Jul 17, 2023
Non-fungible tokens (NFTs), along with many other cryptocurrency buzzwords, have been touted as the next great advancement in IT and finance. Since early 2021, massive publications like The New York Times and Wall Street Journal have heavily reported on the NFT boom, spreading the ideas of NFT advocates. These advocates proclaim NFTs as a reliable method for digital art verification. They assert that NFTs make digital art completely unique and verifiable. However, while these claims are true to an extent, they often come with important caveats.
At a surface-level glance, a Non-fungible-token is a digital asset that has verifiable ownership and can't be replicated. Their massive appeal comes from the fact they are able to achieve all of these attributes while being totally decentralized. No central authority governs how they work. Instead, people are able to agree about how they work through the use of blockchain technology. While blockchain technology may be NFT's greatest appeal, it also acts as its greatest weakness. NFTs fail at safeguarding digital art through blockchain limitations.
A blockchain is a decentralized database or ledger that is made up of a growing list of transactions. The transactions on these ledgers look something like ‘Account A transferred x amount of value to Account B’. Essentially, blockchains act as bookkeepers for cryptocurrency, knowing the exact amount of value in any account at any given time by keeping track of every single transaction made within them. The name blockchain comes from the fact that when transactions are added to this ledger, they are bunched in cryptographically secured groups, known as blocks. For more information, this video from SciShow's youtube channel does an excellent job explaining blockchains and cryptocurrency.
NFTs exist within special blockchains that, in addition to maintaining a ledger, can execute computer code and keep track of every action the code makes. These chunks of code can be written and published to a blockchain by any account and are referred to as smart contracts. Once published, these smart contracts can also be interacted with by any account. The name smart contract comes from their original purpose: contracts that could be written and interacted/agreed upon by any account and enforced by a blockchain. Since these contracts are arbitrary blocks of computer code, they can function beyond a simple contract.
At its core, an NFT is simply a piece of data, or token, contained within a smart contract that resides on a blockchain. This smart contract manages and tracks the ownership and exchange of this token. In the crypto space, these smart contracts are often referred to as NFT projects and can hold one to an unlimited amount of tokens. Each of these NFT projects has a unique ID on its corresponding blockchain, making each NFT within that project digitally unique.
While NFTs are defined by computer code and can have limitless applications, the incredible expense of blockchain data storage significantly handicaps them. Depending on current crypto prices, it can cost tens of thousands of dollars just to put a 500KB image on the Ethereum blockchain. Because of this, the vast majority of NFTs are not actually images or digital assets, but rather references or links that are intended to prove ownership over said assets. The actual digital asset is stored on a publicly accessible server that does not utilize blockchain technology.
Since many of these NFTs are merely references, they are susceptible to 'link rot' and can become invalid over time. Since an NFT does not guarantee ownership over the location where its asset is publicly stored, the asset can be deleted or manipulated by the actual server owner. This can result in the NFT pointing to something entirely different, or nothing at all. An example of this occurred with the collapse of the crypto exchange FTX. The Coachella NFT art project had been created through the now-defunct FTX. All of the NFTs created through FTX became completely useless since the art that they pointed to resided on FTX's servers, which became inaccessible. While the actual Coachella NFTs still exist within the Solana blockchain, they have become practically worthless since the tokens point to nothing.
No proof of ownership is required to create an NFT with a link to a piece of art. One of NFTs' greatest selling points is their ability to verify the original artist. However, this assumes that the NFT creator and the artist are the same person. The unfortunate reality is that any account is capable of creating an NFT of any publicly accessible art. Because of this, myriads of NFT creators stealing artists' work can be seen online. The multi-billion dollar NFT exchange OpenSea admitted in early 2022 that over 80 percent of the NFTs created through some of their minting tools were fraudulent, plagiarized, or spam pieces of art. Since the blockchain maintains a permanent record, these fraudulent NFTs exist in perpetuity.
Blockchain technology may provide an innovative way to facilitate decentralized commerce, but it fails at protecting digital art. Artists should be aware of the caveats of blockchain technology before creating NFT art.