Here’s what they didn’t tell me, and what they’re probably not telling you.
About halfway through the Delta Lockdown I started getting weekly calls from a company insistent on selling me cryptocurrency. What was odd about this company was that no matter how many times I told them that I wasn’t interested, they wouldn’t stop. This continued for nearly two months before they finally gave in. Spam calls aren’t uncommon. But I’ve never had the same company call me twice in the same day. Why do so many people desperately want to sell me crypto?
The crypto space has grown exponentially, from weird internet money to a huge community of investors and blockchain activists. Last year, NFTs brought crypto back into the mainstream with celebrities and corporations racing to cash in. Nearly everyone has that one family member or mate from high school who’s excitedly tried to sell them on the blockchain. But, explanations of the blockchain rarely go further than repeating “digital ledger” over and over. That’s quickly followed by a lot of talk about decentralisation, banks, the government, and yeah some people do get scammed but that’s like a thing that happens normally, sometimes, so it’s fine, and if you bought an ape NFT last year look how much money you’d have! Naturally, this can make cryptocurrency pretty difficult to understand. So, let’s get to the bottom of what’s actually going on, and why I think you might not want to be a part of it.
First up: the blockchain—what’s so special about a digital ledger? Turns out, not much. The blockchain itself is basically just a fancy spreadsheet that has a list of the details of every crypto transaction. What’s special about the blockchain is that it’s not just one document. Every single wallet has to keep its own copy, and for a transaction to be recorded, every single wallet has to update itself. Then every wallet needs to agree with every other wallet that a transaction is legitimate. Anyone who’s tried to split dinner more than four ways knows this sucks. Imagine if you had to keep every receipt for everything ever brought. Then every time you want to go shopping you compare receipts with the cashier to work out the running total of who owes who. Then you call everyone in the world to update their receipts and finally you can walk out with your shopping. Worse yet, if someone doesn’t agree on any transaction then the entire system grinds to a halt. This happens every time someone sends anyone else crypto, and it’s why transactions take hours or days, and use as much energy as most households do in a month.
First up: the blockchain—what’s so special about a digital ledger? Turns out, not much.
Where do NFTs come in? NFTs are often thought of as digital art. In reality an NFT is incapable of storing any more information than a link. Usually an NFT links to a web address where a thing is stored. Because of this, most NFT art is stored on 3rd party web hosts like Google1. If something happens to these hosts, or the person who sold you the NFT deletes their account, you’re left with nothing but a very expensive, broken link. This is why there are so many scams involving NFTs. Because they don’t actually contain much information. It’s very easy to sell an NFT on false promises. You can make an NFT, put the link to someone else’s art, then attempt to sell it, and that NFT itself will be indistinguishable from one the actual artist made and sold. This often results in not just buyers getting scammed but also artists losing out on sales. The lack of a central authority means there is no-one to turn to if you’ve been scammed. It is impossible to reverse a transaction once it has happened.
So, why would anyone want to buy such a worthless and risky asset? Well, if bitcoin is crypto’s way of letting you spend your wealth, NFTs are how you flaunt it. NFTs finally solve the problem of what to spend your cryptocurrency on—more crypto! Cryptocurrency has long attracted the attention of the financial elite, and what they love more than making money, is showing it off. NFTs are a very quick way to show someone that they are poorer than you. NFTs attract such high prices because it’s never been about the art. As NFT influencer Gmoney notes in an interview with CNBC “With an NFT, by posting it as my avatar on Twitter and Discord, I can quickly ‘flex’ with a picture”2.
All of this is not to say that everyone trying to sell you an NFT is trying to scam you. There’s a lot of hype that’s built up around them, and the promise of making tens of thousands of dollars flipping art in your spare time is alluring. But it’s just that, hype. Almost all big sales are the super rich passing around the same hundred thousand dollars. Big price jumps are often the result of people buying their own NFT with a different wallet to inflate the price, and the promise of decentralisation only creates a marketplace where scams are easy to pull off. So, if you want to support your favourite artist you’re probably better off buying a print. Or maybe a nice mug?
Reference List
1 https://www.theverge.com/2021/3/25/22349242/nft-metadata-explained-art-crypto-urls-links-ipfs
2 https://www.cnbc.com/2021/09/29/this-nft-investor-spent-170000-on-a-cryptopunk-to-flex-online.html