LinLog

This morning I finally took a little time to read a few articles about NFTs.  Specifically, I was interested in what you actually get when you buy an NFT.

As I'd written in a previous post, this was kind of confusing to me.  I mean, I got the technical aspect - that an NFT is a blockchain transaction that's tied to some file that lives outside the chain.  So you have an immutable record that the transaction happened, which is good.  But when you read about people paying hundreds of thousands, or even millions of dollars for an NFT, what did they actually get for that money?

The short answer is: it depends.

It looks like, legally speaking, it depends on the terms of the sale agreement.  It's possible that a high-priced NFT was purchased under an agreement that transfers full ownership and copyright rights to the purchaser.  However, it's also possible that all they got was that transaction on the blockchain.

It seems like the default is that buying an NFT is like buying a collectible, but in digital form.  Think of, say, a limited-edition collectible like a toy, coin, or something similar that comes with some sort of certificate of authenticity.  When you buy it, you get the physical item, but you also get documentation with some sort of serial number and proof that that specific item was sold to you.  Having that kind of provenance can, in and of itself, be very valuable to collectors.

However, while it might be understood that the supply of a limited-edition item will be fixed, you generally aren't guaranteed that.  There's not necessarily anything to stop the manufacturer from making a crap-ton more of them and flooding the market, thus diluting the value of your purchase.

That's kind of like how it works with NFTs.  Unless you have a contract that says otherwise, it seems like you can't generally assume that you get anything other than the digital equivalent of a proof-of-purchase.  You get the exclusive rights to that certificate, but the only rights you get over the work associated with it are basically the rights of private ownership, i.e. to have and use it for your own, personal purposes.

To my way of thinking, it's kind of like the difference between buying an e-book from O'Reilly and downloading the same e-book from a torrent site.  Either way, you have a copy of the book that you can read.  Either way, you can give your friend a copy of it to read.  But if you buy it, you have a receipt to prove that you bought it.

Is there some value in that?  Yes, I think there is.  I can especially see that in the case of a "digital collectible", where a significant portion of the value could be in just having them in your collection.  (I do think paying large amounts for that is silly, but I also think paying large amounts for physical collectibles with no intrinsic value is silly.)  But for cases where there's no physical asset, and no ownership rights over the original digital asset, and nothing to stop the creator from minting more tokens for the same asset...?  I have a hard time imagining a "certificate of authenticity for Jack Dorsey's first tweet" being worth $2.5 million.

So I'm moderating my position a little.  I'm not going to say that all NFT is just dumb.  Depending on the transaction details, it can be a useful thing to buy.  But I think it really depends on the details.  I mean, if all you're buying is a "certificate of authenticity" for something that somebody else owns and anyone can get for free, that seems kinda silly.  And paying thousands of dollars for something like that seems really silly.  So while NFT might not be totally worthless, I still think a lot of the high-priced transactions we read about are nothing but speculation.  (Or money laundering, or tax avoidance, or whatever other financial tricks people pull with collectibles.)