Is it Bad for the Environment?


Well – that’s complicated. Blockchain technology already takes a lot of energy, but because it’s limited to the people and companies that can afford powerful computers, its impact is limited. However, that doesn’t mean it will stay limited. NFTs use a form of blockchain tech that’s less efficient than the kind cryptocurrencies use, so the power consumption of NFT tokens are going to be a little more intense than they are for cryptos. That’s on top of the cryptocurrencies and blockchain tech already in use. What happens when everyone wants a piece of the Bitcoin mining success? Or when everyone wants to create these tokens? The effects trickle down, and the fact that we’re seeing a power usage impact from the limited number available now doesn’t bode well. Computers are getting more powerful anyway, but this could create demand for computers that are powerful enough for NFTs but too powerful for anything else. Powerful computers still consume more power than less powerful ones, even if all else is running equal.

While energy demands are slowly being met with renewables, non-renewables still make up the majority of the energy supply in many places. In fact, many countries are actively resisting the switch. If NFTs need a noticeable amount of power to be feasible, they’re going to produce a noticeable amount of pollution. Not to mention the difficulty of finding and mining rare-earth metals for some of the computer parts. Some of those, like Yttrium, are more expensive than gold, and even rarer. The mining needed to supply bottleneck parts could turn into a disaster all on its own even if the power comes from non-polluting sources, unless suitable substitutes are found.


It’s an attempt at re-introducing scarcity


Much like signed works retain value, NFTs also retain value. In theory. What makes them special is the ability to hold value in digital space as a “rare” item, via blockchain technology attached to the item. This should be impossible in a world like ours, where a downloadable image can be copied limitless times. In fact, some people hate the concept for this very reason – there’s no actual scarcity! The quality doesn’t change, the picture doesn’t change, and having an NFT piece doesn’t give you the right to use the piece, it gives you the digital file and that’s it. It isn’t copyright. It’s creating a real, solid, theoretically permanent object in a digital, everchanging world with exactly the same properties as it’s copies, except for the token. It’s a digital Beanie Baby: scarcity for the sake of it.

Some say the current craze is almost certainly a bubble. If NFTs can be created out of anything, and it’s possible to make an unlimited amount… where does the value come from? A signed copy of an album is expensive because it’s rare, computers are expensive because they’re functional, but what does an NFT do? It’s not like BitCoin, which is the money, NFTs are a “real” object that has to be sold first for money. Hence the “non-fungible” part of the name. They’re subject to all the same things any one-of-a-kind item is, including becoming more common, and becoming unpopular. Eventually, the cost of the NFT might be tied to the real value of the item (good!), and most real items aren’t worth what that Nyan Cat token sold for (bad!).

This whole system, from the outside, looks like people with supercomputers trying to make something to sell to users who don’t fully understand it.


It’s Confusing


NFTs don’t do anything but store hypothetical wealth, much like signed pictures do. Unlike signed pictures, which are a physical item, other people can still view digital images of what you’ve got. It just won’t have the token. If people don’t care about the token, the token loses value.

Don’t let their newness confuse you – they’re only worth what the market says they’re worth. Right now, NFTs are being used like baseball cards and Beanie Babies, but disguised by the blockchain technology.

Many people conflate BitCoin with blockchain technology, and BitCoins cost a lot. Therefore, to investing newcomers, blockchain items cost a lot. The folks who mistakenly follow this train of thought buy these things on the bubble and think they’ve gotten a good deal. The second generation of NFTs has already experienced a price dip, and it’s not crazy to think they’ll stay down.

NFTs will have to gain value by being sold as unique items instead of relying on their newness to sell.

For example, a tennis player is selling tokens of her arm, the way old school baseball orgs would sell cards with their players on it. She’s a good tennis player, so people who like her will buy the NFTs at the price they think is acceptable, considering the rarity of the ‘item’, her arm. As long as people value her as a player, they’ll value the NFTs they buy from her. The same goes for baseball cards, resellers know popular players with few cards will sell for higher prices than unpopular players. They, in this case, hold some kind of value – but buying an NFT without looking at what it’s attached to, what’s supposed to give it it’s value, is like buying a blank index card at premium baseball card prices.


It’s…Doing Weird Things


Where real objects can be used as leverage, digital NFTs are a whole other world, legally and economically. To expand on hooking up NFTs to real objects, you don’t own the tennis player’s arm, just like buying an NFT of a picture doesn’t give you copyright permissions. Buyers own a token that represents ‘something’, not the ‘something’ itself.

Just like holding collectibles of any kind, holding NFTs is like holding stocks in something without any of the rights that come from holding stocks, and all of the liabilities. The price can do whatever it wants, it’s subject to fluctuations, and you have no say in what the artist or tennis player does, even if it reduces the value of your NFT. In essence, it’s a collectible market. This huge surge in pricing likely won’t stick around once people get used to the tech being here.


Bright Side


In a world where fake images are getting better and better, NFT tokens might help prevent some Photoshop fraud if applied correctly, which is valuable. NFTs can also follow contracts and other digital items where all parties should only have one primary copy. This huge hype around NFTs as an investment is overlooking many of it’s other benefits.

These NFT items aren’t like signed lithograph prints or limited edition cards, where illegitimate copies are much worse quality, the only thing that increases an NFT art’s value is the NFT. There are high-quality pictures of Nyan Cat all over the internet, for example. Once collectors figure that out, all but the first gen of Nyan Cat tokens should lose value: there’s no real scarcity, only imagined scarcity, created by people with powerful machines. If someone could have a print of their favorite artist’s work for cheap at the same quality and definition as the original, but without the artist’s signature, would they do it? A fair amount of people are going to answer “yes”. In fact, even if the quality is noticeably worse, most people will still take a poor copy over no copy. Look at how many people hang up flat pictures of Van Gogh’s work in their house!

Even beyond art, NFTs might struggle to keep footing with the physical item they’re attached to. If it’s really rare, the collector could sell it by itself without the headache of getting the token back, or negotiating with the buyer to prevent the (sold) NFT from losing value if that buyer wants to buy it and alter it. A whole new world of property law is on the horizon, and only time will tell how it goes.



Sources: (Wikipedia provides a good definition and additional reading on the tech behind NFTs, something other articles don’t do)