I’m a fan of the a16z group, especially the writings of Paul Graham. But the recent a16z podcast on NFTs was too much to bare. It was the single most cringe-worthy podcast I’ve listened to in a long time. In it, the team talks about non-fungible tokens (NFTs) as a technology and new product offering made possible by blockchain technology.
The podcast amounted to mindless cheerleading and glossing over some very important technical characteristics. My biggest qualm with the program, which you see on other popular media as well, is the abuse of the concept of ownership.
I wasn’t able to get through the whole podcast as I found it so misleading it was difficult to continue, so if any of my criticisms were directly addressed, I apologize. But there were so many egregious omissions and mischaracterizations in the first twenty minutes that I felt a rebuttal was required regardless.
Let’s start a the beginning. What is an NFT:
Linda: So, NFT stands for “non-fungible token”, which is just a term used to describe a unique digital asset, whose ownership is tracked on a blockchain.
This can be a really broad set of assets from: digital goods, like virtual lands and artwork; to a claim on physical assets, like real estate or clothing items.
Sonal: What I heard you say there is not just digital, because it *can* cover something physical as well, that you can essentially represent as NFTs.
What does it mean for an NFT to have a claim on a digital asset on the blockchain? I have some familiarity with the blockchain, so if I were to guess what it means, I would think it would be ownership of a key that is a hash of some physical asset. For instance, I can digitize the canonical high resolution image of Mona Lisa, hash it, and own that coin. So anyone can see that image, hash it and find its address on the de facto blockchain. I can then prove ownership of that address.
But that’s not what is meant. It means that some organization created a token (just an address, or number to put it more directly), announced “this number is Mona Lisa”, and is now selling possession of that address on the blockchain.
Jesse: So, I like to focus on the digital side of things a little more, and, a metaphor that I would offer as a definition is NFTs are a way to make digital files ownable — instead of a financial asset, you can now own a digital media asset on the internet.
Yes, you own a number that some company that came into existence in the last 3 years has said is the Mona Lisa.
They go on:
Jesse: That’s right, you depend on the bank to maintain the ledger; or the title to a property that you buy, there’s some property registry that the state or the city maintains. So you’re always dependent on a third party to track the attribution of ownership: how the title changes hands, how bank statements get updated.
They frame the problem of digital ownership down to tracking attribution. But that’s not the core problem to digital ownership. No one has trouble tracking the attribution of tweets. Sure you depend on Twitter, but overall its a good system to track attribution of who owns a Twitter account.
The main issue with digital ownership is the question of the widely agreed upon asset. This isn’t a problem with physical goods since there is a single truth. There is a single Mona Lisa painting that we agree upon. And I’m fairly certain this won’t change 100 year from now.
There could be a token that some company says is the de facto Mona Lisa because someone paid a lot of money to own that token. But that hardly constitutes authority, primarily because these companies claiming authority didn’t exist until a few years ago.
I’m not opposed to the creation of de facto tokens that are meant to represent physical or digital assets. But the difference is that these de factor tokens/platforms have not passed the test of time so prematurely speaking about some widely agreed upon digital asset ownership rights is dishonest.
Lindy Effect
Again, it’s important to stress what “ownership” in the NFT world actually amounts to. You own a token that was recently created by some recently created company using a recently created technology that is said by the company to represent some asset, digital or otherwise. These tokens/platforms try to gain legitimacy and serve as a de facto corollary of something by selling an asset for an absurd amount. Or sometimes they give a kickback to the original artist.
You see cringy patterns in the space to try to gain legitimacy. Like on BitClout where there’s a little 🕓 next to the name as though it’s just a matter of time until Elon Musk joins. Why wouldn’t he want to own his own Twitter account?
But the only way you can reasonably claim to have a token that is the de facto representation of a digital asset is if said token has stood the test of time.
Consider stock ownership. You technically have a right to a company’s future earnings, but it’s incredibly difficult to assert that power, making it effectively meaningless. Some companies pay dividends, but most people hold stock for capital appreciation. You can sue or try to mount a proxy battle, but ownership is mostly symbolic. But a stock is valuable since it’s a legal structure that has existed and traded well for hundreds of years.
If these companies claiming ownership of digital assets through NFTs continue to exist and trade well 100 years from now, I will grant you the concept of de facto ownership of the digital asset. The company will likely continue to exist and trade well for another 100 years due to the Lindy effect:
The Lindy effect is a theorized phenomenon by which the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.
But considering these companies and their investors are claiming some authority after having existed for such a short period of time, this is unlikely. The company issuing the tokens and its investors misleading the public with statements of widely agreed upon digital ownership is dishonest. Especially when discussing the topic to a general audience and misappropriate the strong ownership and decentralized properties of blockchains to make the claim that anyone could “own” a digital asset through an NFT.
NFTs are the new ICOs
Remember initial coin offerings (ICOs)? Those digital token offerings that meant you loosely (i.e. not at all) owned a company or product? And it turned out 80% of them were scams and we don’t talk about them anymore?
Only around 8 percent went on to the trade on the designated cryptocurrency exchanges. Of these 8 percent that traded, 4.4 percent were classified as Dwindling, while 1.8 percent were labeled as Promising and the rest 1.9 percent turned out to be Successful. Among this group comprising a total of 187 ICOs, 63 (34 percent) qualified as Dwindling, 37 (20 percent) qualified as Promising, and 87 (47 percent) were found to be Successful.
NFTs are that concept but with even looser ownership rights. NFTs don’t even bother with a company, product or promise. Instead they hijack the reputation of an existing good or product to gain sympathy.
ICOs didn’t stand the test of time. They could have. I’m sure someone is still buying and selling ICO tokens. And if they actually did well, they could have been some de facto ownership of an organization. But they didn’t. It’s still an open question if NFTs will, but let’s stop pretending there is a meaningful way to “own” a digital asset.
Be better
I’m very bullish on Bitcoin and Ethereum. I first discovered “BitCoin” in 2011 on EconTalk and I immediately started building a mining rig. It’s partly what got me interested in technology and programming.
I think there are useful applications that can and will be built on these platforms. And NFTs could stand the test of time. But let’s be clear when we speak about NFTs.
Instead of saying: NFTs are a way to make digital files ownable
Say: NFTs are a way for an organization to create a token that they claim to be tied to some digital file, that you can provably own
Speaking dishonestly about what an NFT is and represents doesn’t help blockchain technology. Quite the opposite. A spectacular blow-up of these platforms, huge losses and scams can set back blockchain technology much like Silk Road and ICO scams did. So let’s be better.