Help me Understand Non-Fungible Tokens

That’s definitely an issue. The NFT may not even be for the digital artwork itself but for ‘access’ to that artwork or a sole license to view it. That’s why the multimillion dollar sales of some of them are raising eyebrows and why people think there’s a speculative bubble here.

And for artworks, the artist also likely maintains copyright, so you probably cannot legally copy it even if you can view it, which is true for traditional artworks as well but less likely to come up in the context of a sale.

If I sell you a ticket or license to log into my web site and have a unique, dynamic artistic experience, that is one thing, but you can’t claim you own the web site, or are guaranteed it will be accessible online in perpetuity. Nor could you copy it— sure, you could illicitly take some screenshots or videos, but, remember, each visitor is guaranteed a unique experience, and you could at best come up with a feeble imitation of how the content is generated.

It’s not even that. It’s the URI to where the artwork is currently hosted and if that person (who has no contract with you or even gives a shit about your NFT) takes it down. You now have a token with nothing (not even bits) to show for it.

That is odd. If the original artwork were a static JPEG (which I doubt in that case, but for the sake of argument let’s say so), then not only can the buyer download it in that case, he must so so, at least temporarily, just to be able to view it on his computer. Also he would be amiss not to download his secret key, that way his token would be less likely to spontaneously disappear. [ETA: according to the article, he has the token, but apparently forgot to save a copy of the JPEG]

As I understand it, he can download the JPEG, but unless the token is generated from his downloaded copy it can be disappeared. Even if he downloads it and generate the token then, if he moves it to a different folder, not his NFT. He also couldn’t view it anywhere else.

IMHO, NFTs are a scam and should be treated as such. They’re electronic ponzi schemes.

It’s not a Ponzi scheme unless you broaden the phrase into meaninglessness. It’s a speculative bubble, like tulip mania. A Ponzi scheme requires some kind of fictitious business and an investment vehicle where early investors are led to believe that the shares are gaining value, but instead are being paid by later investors. That’s not what’s going on with NFTs.

Seriously? That’s exactly what’s going on here.

  1. Create a JPEG or a clip of someone’s video.
  2. Put it on a website (not yours, that would cost money).
  3. Offer it up as an NFT.
  4. Sucker pays money to get a bunch of numbers (in the hope that he can sell those numbers to someone else later for money).
  5. Either take the original JPEG down yourself, or don’t protest when the host does.
  6. Sucker now has a worthless bunch of numbers on a blockchain somewhere (not that he ever had anything else, of course).
  7. PROFIT! You, of course, already have your money.

How is that NOT a Ponzi scheme? Or, if you want a version where the “source” doesn’t go away:

  1. Create a JPEG or a clip of someone’s video.
  2. Put it on a website (not yours, that would cost money).
  3. Offer it up as an NFT.
  4. Sucker pays money to get a bunch of numbers (in the hope that he can sell those numbers to someone else later for money).
  5. Repeat steps 1-4 until eventually Step 4 goes down in value so far that it doesn’t cover the cost of creating the token.
  6. PROFIT! You, of course, already have your money.

Do you know what a ponzi scheme is?

You described some possible scams, but not anything like a Ponzi scheme. The people buying NFTs don’t think there’s some growing or income-earning business backing their investment. They bought a thing for some price, and hope to sell precisely the same thing for more money later. That’s speculation, and what makes it a speculative bubble is that prices seem to be growing totally out of relation to any inherent value of the asset.

That seems shitty at first, but then, how else are you going to go about it? If you buy an NFT for, say, some image, then presumably what you want is to be able to certify that you’re the one who shelled out a ludicrous sum of money for this image. But if you create an NFT from the image file—say, a .jpg—then you won’t be able to certify you own the image, but merely, that particular .jpg file—in that resolution, with that particular compression, and so on. But file format, compression, resolution etc. aren’t what constitute the image itself—yet, if that gets changed somehow (which can happen in any number of ways—saving with a different program, sending through some channel that compresses images sent across it, and so on), then you’ll still have the same image, but can’t certify your ownership anymore.

So you want to be able to say, for instance, I own this, but how do you actually link your NFT to ‘this’? You could, perhaps, use an AI approach, trying to identify similar looking images across different file formats, compression levels, resolutions, and so on, but today at least, such AIs are still easily confounded, for instance by the addition of imperceptible levels of noise that render the image unrecognizable to the AI, yet make no difference for a human viewer. So using a particular reference to the image, like a URI, would get around this—but then, of course, you’d have to guarantee the persistence of the data where the URI points to.

Ideally, the author of the image would release a canonical, cryptographically signed version of the image, and create an NFT from the hash of that version. Anyone reuploading variations of the image would not be able to re-sign it with the author’s key.

It would be the buyer’s responsibility to ensure the original signed version is preserved somewhere, since any given web site might go down. But as long as they have an entry on the blockchain corresponding to the signed version, they can claim to own the “original”.

What he said. I can understand the URI for some piece of dynamic digital art, but if what you want to buy is an image then what Dr. Strangelove wrote makes more sense. If you want to display that image in some transformed state it will not be directly verifiable, but you could link it to some other place where that “original file” exists and someone could see that yes, you own some image file and, yes, this other file is “the same image” to a human. No dependence on someone maintaining your image at a specific URI and potentially one day changing their server so every URI they serve returns a picture of dollar bills sticking out of a pile of human feces.

That doesn’t seem like much utility to me. Software companies could just implement the same system without the blockchain. Keep a list of registered owners, and when someone sells their software, instead of transferring it on a blockchain, they just tell the software company to transfer the license.

Tracking ownership of things is a pretty well-solved problem. We do it for land and cars with title, which is a token (certficate) held by the owner that’s a pointer into a database controlled by a trusted party (the state).

The value of a blockchain is that you don’t need a trusted party because the ledger is distributed. But like many applications a blockchain is applied to, it’s not clear that there’s an actual problem here that the blockchain is well-suited to solve.

If you don’t trust the software company, then what value is a license of theirs? They control the software and could just ignore your license. You could then sue them for doing so, but the blockchain doesn’t really help there either. You can sue them based on a normal paper contract and bill of sale.

There’s maybe a way in which you trust the software company now, but maybe not in the future, and they can encode that trust by using the blockchain as a commitment device. But, again, we already have good commitment devices for two parties that want to make a lasting agreement. They’re called contracts.

I’ve got a better analogy for an NFT: It’s more like those little plaques you find on benches in the park saying, .“This bench was paid for by John and Merry Lewis in memory of their son Jake.”

Your name is attached to it, you paid money to have your name attached to it, but you own nothing. You don’t control the bench in any way. You are just ‘associated’ with it. So long as that bench exists you have some sort of quasi-claim in that they won’t take down your sign and put someone else’s on it. But they could move the bench or destroy it tomorrow, and there is nothing you can do about it.

An NFT does not describe any sort of ownership situation whatsoever. It’s more like a digital plaque that says, “I paid to have this NFT created, saying that I’m the only one associated with this thing”.

But the thing itself is not owned by you. It can be bought amd sold, destroyed or archived, and there’s nothing you can do about it. If people don’t care about NFT’s as a collectible, you have nothing at all.

What you are describing sounds like a scam.

All Ponzi schemes are scams. Not all scams are Ponzi schemes. You are describing a scam that is not a Ponzi scheme.

I can lose all my money in a house fire. If I lose all my money instead by investing in a cat-themed bar in New York City right before the pandemic, I don’t say, “I lost all my money. How is that NOT a house fire?”

You could do a ponzi scheme with NFTs though. Recruit people to sell NFT’s, and make part of their revenue stream a percentage of the revenue from everyone they recruit. The parent company just has to keep negotiating to maintain a catalog of available NFT’s. Local ‘associates’ can also negotiate to buy NFT rights to local landmarks, famous local artworks, etc.

You could even ‘add value’ by having the parent company offer free marketing to NFT holders by announcing their purchases and building demand for your NFTs through annual awards, special advertising hawking the collectible value of NFTs, offering physical plaques and certificates you can hang on the wall, etc.

Negotiate with authors to create an NFT representing their book, then print the name of the buyer on the inside cover. The author gets a cut, people get to pay money to be associated with their favorite author, the NFT goes up in value if the book does well, and everyone’s hapoy.

The parent company could negotiate ‘memorial’ NFTs by paying local businesses to have a display area of NFT holder names, or have NFT buyer names places on plaques outside buildings, whatever.

Or, they could build value for their client’s NFTs by, say, buying a GIF for $69 million to help the sucke…clients feel like their own NFTs are actually valuable.

All this to hide the true source of profit - the never ending expansion of a giant pyramid of people funneling money to the top in hopes that they can find their own collection of suckers below them to offset their costs and keep the party going. The people at the very tip get rich, and the myriad of people at the bottom find it increasingly difficult to break even, until eventually the largest tier at the bottom goes broke or works at a continual loss.

Sam_Stone, I’m not entirely sure what you are describing but it’s not a Ponzi scheme. In a Ponzi scheme, the schemer uses the money from new investors to pay promised returns to earlier investors. That helps the schemer to both legitimize himself to new investors and to placate old investors so they don’t take out their money (and in fact, they may add more money). Whatever you are describing lacks the defining feature of a Ponzi scheme.

You might be able to build a smart contract that handles that case. Essentially, the referenced URI would be a placeholder that can be changed later, but only by the artist (or more accurately, whoever controls the crypto wallet of the NFT creator). The buyer would still be depending on the good graces of the artist, but for dynamic art that would be true anyway. Third parties (hosting providers, etc.) would have less ability to interfere.

Vice talked about this issue, specifically “missing artwork”, since the NFTs typically just point at a URL of an image. The image can vanish just like anything on the net.

It’s a bit like not your keys, not your coin (except not your website, not your artwork).

I was actually describing a pyramid scheme, which is similar to a Ponzi scheme in that the ‘profit’ of the enterprise can only be sustained by pulling in an ever-increasing number of suckers, since there is actually no viable product involved.

The difference is that Ponzi schemes are generally financial in nature, with one person or group at the ‘top’ paying off the earlier suckers with investment money from later suckers. In a general pyramid scheme, the group at the top relies on recruits to bring in increasing numbers of newer recruits, and the more they bring in the more money the people higher in the pyramid make.

But they are both essentially the same thing - an ‘enterprise’ without a reasonable product, which relies on increasing numbers of suckers to keep the thing afloat.

Products like Amway avoid pyramid scheme laws because they actually have a product that people like, even though the venture is structured like a pyramid scheme.