resources to no useful purpose. Fortunately our enlighted society has decided when faced with global catastrophe caused by our hunger for energy and lack of clean alternatives, to reward each purposeless extra step towards oblivion with a chunk of random numbers that some idiot will buy for $44,000.
I actually wonder whether this waste reward ratio is at the heart of what is causing bitcoins rapid increase in value. Essentially, as time goes by and more people mine coins the cost of mining goes up, which causes people to see them as harder to get and hence for valuable, so they are willing to pay more which causes their price to go up, bringing in more miners etc. Effectively the cost of bit coin in inextricably tied to the cost of energy severing it from the effects of increasing price. No matter how expensive energy gets, the bit coin miners will still be wasting just as much.
This is another area in which I disagree with those who are fans of bitcoin. At least those who are fans for that particular reason. Dollars aren’t printed up on a whim. Even when we have idiot POTUSs or idiot Treasury secretaries. If we ever do get to the point where the Treasury department is printing up dollars on a whim, a la Weimar Germany, Mugabe’s Zimbabwe, or Maduro’s Venezuela, we’d all be screwed (meaning the whole world, not just Americans) way past the point where bitcoin would do anyone any good.
The more I think about, the more I find myself agreeing with the idea that it’s just a big Ponzi scheme that has suckered a lot of people and is contributing to global warming.
Yes, I totally agree. The ability to control the money supply is actually a good thing, and is why getting off the gold standard was a good idea and Greece being tied to the Euro doomed them.
Also you are spot on with regard to the non-existence of scenarios where bit coin replaces fiat currency as the primary driver of economics. If we reach the point where fiat has failed then the primary currency is going to be canned goods and ammunition not some random numbers on a thumb drive that takes a vast infrastructure and 1.7 mega watt hours to transfer from one person to another.
I think this is the critical point. We shouldn’t compare Bitcoin to dollars. People want dollars to use as money–a medium of exchange, unit of account, and store of value. Nobody is obtaining Bitcoin to use as money, and there are a lot of good reasons why nobody ever will. We should compare Bitcoin to other Bigger Fool investments–like tulips and Beanie Babies. Both of those crazes only lasted about a year before the bubble popped–and the bubble popped because rising prices increased production. With Bitcoin there is a hard cap on the number that can come onto the market, and it is not immediately obvious what would cause the bubble to pop.
Maybe Bitcoin can sustain a high price for no reason at all.
The people of El Salvador are using it as money. IMHO it’s not a good idea for them to be doing so, but they are doing it. My guess is that they’re doing so because their government is corrupt and wants to accumulate dollars and leave the people with bitcoin that will eventually crash.
El Salvador is still basically pegged to US dollars but are also allowing (forcing) the use of bitcoins as a valid alternative, even if its value floats (sometimes extremely) compared to the dollar.
I suspect that rather than leaving the people with bitcoins, they’re covering up fraud and embezzlement via Chivo (the bitcoin wallet app in El Salvador). There’s been an unsurprising lack of transparency and accountability surrounding government funds used to purchase bitcoin and around Chivo.
What I think could pop that bubble is alternatives. There are so many other cryptocurrencies out there, that as soon as Bitcoin is no longer the one that is favored, it will drop like a stone.
Really? People in El Salvador are keeping books in Bitcoin? People in El Salvador are making routine purchases in Bitcoin? You have a cite on that? There are real, major problems with using Bitcoin as money–huge swings in price relative to US Dollar and extremely high transaction costs and extremely slow transaction times, primarily.
These are just some stories of people that have started using bitcoin as money. I didn’t and am still not claiming that they are having success with doing so. But they are doing it. As you say, it has real, major problems. All that means is that they are having real, major problems with making their purchases. It doesn’t mean they haven’t tried.