On NFT's

Enlightenment represented by the Cape Blue Water Lily (Nymphaea_nouchali)

Non-fungible tokens (NFT) are a rare accomplishment. They have defined greed.

As an adjunct to assess greed, NFT's appear to be as accurate as any indirect measure can possibly be. How is this the case?

To understand NFT's sufficient to quantify their environmental impact and their intrinsic value takes effort. A lot of effort. An astonishingly small proportion of the buyers and sellers of NFT's will have made the effort required. Why not? Because they are motivated by greed.

Anyone with a passing interest in cognitive science or behavioral finance knows about motivated reasoning. Where an individual stands to profit from a position, they will be incentivised to promote that position. NFT are a classic example. People interested in profiting from NFT's are motivated not to question the underlying logic of their position.

Without going into a long discourse on the necessity for virtue, if someone doesn't understand what they are doing, how can they assess harm? Greed overrides the good.

NFT's purport to "make money."

Want to know if someone is motivated primarily by greed? Ask how they know their NFT's are valuable. Doubtless they will cite market price. Dig a little deeper and ask what the price is based on? There are two logical answers; underlying value based on cash-flow or assets, and supply and demand. Since an NFT doesn't have an underlying cash-flow, it is priced according to market demand for what is in practical terms a record on a public blockchain. The record is "the asset."

At this point one needs to be beware of one's own prejudice. It would be safer to do the work yourself, to understand the technology and its implications, and then to ask these questions. Of course, this takes effort. That's the point, isn't it?

And here's the skull-buggery.

The record on the blockchain points to a Uniform Resource Location (URL). Recent research published by Moxie Marlinspike, inventor of Signal, "My first impressions of web3," highlights some serious problems. At heart the issue is, "the reality that clients ultimately can’t participate in those mechanics." The mechanics are reading and recording state to the blockchain. In other words, users - especially mobile users - of cryptocurrencies and NFT's are disenfranchised by design, a server based design.

So what,  you might say.

The core design problem lies around the necessity to modify or render state from a client device via a node on the internet. The nodes for what we call dApps, in a faithful rendition of monopoly capitalism, are provided by two companies, Infura and Alchemy. The companies present an API through which a client can interact.

All good, you might say.

Yet.

These client APIs are not using anything to verify blockchain state or the authenticity of responses. The results aren’t even signed.



Moxie's words.

As Moxie describes it the effect is to deny privacy from the client-server interaction. There's a trustless distributed consensus mechanism. But no privacy. And no authentication.

Okay, you might say. That's part and parcel of the public blockchain.

Yet.

NFTs instead contain a URL that points to the data. What surprised me about the standards was that there’s no hash commitment for the data located at the URL.... There’s nothing in the NFT spec that tells you what the image “should” be, or even allows you to confirm whether something is the “correct” image.



Moxie's words.  Which ought to be shouted from the rooftops. Since no hash means no assurance that the NFT is of any value whatsoever. The pointer on the blockchain could point to NOTHING.

Which isn't okay however you look at it.

And that, ladies and gentlemen, is what you get when many people are motivated by greed. They don't seek to understand what they are buying. They don't seek to understand what they are selling. They are only concerned with "making money." Even when they don't need more.

Others, in greater number than can possibly be comfortable to anyone with a social conscience, need to get by. They need food, medication, childcare, housing, and other necessities. Rarely do they have time to spend on learning about NFT's. Keep them in mind.

But greed is obvious.

Don't expect me to issue any NFT's until I understand a few things. To start, there's the potential climate impact. In principle it should be possible to mitigate massive requirements for electricity through renewable energy and the use of a proof of stake blockchain (for example, based on Tezos). Slightly more troublesome is understanding an NFT's intrinsic value. That's because, well you'll have to work this out for yourself it's laid out above.

What are NFT's good for? I suspect their primary use is for social signalling. A fool's goal. And ironic.

Ironic given that all NFT's signal is greed.

What sort of person would pay for something that can point to, literally, nothing?

 

Revision history: 31 January 2022. Revised to incorporate Moxie Marlinspike's findings. Please add to "what I do not understand" in the Comments below.