It’s striking how wide the cultural gulf has become between NFTs’ many vociferous supporters and an equally loud contingent of NFT critics.
To the former, NFTs are about freedom – a ticket to a brighter Web 3 future in which creatives and users liberate themselves from the internet platforms.
To the latter, NFTs represent all that’s wrong with late-stage capitalism: rampant greed, an incentive to fraud, wanton disregard for the environment.
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Both are wrong.
The boosters wear rose-colored glasses. Many elements of the Web 3 vision must be in place before it will evolve in the wider interests of humanity. Without those solutions, we’ll end up with a system that temporarily delivers extravagant profits to a few early opportunists.
And the critics? They have a static view of technology. As with many flawed attacks on crypto, they assume the current snapshot of the industry’s development – of Ethereum’s high transaction costs and limited scalability, for example – is permanent. This betrays an ignorance of how innovation occurs within open-source systems and assumes that thousands of motivated developers haven’t already recognized the same elephant in the room and started maneuvering it out the door.
My own view: NFTs are vital building blocks for a new creator-centric digital economy in which our data is no longer mined by internet platforms and in which artists, musicians, photographers, journalists and publishers are able to connect directly with their audiences. But they are only that, building blocks.
What we build on top of them is up to us. It could be liberating. Or it could be evil. The choice is ours.
Our digital present
To understand the role NFTs will play in this, it’s useful to look at the present and past of property rights. (Before smarty-pants legal scholars start @ing me, I am not saying NFTs, in and of themselves, represent property rights. Far from it. I’m saying they are a necessary but insufficient element of the digital and legal infrastructure needed to establish such rights.)
First, the digital present: Until now, we’ve had no means to define unique digital objects. We couldn’t label something as a piece of digital property, not in terms of how “things” in the analog world – such as a house or a car – are viewed as standalone “assets” that a person can own and control.
We’ve continued to recognize and (tried to) enforce intellectual property concepts such as copyright in the digital age. But IP is not digital property per se – it exists outside of both the physical and digital realms, even if the law demands that it be exercised within those realms.
Enforcement is comparatively easy in the physical realm, because the vessels in which copyrighted concepts are distributed – such as books, or LP records – cannot be so easily reproduced or pirated and so are identified as separate assets from the intellectual property.
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In the digital realm, the abundant replication and sharing of PDFs, MPEGS and JPEGs has rendered this equivalent notion unworkable online. It’s why early in the internet era the legal profession gave up on trying to apply “the first sale doctrine” – which permits the resale of, say, a used book but not the unlicensed sale of the copyrighted ideas within it – to digital files.
The core point is there's really no such thing as digital property. By extension, there’s no such thing as digital property rights – not in the sense of a right to own and resell a digital file.
This is why the invention of NFTs, which have the potential to become the online equivalent of a serial number for digital content files, are so important. They offer a framework for identifying property and, by extension, for building other solutions that will allow us to establish and enforce rights.
Our analog past
Throughout history, the extension of property rights to a wider class of human beings has catalyzed economic and social development.
Examples: King John’s Magna Carta agreement with English barons in 1215; the formation of the Dutch East India Company as the first joint stock company in 1602; the enshrinement of the right to private property in China’s post-Mao revival, which resulted in in almost 90% home ownership – some 470 million households.
The Peruvian economist Hernando de Soto argues that property rights and the legally enforceable contracts that arise around those rights are the biggest factor distinguishing the economic advance of Western democracies from the underperformance of the developing world.
De Soto’s thesis hints at why the idea of NFTs-as-property-rights-building-blocks is so compelling. This could be the greatest moment of wealth creation the world has ever seen.
But the mere granting of property rights to a particular person or class of person by no means assures a path to a vibrant, dynamic economy, much less a level playing field.
General Juan Manuel de Rosas, the autocratic governor of Buenos Aires Province, waged war against Argentina’s indigenous people in the mid-19th century, the fertile Pampas lands he seized were distributed to his own family and to a small group of his most loyal officers. These massive land grants carried the weight of law – they constituted executable property rights – but they resulted in a political system of patronage that, to this day, undermines Argentina’s democracy and its capacity for sustainable economic development.
By contrast, “unoccupied” land in colonial New South Wales was entirely claimed by the Crown. (I use quote marks because for two centuries the law ignored Aboriginals’ land rights) It was then distributed, in small lots, to freed convicts and, later, returning veterans of foreign wars. Australia’s agrarian economy, comprising many striving small landholders, inevitably became more productive than Argentina’s, where a few caudillos dominated the most fertile land in the world.
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There are lessons in all this for NFTs and for the concept of digital property rights generally as developers figure out how to scale the technology and make it applicable to the real world.
To repeat: the holder of an NFT does not automatically hold a property right. Control over the token and rights to the art to which it points are distinctly different things. But startups are working on solutions to prove that a particular NFT can be used to assert a legitimate rights claim. If their models work, they will help NFTs fulfill their promise as the building blocks for a radical new system of digital property rights.
These solutions are arising because capitalism demands it. The Hollywood studios and media companies now embracing NFTs need a legally enforceable system for establishing and assigning rights to their NFT-able content inventory.
Here, too, there’s no guarantee these will develop in the broad public interests. That result depends on us.
Here’s what we do know: NFTs are not going away. Bridges to property rights will be built. Ranting about how unjust or garish they are is pointless.
If we care about making a better digital world, let’s take lessons from the history of physical property rights and build something that serves the greater good.