Anil Dash’s new article in The Atlantic has caused quite the stir. Entitled, ‘NFTs Weren’t Supposed to End Like This,’ the article outlines how NFTs were created in what was essentially an overnight hackathon. Dash, the now-CEO of project hosting service Glitch, teamed up with the artist Kevin McCoy in order to plan and put together a way of ensuring artists could protect the copyright of their creations. When, McCoy sold a GIF onstage at Rhizome blog’s Seven on Seven conference to Dash on the Namecoin blockchain, little did the pair realise quite what they were embarking upon!
Those familiar with the community will by now be familiar with the vast amount of money being exchanged on trading sites for digital art. From the meme-worthy Nyan Cat sale on Foundation for $590,000 in February 2021, to the astonishing $69 million that Beeple’s ‘Everydays: The First 5,000 Days‘ sold for at a Christy’s Auction, it’s clear that something has changed from the original idea of the of ‘monetised graphics’ originally put forward by Dash and McCoy. With NonFungible reporting at time of writing total sales of NFTs on marketplaces reaching $30 million (excluding Beeple’s auction result), NFTs are no longer simply the business of protecting artists’ work.
Whether or not artists should be making as much money out of their work on NFT marketplaces is one question. On the one hand, free marketeers might argue precisely that: the market is free for individuals to buy and sell whatever they want, and for as much (or little) as they want. On the other hand, there could be things (as Michael Sandel has argued) that society might want to separate from market forces in order to preserve the form of value they originally had before they were marketised. Sandel laments the fact that the guiding hand of the market taints objects–changes them-with its touch, and the logic of finance skews the good nature inherent in much of public and private life.
Dash is not interested in this question however, drawing our attention instead to whether or not what we are buying when we purchase NFTs is as stable a purchase as we would like to think. Yes, we all know that blockchains are more-or-less permanent ledgers of exchanges, but that’s all they record: exchanges. What is being exchanged, however, is not always (or entirely) contained on the blockchain.
‘All common NFT platforms today share some of these weaknesses. They still depend on one company staying in business to verify your art. They still depend on the old-fashioned pre-blockchain internet, where an artwork would suddenly vanish if someone forgot to renew a domain name’. Anil Dash
Combined with the significantly large chance of forgery and the environmental impact associated with the electricity costs of verifying blockchain transactions, the future according to Dash does not look too rosy for either the technology or its marketplaces. Whereas these problems might not have existed had the technology remained true its original vision of guaranteeing the ownership rights of artists’ creations, the juggernaut that has emerged (in part no doubt due to lockdown boredom and the success of a number of whales in cryptocurrencies) has created new problems in its wake. However, solutions to the problems that plague the NFT world might take their inspiration from a surprising source: the downfall of the original cyber-utopians from which the internet first emerged.
The Rise and Fall of Cyber Utopians
In his tripartite documentary series, All Watched over by Machines of Loving Grace (2011), Adam Curtis outlines how a group of powerful American businessmen in the 1970s imbibed the Objectivist philosophy of Ayn Rand and thought they could leverage the current emergent technological developments for the benefit of individual liberty. Whereas Western politicians and intellectuals, they argued, had historically distrusted liberty (on the Hobbesian and Bioshock-ean grounds that free individuals will ultimately use their freedom to enslave each other), the power of technology could ensure that this never happens.
For example, in 1991 as Curtis shows, a computer engineer called Loren Carpenter invited a large number of people to a room in which each individual was given a paddle with one side red and the other green. The screen in front of them was divided into squares and no instructions were given. However, one by one, the audience members realised that, if they turned their paddles one way, one block on the screen would show the colour of their paddle, and would change when it was flipped over. ‘The room erupted,’ says Carpenter and, when the computer game ‘Pong’ was put on the screen, members of the audience worked together to ensure that the bumpers on each screen went up and down appropriately, as controlled by which side their paddle showed. Carpenter subsequently argued that this experiment showed that a lack of hierarchy could create a ‘subconscious consensus,’ and an emergent order.
The ‘Californian Ideology’ that emerged from this moment combined a utopian faith in technology with an anarchic political theory inspired by Rand’s Objectivism and the classical liberal works of John Locke and John Stuart Mill. Triumphant of their faith in individual liberty, they were equally distrustful of nation states (a position that the digital artist SlimeSunday espouses today) and the notion that the political system should be controlled by anyone. Coining this new-found approach to technology, Government, according to the former Professor and Dean of UCLA Luskin School of Public Affairs Kenichi Ohmae, should no longer be in the business of managing public and private affairs, but of facilitating them. And computers, complex feedback mechanisms that modelled social behaviour, and the practice of hedging against risk would collectively, according to the cyber utopians, be the engine behind these affairs.
To a certain extent, as Curtis outlines, the Californian Ideology worked for some time. ‘The New Economy’ grew, sparked by a seemingly large development of productivity and the ability to give out loans to a large number of new people around the world: neoliberalism was in full swing. However, it soon became clear that the wool had been pulled over the eyes of many starry-eyed investors in the New Economy after one of the earliest adopters of the utopian idea, Carmen Hermosillo, published a shocking article.
In this article, Hermosillo laid bare the number of people who were desperately unhappy at the self-commodification (the practice of turning oneself into a product and then marketing oneself) involved in practicing the Californian Ideology. ‘Cyberspace,’ she wrote, echoing the Situationist movement of 1960s Paris, ‘is a black hole. It absorbs energy and personality and represents it as a spectacle’. Hermosillo was not simply targeting cyberspace in general, but the specific corporations and individuals who profited in significant ways from this commodification. The New Economy, for Hermosillo, pretended to benefit everyone equally, but was actually controlled by a powerful group of companies and banks who extracted the capital of workers. The only difference between the New Economy and its traditional form was that the commodities to be sold were no longer objects made in factories, but people themselves.
Then, in 1997, and in a dramatic twist away from the predictions made according to the Californian Ideology that computer logic could effectively hedge against the risk-taking inherent in the New Economy, the East Asian ‘tiger economies’ fell into a financial crash. When the Thai government unpegged the baht from the US dollar, a series of currency devaluations saw vast amounts of capital flight out of, first, Thailand and then Indonesia, South Korea and Japan. The crash caused an average 10% shrinking of the countries’ economies and unemployment in Indonesia went from ⅓ of the population to ½, before its economy crashed by a further 80%.
The response to the East Asian financial crisis by the US Treasury was not, however, to let autonomous individuals deal with it as they wished. Rather than abiding by the Californian Ideology they allegedly subscribed to, and accepting the fact that the country is affected by the crash might wish to pull themselves out of the international financial system in order to recover themselves, the government planned a set of interventions designed to protect the financial system from which they benefitted. Although millions of dollars were paid by the IMF to banks in the East Asian countries, much of this money immediately found its way back into the Western banks whose investment and subsequent withdrawal of funds had caused the crash in the first place. The US banking group Citigroup, for example, even received a government bailout of $45 billion to stay afloat during the crisis. The hypocrisy is clear: the Californian Ideology worked well to build profits for investors and consumers in both the West and the East. However, when the speculative bubble burst, the poor citizens of East Asia were left to fend for themselves whilst the Western banks were prioritised by the East Asian treasury departments and those back home.
Lessons to be Learned
It should come as no surprise to any investor that, whether they are trading in stocks, shares, or digital assets, their capital is at risk. Those investing in NFTs are no doubt aware that their speculation in the growth industry treads new ground: Both the technology upon which the industry is based as well as the regulation governing it is both very new and, at least in the case of the latter, often non-existent. The question Dash raises around what exactly is being exchanged during an NFT transaction is cast in a new light against the backdrop of the station financial crisis.
What is registered on the block chain is more or less guaranteed to be verified in perpetuity, at least to the extent that a maliciously-designed fork might associate previous transactions with one wallet. The chances of this happening are as close to 0 as can feasibly be imagined, and only get smaller as the number of transactions currently existing increase.
However, as Dash makes clear, it is very rarely the case that all NFT data is written to the blockchain, and we rely heavily upon companies to translate this data to a front end for consumer use. If this company fails for whatever reason, either legitimate or nefarious, there is a large chance that translation layer between the block chain and the commodities individuals are interested in also disappear. Redundancy might make this less likely, and so the dissolution of Rarible is not an issue so long as OpenSea still exists.
However, our reliance upon centralised nodes in an (allegedly) decentralised system should give us cause for concern given our knowledge of how financial authorities act in crisis situations. Fully decentralised NFT hosts and nodes, such as Decentraland or the Gala Games ecosystem make ownership of NFTs less risky, however they do so by requiring all the data for the NFT to be written onto the block chain, often at prodigiously expensive rates for the individual (or using starting investor funding). The upcoming transition towards Ethereum 2.0 will make this less expensive, however we are still left with a number of centralised websites that collate art and collectibles. Whilst these remain coded around pre-blockchain technology, they also remain open to an administrator forgetting to renew a domain, hacking, or the weighty hand of regulators. In order to guarantee the security of their art and investments alike, the NFT community would do well to quickly complete the transition towards blockchain technology underpinning all of their community without the keystones that currently undermine it.