The moment I heard about NFT’s I was both excited and skeptical. Back in 2012, I launched Mad River Entertainment, a virtual goods trading platform (what would now be considered an NFT platform) users could buy, sell, and trade comic books and characters. We had our own currency “clams” (not tied to the blockchain) that users could use to barter and trade. Publishers on our platform could set the scarcity level of a virtual good (NFT). For example, issue number one of “Jim Fox Super Hero 1999” could only ever have 50 copies. The idea being that the secondary market would be much more valuable because of the scarcity of the item, much like early comic books.
The publisher or copyright holder made money not only on the first sale but every secondary sale or trade of existing copies. Our mission statement was to give creatives the opportunity to be successful.
From the current perspective, I was 10 years too early because what I was trying to do was establish a digital marketplace for creatives (artists, writers, content creators, designers, lyricists, music producers, publishers, etc) to sell their digital work creating intrinsic value for it, exactly what NFTs are today. I’m not so sure how often–or if–the original creative gets paid on the secondary sales. I believe their value may vary depending on the platform but I still believe in the basic right of creatives to be paid for their work proportionate to market demand.
I won’t go into all the reasons why Mad River is not around today. Two potential pivots were that I could have turned the platform into a cryptocurrency trading platform. But then Mount Gox that was very similar in origin got hacked https://en.wikipedia.org/wiki/Mt._Gox and I did not want to be the CEO accountable for billions of dollars in losses to my customers.
I had also met with the Ethereum guys in the early days but they had no interest in investing, only porting my platform to Ethereum.
That brings us to today. Foreshadowing play perhaps, Ethereum is the number one cryptocurrency used for NFTs. Most people think of images and digital art when they think of NFTs, but NFTs generally do not store the data for the creative content on the blockchain. For NFTs of most images (art, illustrations, photographs, etc), that would be much too expensive. Instead of storing the data on-chain, NFTs instead contain a URL that points to the data. That data is stored on platforms that are similar to what Mad River was, in that it hosts the content of the image using old fashion Web2.0 servers managed by the platform or the cloud.
So essentially if you are investing in an NFT you're really investing in the platform that hosts the NFT, not something that’s on the block chain. That hosting platform is vulnerable to hacker attacks and can even be gamed by an NFT creative to serve up a different image depending on where the login comes from. The point being that, whether deliberately misleading or most likely misunderstood, the investor/buyer of the NFT does not have the security of the blockchain to protect the integrity of their investment. ETH is merely the preferred cryptocurrency of NFTs.
As a thought experiment, let's say a creative produces an NFT that changes based on who is looking at it. Since the web server that hosts the image can choose to serve different images based on the IP or User Agent of the requester, it can look one way on OpenSea and another way on Rarible. But when the investor buys it and views it from their crypto wallet, it will always display as a large 🤡emoji. What they bid on isn’t what they got. There’s nothing unusual about this NFT, it’s how the NFT specifications were built. Many of the highest priced NFTs could turn into an 🤡emoji at any time; perhaps a silly example, but it drives home the point.
To compound matters, at this point Ethereum prices are too high to drive the velocity of transactions for Ethereum-based NFT’s to truly go mainstream. Another cryptocurrency such as Bitcoin on the lightning network may replace Ethereum as the currency of choice for many NFT platforms. As a result, until that happens, I will not be buying Ethereum with the idea it will continues to be the dominant cyber currency for NFTs.
That is not to say that I do not believe in the promise and vision of NFTs. I put 5+ years of my life dedicated to such a concept. It’s still too early and the technology landscape for true scarcity of NFTs (which drives their value) that’s tied to secure blockchain that can be deployed on cross platforms is in the distant future. For that reason, I will continue my strategy of stacking Bitcoin for the foreseeable future.
* As an addendum I have included a link to the tech specs of OpenSea. I wanted to double check this since they claim to be Peer2Peer (P2P). There is nothing Blockchain about this architecture; it is very Web2.0 including Cloudflare servers. https://w3techs.com/sites/info/opensea.io