Non-Fungible Tokens (NFTs), for those who haven’t been paying attention, are digital collectibles that have been gaining popularity. Essentially, they allow someone to “mark” their “ownership” of a piece of cyberspace.
Since their original inception in 2012, NFTs have invariably been tied to blockchain technology. However, a recent review of the technology by Bernard Fickser has shown that there is nothing inherently tying NFTs to blockchain. In fact, blockchains may be holding NFTs back considerably. (For those needing a refresher, a short guide to how the blockchain works can be found here.)
In his article, Fickser notes several interesting discrepancies between NFTs and cryptocurrencies. First of all, there is a lot of technology built into cryptocurrencies to keep them anonymous, while the entire point of NFTs is for everyone to know both parties in a very public way. Second, NFTs are, as their name indicates, non-fungible. In other words, nothing about the token ever changes. This is far different from cryptocurrencies, in which the whole point is to keep track of a changing ledger. The core principles of the blockchain, in fact, are built around keeping the ledger accurate in the face of changes. However, if the ledger item does not change, then those features are superfluous.
In fact, what Fickser points out is that there is nothing, really, that the blockchain is adding to the NFT experience. You can easily do digital signatures without a blockchain, and signing over a document expressing ownership of something is no exception. You can easily make public keys available to the public and signatures and certificates available. One might argue that there is nothing (apart from social norms) preventing you from signing the same digital asset to two different people. However, as Fickser notes, there is nothing in the blockchain that prevents you from doing so as well with NFTs.
For NFTs, the blockchain is actually reducing the value of the NFT, as it introduces additional dependencies and costs for maintaining NFTs, which an ordinary signed document would not incur. An NFT that was merely the product of a digital signature doesn’t require the existence of any third party to maintain its authenticity, while most NFTs require the continued existence of both the NFT provider and the underlying blockchain for the NFT to continue holding its value. Blockchains introduce into the process unnecessary risks and add unnecessary costs.
As an alternative, Fickser shows that it would be relatively straightforward to add NFT abilities to an ordinary selling website such as Ebay without attaching to the blockchain at all. This proposal would actually, unlike current NFTs, have the social force of current law behind them.
There are, of course, other ways to have NFTs without blockchain as well, and other uses of NFTs besides signing digital assets. As we showed in an earlier article, modern Near-Field Communication (NFC) chips can enhance authenticity verification for physical products, making a sort of “physical NFT.”
The important point is that the relationship between NFTs and blockchain is somewhat of a historical accident, not a necessary connection. NFTs were originally developed by people with an interest in blockchains, but it turns out that none of the features of a blockchain are required for NFTs, and in fact work against their value to some degree.
Here are all the parts of Bernard Fickser’s series, 1 through 7:
Part 1: Cryptography: Are non-fungible tokens a scam? Or can they work? By Warren Buffett’s logic, if cryptocurrencies are rat poison squared, non-fungible tokens are rat poison to an infinite power. But is that all there is to be said about them? Blockchain technology allows for digital collectibles to be scarce even if they are replicable, thus creating value, like Jack Dorsey’s famous initial tweet.
Part 2: Can digital signatures protect NFTs in digital marketplaces? The concept of owning an NFT on a blockchain is specific to the blockchain with no legal force in society at large. While NFTs are new, the debasement of value by proliferating copies whose marginal value is close to zero has a long and ignominious history.
Part 3: How to create non-fungible tokens (NFTs), simplified. While still deeply skeptical of what ownership of an NFT really means at present, Fickser decided to experiment with creating, buying, and selling NFTs. Bernard Fickser offers a step-by-step explanation, offering an original montage of the Democratic primary in Iowa in 2007 for sale as an illustration.
Part 4: NFTs: You bought one. But do you really own it? Could you ever? Right now, the non-fungible tokens markets leave a lot to be desired as a business proposition, Bernard Fickser explains why. The current NFT regime features no limit on proliferation, no guarantee of scarcity, and terms that disclaim any accountability on the part of the NFT market.
Part 5: In the digital world, what does “scarcity” mean? For a digital artwork like Beetle’s Everydays, which sold for over $69 million, a number of methods are used to prevent copying, thus ensuring uniqueness. Three methods used to ensure uniqueness include partial availability (for fair use), digital marking, and algorithmic immutability (like blockchain).
Part 6: What makes NFTs valuable? What does it mean to own one? In the case of non-fungible tokens (NFTs) on the Ethereum blockchain, actual ownership with legal standing is never in fact transferred for the underlying digital file. Bernard Fickser points out that the NFT literature is filled with equivocations about the meaning of the word “own” as it relates to NFTs.
Part 7: How can non-fungible tokens (NFTs) be made to work better? Bernard Fickser offers twelve steps to handling NFTs in a way that dispenses with cryptocurrency-based blockchains and works in ordinary online marketplaces like eBay. In Fickser’s view, NFTs can work if they avoid self-serving cryptocurrency blockchains like Ethereum and enable real-world legal transfers of ownership.