Help me Understand Non-Fungible Tokens

[Dr.Strangelove]

@glee

Using a computer file called a blockchain one person can prove they are the sole owner of ‘something’ (does this something have to be a computer file as well?)

It’s worth elaborating on this a bit. While a blockchain could be described as a “computer file”, that’s not really a helpful way of looking at it.

A blockchain is a decentralized ledger. Just like a normal ledger, it contains entries like “transfer $X from account A to account B”. But it can also contain entries like “A is now the owner of this digital object”. That’s where the NFTs come from.

Every computer participating in the blockchain network has a copy of the ledger, so everyone can easily see who is the owner of what. The name “blockchain” gives some hints as to how it works:

• Ledger entries are bundled into blocks
• Each block references the previous block, forming it into a chain

The reference consists of what’s called a hash. The details are a little hairy, but consider what you get if you have a list of numbers and add them all together. You get a single output number that will change if any of the inputs change. You can carry this along with future transactions, and thus keep a kind of compressed history of all previous transactions.

Now, the example I gave would be a really bad hash to use in practice, because if someone wanted to alter the past, they could subtract a number from one transaction and add it to another, and the total sum would be the same. Cryptographically secure hashes don’t allow this. They’re designed so that it’s nearly impossible to construct a record that hashes to a specific value.

In this way, the blockchain prevents anyone from altering the past. If they tried it, everyone would notice that the hashes from all future blocks no longer match. As long as most computers on the network are honest, the system works.

The blockchain is also designed to require a certain amount of work to compute a new block. That way, someone trying to alter the past couldn’t just alter a record, and then recompute all new records up to the present day. It takes the combined efforts of the whole network to compute a new block, so a single party trying to create a fake transaction history would need much higher computing resources than the entire rest of the network combined. That’s impractical for any popular blockchain.

[Great_Antibob]

@DPRK

I meant that—forget about tokens and certificates—a completely digital work of art is a number, and therefore may be copied.

In theory, you could always make an identical copy of a painting, too, down to the molecular level if you want.

Is that the same as the ‘original’? The artist never touched it, yet it would be indistinguishable from the identical. But we assign additional value because the artist touched one and not the other.

In the case of NFTs, you can make a copy of the ‘number’ but that gives you no ability to access or assert ownership without having the cryptographic keys. So, sure, you can make a lot of copies but could get absolutely no value from them. There’s no functional use for doing so.

Ultimately, NFTs work because somebody considers them to have value. There’s a strong argument to be made that a lot of that value is speculative - the investors aren’t there to appreciate the thing in itself but what it can get them in the future - but that’s true for most collectibles. A rare baseball card would be simply an old piece of cardstock to my mother and worth no more than that but would be worth paying millions to somebody else.

[Snowboarder_Bo]

@Great_Antibob

In theory, you could always make an identical copy of a painting, too, down to the molecular level if you want.

Really? How would one go about doing this?

[Great_Antibob]

As in ‘theoretically’ with future-tech.

For some flavors of collectibles, not paintings, we’re already there now.

Even for types paintings (say a watercolor done in the last few months), we could duplicate them to the level they would be indistinguishable to anybody from earlier decades/centuries. And some forgeries done in the past have been so good that they can fool even the experts for decades until technology catches up - and their purported ‘value’ changes accordingly based only on that determination.

But that’s besides the main point. So suppose, for the sake of argument, we had the ability to duplicate a painting to the point the copy would be, using current technology, indistinguishable from the original except for the fact that one has been certified (however one does this) that one is original and one is not.

Though not to everybody, in the minds of collectors, the ‘original’ still has some intrinsic quality that the duplicate does not. That quality has value to some people.

That is where the value of NFTs comes in. The value is determined by people, not by some intrinsic measurable property of the item.

[filmore]

@I_Love_Me_Vol.I

If a caught ball or a used uniform acquires value (let’s say it was Player X’s 9,000th home run ball) then officials (e.g. MLB) might affix a security hologram to it to ID it as that specific and unique item. This serves as proof of provenance.

In the NFT world, it would be like the MLB just gave you that special hologram saying you caught that specific ball, but you couldn’t keep the ball itself. You get the special token saying you caught the ball but that’s all you get. The ball itself goes to the MLB museum. You can do what you want with the hologram (put it in a frame, hide it away, sell it, etc.), but you don’t have any rights to the ball itself.

[Little_Nemo]

Can somebody explain to me why dollar bills aren’t NFT’s? Every one of them has a unique serial number.

What makes a uniquely numbered dollar bill different than a uniquely numbered art print?

[iamthewalrus_3]

@I_Love_Me_Vol.I

That’s exactly what it is. That’s what the art or collectibles market is based on. Speculation. Doesn’t matter if its physical or digital.

I mean, yes and no. There’s some speculation involved in collectibles, but there are other things too.

Like, I have a lot of Magic cards, but I didn’t buy them as an investment, I bought them to play a game. People who buy commemorative plates display them. Beanie Babies are cute little stuffed animals, a market for which existed long before anyone thought they could make money buying them.

There’s a speculative component, but there’s also an actual use to these objects apart from speculation. Not so with NFTs. You can’t do anything with them.

[Sam_Stone]

@filmore

You can do what you want with the hologram (put it in a frame, hide it away, sell it, etc.), but you don’t have any rights to the ball itself.

Exactly. Tht’s what makes an NFT different from a baseball card, or a signed print. In those cases, you own an actual object that you can do what you want with.

If you ‘own’ a ball through an NFT, the real owners can re-sell the ball for millions, and you get nothing. Or, they could decide the ball is worthless and destroy it, and you can’t do a thing about it. The NFT has no more value than a picture of you catching the ball. All the NFT says is, “This is proof that this guy caught a specific ball.”

I could see an NFT having a value as a collector’s item, if it represented something unique that isn’t tied to a physical object. For example, if an NFT was issued to commemorate a famous event like an Oscar win, the NFT itself might have collector’s value: “This is the official NFT issued to represent Tom Hanks winning best actor. It’s the only one in the world.”

[Great_Antibob]

@Little_Nemo

Can somebody explain to me why dollar bills aren’t NFT’s? Every one of them has a unique serial number.

Fungibility is not purely an objectively concept. And it is not strictly based on uniqueness.

I (and most people) don’t care about the serial number on a dollar bill in my pocket. So, assuming it’s not smeared in oil or something, I don’t particularly care if somebody wants to trade their own dollar bill with mine. The serial numbers are different, but few people are going to be particular about that.

Then again, let’s say the serial number for a dollar bill I have contained their birthday. That might lead them to value that particular dollar bill more, i.e. it is not fungible to them but is fungible to everybody else. They might even be willing to give me $10 for that bill, even though I only value it at $1 and would not give it to somebody for less than that.

But mostly, they’re fungible. People will swap a dollar bill for another and not think anything of it, even if each one is uniquely numbered.

Let’s say we’re using works of art as NFTs. If you don’t care about the particular art at all, you can think of it as “1 art”. If you don’t personally value them, they are all fungible to you - you are willing to trade “1 art” for “a different art” and don’t care about it.

But if you personally assign value to aspects of that art - the artist, the style, etc - it is no longer fungible. Now, instead of “1 art”, you have “Guernica by Picasso”. And you may not be willing to trade “Guernica by Picasso” for “Refrigerator Art by My Daughter” or “Copy of Guernica by Art Student”.

The above example works better for baseball cards. During my childhood, she wouldn’t have cared about the differences between a Ken Griffey Jr rookie card vs a Craig Biggio rookie card and been willing to swap them (or just give it away) but I wouldn’t. They’re both just cards to her, no matter the rarity. They’re fungible to her but not to me.

@Sam_Stone

Tht’s what makes an NFT different from a baseball card, or a signed print. In those cases, you own an actual object that you can do what you want with.

Yes and no.

Most of my money is stored electronically. Sure, it can be traded for physical bits of paper if I want something to represent a store of that value, but so can NFTs. There’s no actual objects involved unless I want there to be. I can even trade those electronic money bits for other purely electronically things - say to pay for a monthly streaming subscription. I can’t even trade a piece of paper money or bit of gold for that streaming subscription without converting to those electronic bits. No physical objects involved but plenty of value.

This comes down to the concept of value again. Value does not require something we can touch (or else abstract concepts like “freedom” and “democracy” would be valueless). Again, NFTs have value because somebody thinks they have value. That’s it.

If other people agree they have value, then even better. It’s the dollar bill with birthday serial number again - if I find somebody willing to give me more than $1 for that bill, great for me - I don’t value it more than $1 but somebody else clearly does.

[iamthewalrus_3]

@Great_Antibob

If other people agree they have value, then even better. It’s the dollar bill with birthday serial number again - if I find somebody willing to give me more than $1 for that bill, great for me - I don’t value it more than $1 but somebody else clearly does.

Obviously we’re on a tangent here, but there is a market in dollar bills with some serial numbers, generally ones containing lots of repeated digits, particularly 7s.

[bump]

Am I misunderstanding, or is the real utility of NFTs really in that if there’s an NFT, it’s essentially self-verifying by virtue of the blockchain?

So if you have a NFT associated with some other digital item (say a specific numbered software license), it would be proof that yes, you do own that specific license, in large part because the blockchain can be verified.

The software company can go on to sell as many copies of that software as they can, but YOU own your copy by virtue of that NFT, and the software company can verify that your copy is legitimate as well by checking the blockchain.

I could be totally misunderstanding this though…

[Great_Antibob]

“Utility” is in the eye of the beholder, but essentially yes. The blockchain portion of it exists to ensure ownership and uniqueness of the item. It’s a way to create scarcity digitally.

With software, there’s no need for a de-centralized database. The company can (and probably does) maintain its own database of licenses instead of using a blockchain. They’re the only ones who care if your copy is verified. But for NFTs, anybody can run that verification independently of the owner or creator since the blockchain is designed to be decentralized.

I read a report that the NBA has partnered with a company to provide NFTs of “moments” of NBA games, like a particularly impressive shot or dunk. The moment would be stored as some kind of short video snippet and only one owner could have the token in the blockchain.

The thing is, you can’t really ‘own’ that moment in the usual sense we mean it. Anybody can make a recording of the game and view it at their leisure. But attach some kind of tag on it that creates a form of artificial scarcity and suddenly it’s trading for lots of money and generating clicks and interest.

And that seems to be driving a lot of the current trading - people who aren’t interested in NFTs for their own sake but as speculative investment vehicles. At least with art or stamp collecting or sports trading cards (and cards are in their own speculative bubble right now), there are people who appreciate the items for their own sake so there will always be some type of floor to their value. There aren’t many people interested in NFTs for sake of the associated art and it’s questionable how much value they’ll have in the long run.

[bump]

Seems like you might be able to double-up, and integrate your NFT into things like media files with steganography. That way, media clips or whatever could be verifiable to NOT be deepfakes or forgeries, or whatever.

Like say… political speeches/statements, or NBA highlights or even things like books/music.

I really think the utility in the long haul isn’t going to be for whatever intrinsic speculative value they hold, but rather is going to hinge on their practical utility.

[DPRK]

I tend to agree with the people saying that in the NFT case one is buying and selling cryptographic tokens, and that it has less to do with buying and selling “original” art.

@bump

Seems like you might be able to double-up, and integrate your NFT into things like media files with steganography. That way, media clips or whatever could be verifiable to NOT be deepfakes or forgeries, or whatever.

Like say… political speeches/statements, or NBA highlights or even things like books/music.

I really think the utility in the long haul isn’t going to be for whatever intrinsic speculative value they hold, but rather is going to hinge on their practical utility.

That is, we should say already, the utility of digital signatures via public-key cryptography. When I download a file from some website, it comes with a digitally-signed hash that I can (and do!!) use to verify the authenticity and integrity of the file, provided I know the author’s public key. This hinges on having a trustworthy source for said public key.

[DPRK]

ETA I once got an email from a famous author that you all know and love. It was not the case, but let’s hypothetically assume we were both geeky enough for me to obtain a cryptographically-signed non-fungible token with a clever saying or quip and related to the author’s new book that was coming out. Now, everyone has that book, but that is irrelevant: would someone be interested in possessing that token, touched by the author’s soul when they pressed the Enter button? Eh, maybe.

[naita]

I’ve ready a few messages saying the popular Nifty Gateway for buying NFTs is only encoding an URI for the digital artwork, a URI that point to their database. So if they go under, or decide not to maintain those links, your ownership of the digital artwork becomes a lot more abstract.

[Great_Antibob]

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.

[DPRK]

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.

[Zakalwe]

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.

People's Expensive NFTs Keep Vanishing. This Is Why

[DPRK]

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]