Are NFTs a Bubble That Has Just Plain Popped for Good?Despite the crypto crash, they seem to be developing a life of their own — in ticket sales, for example
Here’s the first part of Episode 3 of the discussion between computer engineering prof Robert J. Marks and computer engineering grad students Adam Goad and Austin Egbert on that wild new online world. They’ve been discussing what gives NFTs (non-fungible tokens) their value. Now, in “The NFT Anti-bubble” (August 18, 2022), they are looking at how NFTs are faring in the vast crypto crater. What still sells?:
This portion begins at 00:15 min. A partial transcript, notes, and Additional Resources follow.
Robert J. Marks: We have talked about non-fungible tokens kind of hitting the skids. Is this a bubble pop? Are non-fungible tokens going to disappear as kind of an interesting thing in history? Or are they going to survive in some form? What do you think?
Adam Goad: I think that a lot of things are not going to survive this. I do believe it is a bubble pop. But I think that we have perhaps passed the peak on the technology hype curve.
The hype curve
Robert J. Marks: In my book, Non-Computable You, [I discuss] a curve that’s followed by new technology. I’ve seen this happen in many, many different areas. I’ve seen it happen in artificial neural networks. I’ve seen it happen in super conductivity. I’ve seen it happen in the Segway, for example, the human moveable cart that the actor on Arrested Development rides around in.
There is inevitably an introduction of new technology. And there is this buildup of incredible hype. And people began to explore it and dig into it, and it’s a bubble. Eventually, people are going to recognize the limitations of this technology and is going to pop down into a depth of cynicism.
Control engineers and electrical engineers know that the greater the overshoot, the greater the undershoot. And then all of a sudden, more sane brains begin to prevail. And we find out the places where this is indeed applicable, where it can be reduced to practice, where it is useful. And this is referred to as the asymptote of reality.
I think that all technology goes through this so-called hype curve — overexcitement, depth of cynicism, asymptote of reality. Right, Adam?
Adam Goad: I think that the current market is falling off the peak and going down. I don’t know where we are or how far we’ve gone yet. But I know that, even just a few months ago, towards the end of last year, the beginning of this year, anyone selling any kind of NFT, it would’ve sold out instantly and they would’ve made thousands of dollars.
But now, people are starting to be a lot more particular. You’re not nearly as likely to be successful just selling a picture of monkeys on the internet as you would be if you had some kind of use behind your NFT…
What still works with NFTs?
So the only things people are really spending money on right now, or at least significant amounts of money, are NFTs that provide something more than just the “ownership” of the image. Another way that NFTs could be used is as a marker of membership.
Robert J. Marks: A marker of membership. Okay, so my non-fungible token is membership in something. Okay, go ahead, elaborate. This is interesting.
Adam Goad: If you were offering a service, a subscription perhaps, just some kind of service — and you believe that your service can currently support 10,000 people — you could sell 10,000 NFTs and say that you have to own the NFT to have access to it. So then, people can also go and trade that NFT.
Robert J. Marks: Could you elaborate and give me a specific example? 10,000 of what?
Adam Goad: The most common use right now, as the technology develops, is actually NFT analytic tools.
There are tools that help you analyze the NFT market or the crypto market and find opportunities to buy or sell and make a profit. The way they provide access to these, is through ownership of their NFT.
Robert J. Marks: Is this something like stock market tips?
Adam Goad: Yes. There are people who do that. In the Web3 community, that is known as an alpha call. There’s a whole lingo inside the Web 3 community of various things. But yes, providing tips, information about things is known as an alpha call.
Austin Egbert: As kind of an analogy of where you could take that, is it would be like having a transferable software license. Let’s say, I bought a license for Microsoft Windows or something. Usually, that’s the product key. Those product keys are unique. And it’s sort of a way I could sell my product key to someone else. I no longer have the right to use that thing, but somebody else now has the right to use it. Microsoft didn’t see any money from that transaction, because it was sold secondhand, essentially. So I’m the one who ended up making money from that transaction instead of Microsoft. It ends up being a similar sort of process in that sense, right, Adam?
Adam Goad: Yes. Exactly, that’s a use of it. I will say though, that there is an opportunity for the creator to get a cut of that secondary sale if you use one of the marketplaces. In the last episode, we talked about OpenSea. That is the most popular marketplace. They will provide a percentage fee to the creator and the creator gets to determine what that fee is. But you can still just go through the blockchain itself and send an NFT to anyone you want with no fees going back to the creator.
Robert J. Marks: Could you give us maybe just a short list, off the top of your head, of things which should or should not be done with non-fungible tokens?
Adam Goad: Something that’s been done fairly successfully with non-fungible tokens — that I think could become more popular in the future — is tickets for various events. As NFTs have grown, there’s been a number of conferences of people gathering to discuss the technology and stuff. What they do to ticket those, of course, is sell NFTs.
So when they release the tickets, instead of going to the website and putting in your credit card and going through Ticketmaster or something to get the tickets, you go to their websites and you hook up your cryptocurrency wallet and you provide them some Ethereum or whatever they are asking for. And they’ll give you an NFT. This NFT is then just like any other NFT. You could perhaps sell it to someone else. Maybe you can’t go to the conference. Maybe you bought the ticket just to sell it to someone else, like we see scalpers with sporting events and such, who buy tickets just to resell them.
But it takes out the middleman, just like we were talking about a moment ago. You can sell them to anyone for any price. It’s just a matter of what they are willing to pay. So this can provide people a lot more flexibility, decentralization, privacy, all of that, because their information would not be tied to this ticket until perhaps they arrive at the registration for the event.
An example I was reading about online is, what if this was the tickets to a concert of your favorite band? After the concert, you would still have the NFT. And then it would become memorabilia of the concert and perhaps would still retain value, if this was a popular band and people wanted to have the ticket. We see people selling tickets of popular concerts to people for nostalgia. The same thing could be done with the NFT of the ticket.
What just didn’t work with NFTs?
Robert J. Marks: Okay. So what are some things that have been totally a mess with non-fungible tokens that probably should not be revisited?
Adam Goad: … trying to actually run a business through NFTs.
Robert J. Marks: Wait, run a business? How would you do that?
Adam Goad: These are known as decentralized autonomous organizations or DAOs, People buy a share of the company… It generates a token. And the amount of token you have is your amount of ownership or voting power in this organization. And then people can suggest actions for the organization. But in order for this concept to truly work, they must be fully executable autonomously. It has to be fully written into code that can be executed without people interfering. So the idea of a true DAO is a company with no presidents, no CEO. It’s just an algorithm that runs.
Note: What Is a Decentralized Autonomous Organization (DAO)? A decentralized autonomous organization (DAO) is an emerging form of legal structure. With no central governing body, every member within a DAO typically shares a common goal and attempt to act in the best interest of the entity. Popularized through cryptocurrency enthusiasts and blockchain technology, DAOs are used to make decisions in a bottoms-up management approach. – Nathan Rieff, Investopedia (July 11, 202)
Robert J. Marks: That seems like a terrible idea. I can imagine no viable organization without a central leader that is distributed.
Austin Egbert: And it sounds like the algorithm would have some knobs that could be turned. And it’s how to turn those knobs is what’s voted on by the holders of the NFTs.
Adam Goad: Yes. So the holders could suggest a change in this code or an addition, a subtraction, an alteration, whatever it is. And then that change would be put up to a vote of all the people who own the NFT, or the token, or whatever it is. And based off how much they own, they have various levels of voting power. And if it meets whatever the defined threshold is of people supporting it, it becomes part of the DAO and is enforced.
Robert J. Marks: There is some background for this. There is a book called The Wisdom of Crowds (2004) which is just a fascinating book. And it shows how crowds, many times, are more accurate in their assessment than individuals.
The classic example is trying to guess the number of jelly beans in a jar. And you will have all sorts of people guess how many jelly beans are in the jar. And some are going to be off. Some are going to be on. But remarkably, the average of these things is incredibly close to the true number of jelly beans in the jar.
Robert J. Marks: Now, there’s some conditions for this. One is that whoever votes on it must be disinterested. In other words, if I guess the number of jelly beans in the jar, I can’t know what the person before me guessed; otherwise that’s going to bias me. So it has to be disinterested.
And you’re saying, Adam, that these DAOs haven’t been too successful?
Next: Why didn’t decentralized organizations work in the crypto world?
Here’s the first part of Episode 1: Why don’t some tech moguls like Web3, the new internet? Web3 is a decentralized, less controlled version of the internet, as George Gilder predicted in Life After Google. However, some developers want to go further and make Web3 a virtual reality in which our avatars can live, as in the film Ready Player One.
And the second: What’s really happening with Bitcoin and other cryptos? How, for example, will miners make money when all the bitcoins have been mined? Robert J. Marks, Adam Goad, and Austin Egbert discuss what we hope is NOT the metaverse future, along with where Bitcoin and NFTs are headed.
Here’s the first part of Episode 2:
When you buy a non-fungible token (NFT), what do you own? You are buying someone’s digital idea. Just what legal rights that NFT confers is an open question. But the NBA is now selling them… Iconic images sweep the internet. With NFTs, a collector can say, I OWN that meme! Robert J. Marks and fellow engineers ponder what “own” means here.
You may also wish to read: 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.
And the second:
What gives NFTs (non-fungible tokens) their value? But first, a tour through the seamier side of the internet, supported in large part by the very blockchain that mints NFTs. If computer engineering prof Robert J. Marks wanted to market his cartoons as NFTs, what would he do? What would it cost? Adam Goad explains.
Here’s the first part of Episode 3:
Are NFTs a bubble that has just plain popped for good? Despite the crypto crash, they seem to be developing a life of their own — in ticket sales, for example. The NFTs that sell well now provide more than just “ownership” of an image, Adam Goad tells Robert Marks. They could be a marker of membership.
And the second:
Why didn’t decentralized organizations work in the crypto world? DAOs broke down when people tried to make them interact with the outside world. Adam Goad tells Dr. Robert Marks, as soon as you get a human involved, that human can do something that the code is not telling it to do.
- Adam Goad at IEEE Xplore
- Dr. Austin Egbert at IEEE Xplore
- ”Just As Cryptocurrencies Went Mainstream — a Huge Collapse!” by Jonathan Bartlett at Mind Matters News
- Non-Computable You by Robert J. Marks at Amazon.com
- OpenSea NFT Marketplace
- Helium Blockchain