An interdisciplinary understanding of digital culture, electronic markets, and compounded group excitement.

• Introduction

Whether you are a Twitter user enduring the hordes of pretentious “NFT Bros”, one who keeps their eye on upcoming technology, or simply a person with an ear to the ground related to current news and economic shifts throughout the world, you have most likely heard of a non-fungible token. An “NFT” as it is referred to, is a new age format for digital currency and modernized art displayed in a way that is claimed to be wholly unique and unable to be replicated, but what are they actually? Despite their large presence within the digital space information about their creation is sparse possibly due to the complexity of the technology used to develop or “mint” them, with most digital personalities explaining the process in their own interpretive style. While information from the basic consumer is excellent due to their first-hand experience, it is more likely that their opinions will be spread throughout the presentation than that of a scholarly source, or a social scientist. To further educate about the current digital currency landscape, I sought out to compile information referring to NFTs from multiple scholarly sources, hoping to cover the topics of their creation, impact on economic statuses and environments, cybersecurity implementations, and general accessibility.

• NFT Culture and Design

Despite modern cryptocurrency evolving from an anonymous way to exchange funds into a globally recognized stock-like asset, non-fungible tokens remain niche and untrusted throughout internet sources. Users on Reddit and Twitter for example have formed groupings that could be viewed more like warring factions both with widely different opinions about the minting and collecting of NFTs. The negative reactions mostly come from users who view the collection of digital assets as something that is untrustworthy, unreliable, and something that is just not worth the effort. In explaining what makes an NFT an asset, one could easily draw comparisons to old-age collectibles such as baseball cards or the more modern example of Pokémon trading cards. While these examples sell for hundreds of thousands of dollars, or in rare cases millions, they are not tradeable assets that can immediately be exchanged for goods and services as recognized by the economy. This means that if I wanted to go to the store and purchase a new outfit, I would need to pay with a recognized currency, not a selection of trading cards. This in short is what makes an NFT valuable, by recognizing that the token is non-fungible, it becomes a collector’s asset rather than a currency, something that few recognize. Just as Bitcoin and Ethereum can be viewed as digital USDs, and exchanged for such, NFTs can be viewed as the digital card collection, needing to be purchased and sold instead of used directly as a currency.

• NFT Creation and Observational Value

While the idea of utilization, or collectible aspect, of a NFT is understandable based on prior observations, the creation of these tokens is far more complicated and less easy to understand for the average consumer. Like how standards exist within worldwide asset acquisition, the crypto market follows a similar functionality in that it used ERC standards to build upon something referred to as a blockchain (Boscovic). The ERC-721 standard is used throughout the minting process of new NFTs based on an asynchronous encryption method in which the owner is able to distinguish their collection from those who replicate their art (Boscovic). What separates NFTs from other cryptocurrency or collectible assets is the observational value that they hold, in which the value of the asset is determined by scarcity and popularity. By definition of ownership, only those who own it choose when or if they want to sell it, the blockchain however is not infinite and can only support a finite number of new mints at any given point in time leading to a surge of popularity followed by a shortage of selections. Similarly to the initial bloom of cryptocurrency, this has led to the NFT market being treated as an artificial stock, with some collections surging in price following a burst in popularity and often an inflated price of new mints to justify the coming storm of trend following buyers. What does separate the digital collections from the physical one is the ownership of such, something that has been a grand debate since the inception of the blockchain marketplace. The lack of physical ownership of these assets has the potential to lead to users being stripped of their possessions as in a way they are only being lent that of which they own. Without any property law to govern the ownership of digital assets, users are at risk of modern gallery depictions utilizing their assets against their will (Marinotti). Similarly to the fine print of the physical world, the newly adopted “metaverse” is no stranger to terms of service agreements that under their veil hold predatory agreements that might strip users of their possessions, “because of their terms of service, platforms can even legally delete or give your items away by delinking the digital assets from their original NFT identification codes (Marinotti).” While far-fetched, this process of digital art theft is not something to be completely written off from possibility, more it should be viewed as something to be wary of as the metaverse expands. Just as the value of your digital asset is observable, so is the ownership.

• NFT Ownership and Security

            What separates the NFT market environment from other cryptocurrencies is that on paper you are the sole owner of the asset that you are purchasing, differing the NFT market from the real-world art market counterpart. While you could attend an art show and purchase a rare piece, you are unable to stop the artist from painting an exact replica and selling that one for possibly even more money. The randomized nature of blockchain art ensures that each minted NFT is unique in its own way, separating them from the rest of the newly minted collections. What differentiates the NFT collecting market from the modern art market is that copyright is much harder to enforce when what you are enforcing is easy to replicate, reproduce, share, and especially resell (Mendis). The rate at which NFTs are bought, sold, and traded far exceed the art industry to a point at which the original buyer is sometimes incredibly difficult to track down. Not only does this mean that the sole owner is sometimes questionable, but also that in unique cases the authenticity of what you are purchasing can sometimes be presented as questionable (Mendis). In terms of copyright law, enforcing the replication of NFTs is easy to defend but hard to halt, similarly to music streaming or video pirating, meaning that copyright infringement will consistently be hard to combat due to the fluctuating ownership, value, and acquisition methodology of digital art (Mendis). This issue of copyright is further muddled when considered amongst the conflicting observations of NFT ownership throughout the blockchain. Ownership within the metaverse in some instances is nothing more than a license, with true ownership still residing with the one who originally minted the NFT, among other legal issues originating from questions centered around confusion within the metaverse, some have asked the simple but complicated questions of who governs the metaverse, and where does security within the digital environment step in (Lean Lau)?  In terms of authority, it is arguable that the GDPR has oversight applications for the metaverse, and the assets that flow throughout the digital environments, meaning that legally speaking data protection could extend to digital assets if augmented in a way that conforms to the user opposed to the data itself (Lean Lau). Despite protections in place, the security of digital assets and the data that accompanies them will continue to remain a complicated issue due to the rapid evolution of the technology behind situations such as the minting of tokens on the blockchain. That, combined with the worldwide reach of the metaverse and digital asset acquisition and crypto exchange market, makes ideas such as digital governance something that currently would not be able to guarantee individual protection (Lean Lau).

• NFT Social Observation

            Earlier, a reference to warring factions was utilized as an allegory to separate the two communities surrounding NFTs and the digital asset marketplace, the two sides of which range from full support to everyone else. We have covered that while you own the NFT, you do not technically own it, but instead own the rights to display it, sell it, view it, and voice that you own it. Even though you own it, its value is not something that can be observed without a complicated guessing game of trends and digital community reading, it is not a physical asset meaning that the value will not increase based off of variables such as time or management (Hawkins). So why do the large majority of the NFT community support it so greatly despite their return being minimal? One interpretation is the social movement of the NFT community and how it has come to dominate online observation and popularity. The displaying of wealth is something that has existed throughout the physical world for hundreds of years, however, the digital age in its infant state did not give any sort of edge towards the wealthy. Now, the wealthy can display their highly expensive and rare collection of entirely digital art (Hawkins). Despite there being no fundamental value of the acquired asset, the display of the asset socially speaking paints you as someone who stands out, someone who has caught attention, and someone who has money. Influencer culture within the 2010s onwards has only grown exponentially, from YouTube celebrities to teenagers richer than the average American, accompanied by a fortune gained entirely off of TikTok. Due to this, younger generations aspire not to be a hero, such as older generations witnessing “heroic” jobs and wanting to be like them, but instead aspire to be an influencer, be famous, or be seen. Socially speaking, NFTs give anyone with money the ability to stand out and grant the ability to connect with others that share their passion for such (Hawkins).

• Conclusion

While the NFT market is something that has only grown, it has not proven itself to be more than a trend or something able to grow above what it already is. While the digital asset trading marketplace is something that is popular, it is popular with a niche crowd consisting of get rich personas, influencer culture, and those hoping to make a name for themselves socially by displaying their collection of digital assets and art. While the creation of NFTs is limited, the market is already highly saturated with vast amounts of art ranging in prices, so while scarcity exists, there is likely always someone willing to sell. However, the sale might not be exactly what the buyer wants, leading to an artificial surge in price resulting from observational value skyrocketing based off of popularity. Once owned, an NFT is yours but not entirely, leading to a confusing string of variables resulting in a digital asset owned but unusable. The art is yours to display, to show off to the world, to sell when you get bored, but nothing else. The value of an NFT is fundamentally based on the individual as the value is entirely observational, meaning that the value can increase or decrease based on popularity or trends (Hawkins). While value is something that is often questioned, the security is also a more recent concern as NFT popularity grows and the metaverse develops. The metaverse in general is a mere infant compared to the much larger internet landscape, however, is already home to scams, tricks, and ways to steal from others, all of which are difficult to govern, track, and implement with both new and existing laws (Lean Lau).

References

Boscovic, D. (2022, March 15). How Non-Fungible Tokens Work and Where They Get Their Value – A Cryptocurrency Expert Explains NFTs. The Conversation. Retrieved April 25, 2022, from https://theconversation.com/how-nonfungible-tokens-work-and-where-they-get-their-value-a-cryptocurrency-expert-explains-nfts-157489

Hawkins, J. (2022, April 6). NFTs, An Overblown Speculative Bubble Inflated by Pop Culture and Crypto Mania. The Conversation. Retrieved April 25, 2022, from https://theconversation.com/nfts-an-overblown-speculative-bubble-inflated-by-pop-culture-and-crypto-mania-174462

Lean Lau, P. (2022, April 21). The Metaverse: Three Legal Issues We Need to Address. The Conversation. Retrieved April 25, 2022, from https://theconversation.com/the-metaverse-three-legal-issues-we-need-to-address-175891

Marinotti, J. (2022, April 21). Can You Truly Own Anything in the Metaverse? A Law Professor Explains How Blockchains and NFTs Don’t Protect Virtual Property. The Conversation. Retrieved April 25, 2022, from https://theconversation.com/can-you-truly-own-anything-in-the-metaverse-a-law-professor-explains-how-blockchains-and-nfts-dont-protect-virtual-property-179067

Mendis, D. (2022, April 6). When You Buy an NFT, You Don’t Completely Own It – Here’s Why. The Conversation. Retrieved April 25, 2022, from https://theconversation.com/when-you-buy-an-nft-you-dont-completely-own-it-heres-why-166445