Perhaps I should start with the million-dollar question (or should I say the million-crypto question): what are NFTs?
After going on countless dates with MIT boys who don’t seem to know how to converse about anything else, I’ve gathered that NFTs (non-fungible tokens) are unique units of data stored on a blockchain that can be sold and traded. As that still doesn’t really make sense for most of us non-Bitcoin-brained people, here is the explanation that got me to understand: I go to Hermès to buy a one-of-a-kind Porosus Crocodile Birkin. I buy it and the Hermès sales associate gives me the authentication certificate proving that I own this one-of-a-kind Birkin. However, a few years later, I decide that I don’t want the bag anymore. So I sell it on Craigslist (for the sake of example, let’s pretend people sell Birkins on Craigslist). Because there’s a blockchain, the person who wants to buy it can see that I actually own the Birkin, while I can see that they actually have the 200k for the bag. Then we trade. In this metaphor, the Birkin is the NFT, Craigslist is the open sea marketplace and the blockchain is what ensures that we both own what we claim to own. Now, rather than bags, think of it in terms of digital art.
This would all make sense, except the point of the internet is that there is no scarcity. A picture can be looked at, a song can be listened to and a video can be watched an infinite amount of times at practically no cost. This free sharing, which has been the cornerstone of the internet, is now being challenged by NFTs, which manufacture scarcity in an arena where there historically has been none. In a way, the digital world is one of anti-scarcity; there is no product in the physical world that can be identically reproduced without a cost and without degrading in quality. When people purchase NFTs, they are essentially purchasing the association of their name to a nonexclusive digital item that exists the same for them as it does for everyone else. How people are taking this seriously and not as a hyper-capitalist parody is beyond me. However, NFT owners and advocates claim that the point of owning an NFT is the verifiable asset of ownership. Regardless of who screenshots or downloads their NFT, its value lies with them. This begs the question: what exactly is the value of an NFT?
Currently, big-name NFTs like Cyptopunk and some Blue Chip projects are viewed as collectibles, like artwork that will appreciate in value over time. However, that depends entirely on whether the demand for these products can be maintained. Once upon a time, I was also promised that my Beanie Babies would make me a millionaire. As NFTs are still relatively new and the full range of their use has yet to reveal itself (currently the scope of their utility goes from using it as a profile picture to saying you own it), I won’t make projective claims trashing them too much. I will say, though, that presently NFTs are playthings for the rich that are far too harmful for the environment given their speculative usefulness.
Ethereum is the primary blockchain network where NFTs are bought and sold. Ethereum is incredibly inefficient and wasteful in its energy consumption as it uses “proof of work.” Proof of work is an algorithm that confirms that computational effort has been spent. This energy-intensive network competition essentially has miners mining the blockchain by solving complex puzzles which use high amounts of processing power, which translates to using high amounts of electricity. According to Digiconcomist, Ethereum uses 113 terawatt-hours per year, which is as much power consumption as the Netherlands. Further, a single Ethereum transaction can use as much power than an average US household uses in a week. We can argue in circles over the value of an NFT and whether it is actually the future of technology or the metaverse (or whatever else tech bros are on these days), but what the real, tangible concern is the harm they cause to the environment. While there are counterclaims regarding Etherum’s plan to switch to proof of stake, a more energy efficient alternative to proof of work, it is an enormous undertaking that still functions on the principle that those who stake the most money make the most money. I am reluctant to make a judgment, as proof of stake hasn’t been proven to work on any platforms close to the scale of Ethereum yet. But what currently stands is that the more “work” a computer does, the more money it makes for its owner. This essentially becomes a competition of who can expend the most energy and burn the most coal, so think of a forest-burning arms race among the rich who can afford the better computers and the better GPUs. Effects of climate change are felt disproportionately by those in poverty despite the fact that these large-scale climate issues are often driven by large corporations and the rich. NFTs are no exception to this. Until Ethereum eventually switches to “proof of stake”, with every NFT created, we are increasing the gap of inequality by making climate vulnerable areas slightly worse off.
NFTs are fascinatingly absurd; they are cultural and economic units that transcend the internet’s foundation of anti scarcity. Most days I don’t know what to make of them; they’re pixels after all. But if the tech bros ever figure out a real use for them and a way to make them that’s environmentally sustainable, I won’t be opposed to someone gifting me a Meta-Birkin.