NFTs solve a very real problem (just not very elegantly)
The question is whether we can separate the promise of a new form of digital ownership from its deeply flawed implementation
I first experienced virtual reality late at night in the back of an empty parking lot. My friend and I had just finished watching the IMAX opening of Interstellar at the Air and Space Museum’s annex near Dulles Airport when we were seduced by a blazing white tent labeled “Oculus.” Forty-five minutes later, through the magic of brand activation (before we even knew to call it that; this was back in 2014), I was strapped into a headset and floating through a 3D rendering of Endurance.
The next morning, I was so fixated on the VR experience I had the night before that I’d forgotten all about the movie. After dragging my two daughters out to the museum so they’d have some frame of reference for what their father wouldn’t shut up about, I drove out to my local Microcenter (remember how supply chains used to work?), and by evening, I’d built a VR-ready PC and ordered the Oculus Rift DK2 — pre-production hardware intended for developers experimenting with their first VR applications.
I subsequently discovered that the state-of-the-art in consumer-grade VR technology looked suspiciously like cramming your head into the world’s most expensive Easy-Bake Oven and riding virtual roller coasters until you were ready to puke on your shoes. But despite the assault on my vestibular system, I could not have been more enthusiastic about VR. To me, things like frame rate, lag, and resolution were just ephemeral specifications — relatively arbitrary milestones where Oculus (having just been bought by Facebook [now Meta]) decided to freeze development in order to get something out the door. The hardware I had in-hand would obviously not change the world (nor, as it turned out, would the production version of the Rift, nor its successor, the Rift S, nor the Oculus Go after that), but it did demonstrate the value in exploring entirely new forms of digital immersion. The work to be done around VR was not finding our way back, but forging a path all the way through.
I decided to start an article on NFTs by recounting my journey with virtual reality because it illustrates the importance of being able to separate the implementation of a nascent technology from its potential. Like early VR prototypes, NFTs are clunky, convoluted, and primarily only accessible to the privileged few. If that weren’t problematic enough, they are also plagued by scams, not remotely as durable as most people are led to believe, lack clear-cut legal frameworks, and in some cases, are built on top of blockchain technology with an abysmal environmental record. Given all of the issues surrounding NFTs — as well as their well-deserved controversial reputation — the question is whether the concept is so fundamentally flawed as to be unsalvageable, or whether NFTs are simply still in the puking-on-your-shoes phase.
Before we can make that call — before we can measure their potential against their defects and drawbacks — we first need a thorough understanding of the problem NFTs are attempting to solve.
A sobering overview of digital ownership
The market for digital goods currently revolves around five primary, high-level models of commerce:
- DRM (Digital Rights Management). To the perpetual frustration of rights holders, bytes remain infinitely copyable with perfect fidelity. DRM — whether applied to an e-book, a video, or even built into an HDMI cable — is a form of intellectual property skeuomorphism in that it makes digital goods behave more like physical objects in order to artificially impose scarcity. A side effect of DRM is that it ensures you never really own what you buy since content can only be unlocked through tightly controlled workflows. We all know the legal principle that states individuals are innocent until proven guilty; a software ecosystem built around the presumption of innocence would be one that assumed you had the right to read a book or play a specific track unless somehow proven otherwise. DRM represents the inverse: it assumes you don’t have the right to any content unless you are able to cryptographically prove it.
- Streaming (media). The approximate evolution of digital music started with ripping CDs and downloading from Napster, Kazaa, and Limewire; then buying $0.99 tracks on iTunes (remember the joys of authorizing and deauthorizing? That was DRM in action); and finally, streaming through services like Spotify. We don’t generally think of streaming as a form of digital rights management because streams don’t expose discrete, downloadable, shareable files, but the principle still applies. Just try screenshotting Netflix content in your browser or on your phone and behold the resulting black box. (It’s worth noting that distributors traditionally haven’t cared about DRM, but were required to implement it at the insistence of right’s holders. In fact, Steve Jobs famously objected to the big four music labels forcing Apple to support DRM in iTunes. But it’s also worth noting that “original content” has turned most distributors into rights holders themselves, so there aren’t very many entities left with any real leverage to speak out against DRM and DRM-like technologies.)
- Streaming (interactive). The payloads of triple-A games have traditionally been so big that they required either optical media or some other form of non-volatile memory to distribute. Shortages were frustrating (and, as a kid, you had to get your parents or big sister to drive you to the mall), but the advantage was that you could sell your games, trade them, or bundle them with your console when it was time to upgrade. As access to broadband expanded, it became feasible to download games as large as dozens to hundreds of gigabytes which was perhaps easier than going out to your local Best Buy, but it also bound games to players’ accounts. Today, game streaming services like Amazon Luna, Xbox Cloud Gaming, Google Stadia, and Nvidia’s GeForce Now eliminate downloads altogether as well as make games portable across devices. On the enterprise side, services like Amazon WorkSpaces, Microsoft Azure Cloud Desktop, and VMware Cloud Desktop are similarly delivering PC and desktop functionality as low-latency streams.
- In-App Purchases. Making purchases inside of apps (frequently in the context of mobile gaming) is so context-specific that DRM doesn’t really even apply. Whether you’re paying money to avoid hours of grinding, or enhancing your avatar’s appearance, the experience is more like paying for a service than a good in that you typically don’t get a downloadable, transferable artifact. There are plenty of marketplaces that do allow for the exchange of in-game items, but it’s still hard to make the case that you own those digital goods in the traditional sense since their value often cannot leave the ecosystem, and if the game were to disappear, so would your investments. (Note that supporting the portability of in-game items — or even in-app purchases in general — is a frequently cited use case for NFTs.)
- Subscriptions. Just as the distribution of media has evolved, so has that of software. Applications like Photoshop and Microsoft Word have gone from shrink-wrapped boxes of CDs, to downloads, to subscriptions (which usually unlock underlying services like cloud storage and collaboration). Because software traditionally has much more attractive margins than hardware, companies like Apple and GoPro are increasingly treating their physical devices as funnels into even more lucrative service businesses. The argument for subscriptions is that they enable software vendors to continuously deliver value to customers, but it’s still important to acknowledge that many of us no longer own the applications we rely on. If we were to decide to stop paying rent, not only would we lose the functionality, but we might also lose the ability to access our own content.
The theory of NFTs
The common theme we see around buying, selling, and accessing digital goods in today’s marketplaces is ownership — or more specifically, the evolution toward a lack thereof. NFTs introduce an alternative form of commerce around digital goods which holds verifiable ownership at its core rather than the bytes themselves. Although there are some very serious negative repercussions to both the current implementation of NFTs, and the culture NFTs have given rise to, the movement is primarily an attempt to provide a counterbalance to today’s highly proprietary platforms, closed ecosystems, and the overall erosion of digital ownership.
The common theme we see around buying, selling, and accessing digital goods in today’s marketplaces is ownership — or more specifically, the evolution toward a lack thereof.
An exhaustive explanation of how non-fungible tokens work isn’t required to grasp or appreciate their underlying philosophy — especially because the premise of this article is that, to some extent, the implementation of NFTs is fungible. Therefore, it’s enough to define them as an immutable and verifiable record describing the chain of ownership around digital goods in a secure, decentralized ledger (usually a blockchain). In other words, NFTs are essentially write-only deeds that record exactly who owns what.
The stark philosophical simplicity of NFTs raises two key questions around both their legitimacy and viability.
Can’t you “steal” NFTs just by right-clicking?
Broadly speaking, there are two types of theft associated with NFTs. The first is the misappropriation of artists’ work — plagiarists who claim that someone else’s creation is their own, mint it, and sell it through one of the many NFT marketplaces. This is a serious issue with the current NFT ecosystem, and one that I strongly believe will have to be addressed in order for NFTs to become a legitimate form of digital ownership. But it isn’t a fundamental problem with the philosophy of NFTs; rather, it’s a deficiency in the current implementation which can be addressed by expanding the set of specifications associated with NFTs to incorporate technologies defined by projects like the Content Authenticity Initiative. (Note that the CAI is spearheaded by Adobe who is also my employer.)
The second type of theft is much more interesting to me because it’s inextricable from the very nature of NFTs: the fact that anyone can right-click and save digital assets represented by NFTs and “own” that piece of work themselves. In fact, just viewing an asset represented by an NFT in your browser caches it locally meaning a copy is automatically created and stored on your hard drive. How can someone be said to own something that is infinitely copyable with perfect fidelity?
The impression that NFTs are fundamentally flawed because they don’t prevent “right-click and save” is understandable given that we live in a world infused with DRM and DRM-like technologies. But the subtext of this argument is that ownership without scarcity must not be valid ownership.
I disagree. In my mind, NFTs are a form of digital ownership that works with the nature of digital goods instead of clumsily fighting against it. Specifically, NFTs presume innocence around consumption — that you are permitted to appreciate digital content unless or until proven otherwise.
NFTs propose that some types of digital goods don’t need to be scarce as long as their ownership is verifiable. Specifically, if I can verify that I am the owner of a piece of digital art, I may not mind that there are hundreds, thousands, or even millions of copies of it, and that others are free to enjoy, share, and even remix it. In fact, the more others experience the digital goods I own, the more value there may be in owning them. Being able to easily prove that I own something might obviate the need for it to be scarce.
NFTs propose that some types of digital goods don’t need to be scarce as long as their ownership is verifiable.
It’s also likely that NFTs will ultimately unlock new secondary economic models. DRM seeks to impose digital scarcity so that content can more easily achieve economies of scale. But you could imagine an author selling an NFT of a novel for enough that non-NFTed copies could be sold for much less than traditional e-books — or even given away for free. The NFTed version(s) could be thought of as first editions which might be sold later to collectors at a substantial profit. Because NFTs support the concept of smart contracts, it’s even (theoretically) possible for the author to receive royalties on those trades in perpetuity, subsidizing all future work. (“Theoretical” because the concept of royalties has not yet been enshrined in ERCs, the specifications that Ethereum is built around. Rather, they are usually implemented at the marketplace tier. Hopefully that will change in future iterations.)
It’s also worth clarifying that while NFTs don’t enforce digital scarcity, the underlying technology also doesn’t explicitly prevent it. There’s nothing stopping anyone from combining NFTs with DRM, and there’s no reason artists couldn’t securely transfer high-resolution files to patrons while low resolution versions propagate freely online. In my opinion, the fact that NFTs leave the decision of scarcity up to the parties involved in the transaction is a feature, not a bug.
Aren’t NFTs “imaginary?”
A second common criticism of NFTs is that the model of ownership they represent is intangible. Specifically, just because an entry in a blockchain states that someone owns a particular digital good doesn’t inherently make it true. I have seen NFTs compared to star registries — services with no astronomical authority whatsoever who are happy to take your money, commit an entry to a database, and send you a framed certificate commemorating little more than a decidedly one-sided financial transition.
But imagine if the same service were to be provided through a partnership between NASA and the European Space Agency. Or if a third party were endorsed and authorized by the International Astronomical Union to sell the rights to name stars. Even though the implementation might be identical to what it is today, those database records and otherwise worthless pieces of paper would suddenly feel much more legitimate.
NFTs did not invent the idea of abstract ownership or “imaginary” intangible value. The deed to your house or the title to your car are just pieces of paper (along with digital records which are likely less durable than most blockchains) that we’ve collectively decided confer ownership. What is the stock market if not a form of federally sanctioned, abstract, fractional ownership that now feels as real as any of the goods public companies produce, and that has generated incalculable wealth? The reality is that, in the eternal words of Darius from Atlanta, “Everything’s made up. Stay woke.” From fiat currency (even before we moved away from the gold standard since the value of gold is also relatively arbitrary), to Dutch tulips, to the value of collectables like action figures and lunch boxes, to mineral deposits that happen to be arranged in crystalline structures, the only items in the world — digital or physical — that have inherent value are those that contribute directly to our survival. Everything else is, frankly, made up. That means there’s nothing stopping us from collectively legitimizing specific blockchains and sets of specifications in the same way we legitimized electronic signatures, occasionally approve new sports leagues, or officially adopt colloquialisms into our lexicon. NFTs may not be fungible, but the principles and institutions on which humanity chooses to bestow meaning, value, and authority certainly are.
NFTs may not be fungible, but the principles and institutions on which humanity chooses to bestow meaning, value, and authority certainly are.
It would be disingenuous not to acknowledge that a characteristic most things of traditional value have in common is either scarcity, or the perception thereof — that there is far more demand for it in the market than there is apparent supply. And, as we’ve already established, unlike DRM, NFTs usually don’t prevent bytes from being copied. But NFTs do excel at a different form of scarcity: that of verifiable ownership. In my opinion, transposing the value we place on digital goods from discrete instances of them to underlying, consensus-driven ownership is the best way to move toward an economic model that embraces humanity’s digital transformation rather than continues to criminalize its very nature.
Most of us are socialized to believe that possession is nine-tenths of the law, meaning that if you have a digital good in your possession — whether it’s a copy or the “original” — you more or less own it. In the context of the value of infinitely copyable digital goods, I would argue that it makes much more sense to think of ownership as the “deed” to that digital good as opposed to the bytes themselves, and NFTs are an excellent way to record those deeds in a way that is cryptographically secure and decentralized.
The alternative to both DRM and digital deeds (whether implemented as NFTs or through some other set of standards) is for us to collectively decide to bestow value only upon the original instances of digital work. But in the context of bytes, the concept of an original is far from apparent. Most of what you view on the internet not only propagates across a global content delivery network so that it can be served from data centers as physically close to you as possible, but as I explained above, it also gets copied to your local hard drive so that it doesn’t have to be retrieved again over the network the next time you want to view it. In addition to spending twenty-five years in the software industry, I’m also a novelist, and every time I save a project, it gets copied to servers owned by Dropbox, then subsequently copied to two other computers I use on a regular basis — all in addition to the regular air-gapped backups I make. When I email a draft to an editor or my agent, multiple additional copies get made automatically. Which set of indistinguishable bytes represents the original? Unlike a classic car, a baseball card, or a comic book, the concept of an original instance doesn’t meaningfully exist in the digital world, so the only two viable alternatives to imposing scarcity (and hence cultivating value) are either through various forms of DRM, or a brand new type of ownership abstraction represented by cryptographically secure — and preferably decentralized — deeds.
If NFTs solve real-world problems around the ownership of digital goods, why do they still feel so … gross?
Probably because of the scams, the environmental impact of some of the underlying technologies, the rampant hype, the overly complex user experience, the fact that they aren’t nearly as decentralized as they pretend to be, and the egregious way in which NFTs contribute to the continued inequitable distribution of wealth — none of which I have any interest in defending. (For an excellent critique of the current state of NFTs — and web3 in general — see “My first impressions of web3” by Moxie Marlinspike.)
I should also disclose the fact that I have a minimal stake in NFTs myself. I run a team of prototypers at Adobe that has done several explorations around NFT minting, so it is fair to say that I have been professionally involved in the NFT ecosystem. Additionally, I have personally participated in experimental trading and minting of NFTs in order to gain direct, hands-on experience.
Speaking purely for myself (not my employer), I don’t really care whether NFTs persist in their current form or not, but I do very much believe in the paradigm of digital asset ownership that NFTs promote, and I would very much like to see us make a collective effort to separate their deeply flawed implementation from their promise. What we have right now feels a lot like the duct-taped smartphone screens, accelerometers, and gyroscopes that eventually evolved into today’s undeniably impressive VR headsets. The key to ultimately achieving escape velocity is not to walk it all back or burn it all down, but to see it all the way through.
Supporting the mission of NFTs must not imply complacency around today’s NFT culture. We should continue to be vocal, and we should insist that the technologies that shape our culture and our economy be as accessible, equitable, and sustainable as possible. But we should also be careful not to confuse awkward execution with fundamentally flawed concepts. Without finding creative ways to challenge the status quo — without experimenting with new techniques for creating, trading, and speculating on digital assets — we risk allowing today’s dominant technology platforms to eventually make the very idea of ownership extinct.
