- An NFT owner doesn’t have any copyright or legal rights to the piece if there isn’t a contract.
- The digital artwork lives on the internet where anyone can still “watch, listen to, or copy” without paying.
- When buying an NFT, the actual object isn’t being purchased.
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Non-fungible tokens have taken the world by storm, becoming the hottest thing in the cryptocurrency market within only a few months. They are touted as a way to revolutionize the way digital art is bought and sold. But a closer look reveals NFTs are no more than a pump-and-dump scheme designed to make a few crypto insiders rich.
NFTs are one-of-a-kind tokens that live on a blockchain. Whereas fungible tokens, like bitcoin, can be swapped out one for one, NFTs are unique and can be used to reference images, sound clips, videos, and more.
The speculative mania for NFTs peaked in March when Christie’s sold an NFT linked to “Everydays: The first 5000 days,” a digital collage by Mike Winkelmann (more commonly known as “Beeple”). The token claiming to represent the massive JPEG sold for $69.3 million with fees, paid for in ether, the native cryptocurrency of the Ethereum blockchain.
But the craze didn’t begin there. Beeple NFTs were being pumped by crypto bros months beforehand, only to culminate in a large sale that brought a media storm to NFTs and the world’s attention to a graphic artist who few people previously had ever heard of.
The true value of NFTs
The intrinsic value of an NFT is zero. When you buy an NFT, you are not buying the underlying object. You are buying an entry in a distributed database, which allows you to pass that entry on to someone else. There is also a bit of code in there that points to the digital object somewhere on the Internet, but that’s basically it.
An NFT doesn’t convey copyright – or any legal rights at all unless there is a specific contractual agreement saying so. The digital artwork itself continues to live on the internet, available for anyone to admire, watch, listen to, or copy, without paying a penny to the owner of the NFT.
Jorge Stolfi, a computer science professor at the University of Campinas in Brazil, says the very idea of a digital collectible makes no sense at all.
“A purely digital artifact – a pattern of bits, like a JPEG image or an MP3 song file – cannot be a collectible, because it can be duplicated trillions of times, and every copy is exactly the same as the original. Not just similar or even identical, but the same thing,” he said.
He likens NFTs to the International Star Registry. In 1979 Ivor Downie, a Canadian, had the idea of selling the stars in the sky. You gave him a few dollars, and he would pick a yet-unnamed star on an astronomical photo, and enter its coordinates along with your info into his company’s ledger, thus making you the “owner” of that star.
“Everybody (well, almost everybody) understood that the registry provided only pretend ownership, no legal right of possession of the star,” Stolfi said.
Here’s the difference – while the price of stars on the registry never rose above $100, NFT prices have skyrocketed, so what’s driving their value?
A quick look at the NFTs selling for the biggest sums reveals that prices are generally the result of bidding wars between two crypto insiders – or one crypto insider and some anonymous agent, who nobody is able to identify.
The price of the NFT linked to Beeple’s “Everydays” shot up because the buyer – who went only by “Metakovan” at the time, but was revealed to be crypto entrepreneur Vignesh Sundaresan – was locked in a bidding war with Justin Sun, the CEO of the Tron blockchain.
Metakovan placed the winning bid in the final moments of the auction, making him an instant celebrity, and bringing…