We are currently in the midst of a huge exponential growth phase for NFTs — and one that likely bears all the hallmarks of a massive price bubble. Short for “non-fungible tokens,” NFTs have been impossible to ignore lately, both within and outside of the cryptocurrency community. The potential and significance of what NFTs could represent has undoubtedly struck a chord amongst creators and investors, generating huge attention, huge speculation and a hugely inflated price.
Much of the excitement around NFTs stems from the belief that they represent a complete shake up of traditional music, art and other industries, by redefining the relationship between creators and their audiences. NFTs also allow for creators to be rewarded in perpetuity if their work is resold in the future at a higher value. These characteristics amount to an alluring appeal — a promise to offer and protect the true value of digital works. However, this is a flawed assumption and the promise and hype of NFTs has led people to overlook the fundamental flaws in the underlying technology. Put simply, NFTs are not fit for purpose.
The ownership dilemma
Given the vast sums many NFTs are selling for at present, it is a very fair question for a buyer to ask — what exactly do I own? In most cases, NFTs themselves do not contain the digital work in question. Rather, an NFT acts as a digital certificate attesting that the buyer owns a unique, collectible version of the work. While blockchain is a wonderful technology for tracking transactions, it is not particularly useful for storing data, especially given how large the size of detailed media assets typically are. Instead, NFTs sold on the blockchain merely use links to direct the purchaser to where the digital asset itself resides elsewhere on the web.
This question of ownership is already causing high-profile problems. There have been several cases of tweets sold as NFTs, only for the owner of the tweet to delete it after the sale. In another instance, one digital artist swapped images of his works on OpenSea, a decentralized NFT marketplace, for a series of JPEGs of Oriental rugs after their corresponding NFTs had been minted, highlighting how the value of NFTs is meaningless as long as they are separable from the artwork. At any moment, an asset bought for hundreds, thousands or millions of dollars could be removed, swapped or see the domain on which it is held go down permanently. This simply isn’t a level of risk we would accept if purchasing physical artworks for the same price.
While there has been a shift toward storing digital assets on decentralized networks to compensate for the risk of domains, hosts or links breaking, there have also been several examples of NFTs using such methods temporarily disappearing. Attempts to negate the storage risks do not drill down to the root of the ownership problem — the disconnect between the NFT and the asset.
From NFT to NFA: the non-fungible asset
When analyzing the issue of NFTs, the clue is in the name. We are talking about non-fungible tokens — just like Bitcoin is a token (although in the case of Bitcoin, a fungible one). And while tokens have emerged as a revolutionary alternative to fiat currencies, tokens are totally unsuitable for representing the value of an art piece. It isn’t possible to reconcile this shortcoming through additional layers of technology. Instead, we must abandon NFTs, and instead work to build NFAs — non-fungible assets.
The idea of an NFA begins at the file level. The recent invention of a decentralized file format holds the key to this. The decentralized file format with programmable metadata is secured through encryption, encoding and an immutable blockchain ledger. This unique combination gives birth to non-fungible assets which can be truly owned and verified.
In contrast to a token with the property of non-fungibility assigned to a particular file, with NFAs it is the file itself that contains this non-fungible, scarce property, through the decentralized file format and the interplay of encryption, encoding and a blockchain-based signature. These properties allow for full control of the file as well as identity-based ownership. A good analogy would be that of taking ownership of a new car: NFTs essentially give you the “pink slip” of ownership, while better technology could give you both the pink slip as well as the keys to the car.
NFTs have lit up people’s imagination for good reason. It is a white-hot technology that has digital creators in particular excited about the possibility of receiving fair reward for their works as we continue to journey together into an increasingly digital society. Despite these ideals, NFTs possess fundamental flaws that cannot be resolved without a complete upheaval. Non-fungible assets — built from the ground up on new technology innovations — must emerge as the dominant format for us to realize a future where we can truly gain ownership of digital assets.
