No Fucking Thanks
What determines value? If you subscribe to Karl Marx’s labor theory of value, value is determined by the amount of socially necessary labor necessary to create a good or provide a service; a car is valuable because travel people without access to public transportation need to be able to travel to work quickly, cars fulfill that need, and manufacturing a car requires a lot of labor. A market capitalist would argue that value is determined by what people are willing to pay (or more precisely, where what a buyer is willing to pay meets what a seller is willing to accept); a 2022 Honda Civic is worth $22,000 because, on average, people are willing to pay $22,000 for a 2022 Honda Civic and Honda is willing to accept $22,000 for a Honda Civic. But how much are people willing to buy nothing? It turns out, a lot.
Non-fungible tokens, or NFTs, are functionally digital receipts on the blockchain, which itself is essentially a digital ledger hosted by all those who utilize it rather than a single server. The NFTs are often associated with digital art — typically .jpeg or .gif files — stating that someone is the owner of the file. In the simplest possible terms, when someone purchases an NFT (a term often used incorrectly in place of the digital art with which the NFT is associated) they exchange their real money for crypto currency such as Etherium, use that Etherium to buy a log on the blockchain stating that they bought the log, and associated with that log is a piece of art. And that log truly is non-fungible — the blockchain will always say that at that time, user X spent Y amount of Etherium to purchase this log representing Z digital art. Because of the decentralized nature of blockchain — it is hosted across the computers of everyone utilizing it rather than on an Amazon or other private server — there is no corporation running the server which could change the logs and there is no hacker that can access every computer that independently hosts the logs. However, what is absolutely fungible is the art associated with the log. Take this tweet for example:
This twitter user purchased a token on the blockchain stating that they are the proud owner of the attached image. They are now free to sell that image to someone else on the NFT market — or rather, they are free to sell another token on the blockchain entitling someone else to the image. The initial token still exists on the blockchain saying @ayroeth purchased the Bored Ape Yacht Club image — its non-fungible after all — there will just be a new token stating that @ayroeth sold it to its new owner. However, the image is even more fungible than the ability of its owner being able to sell its rights to someone else. For example, I have never purchased any digital art whatsoever, let alone the art above. However, lo and behold:
Now, I am under no delusions that right clicking an image and saving it to my desktop gives me the same “rights” to the image as someone buying it through an NFT exchange platform. However, my contention is that it doesn’t matter — I can do with it the same thing as its’ rightful owner. I can post it online, I can show it to someone on my phone, I can print it and hang it on my wall if I want to. So where does the value come from? The answer, as I understand it and as any cryptocurrency evangelist will tell you, is in the blockchain technology; permanent records of transactions between users that is untethered from state regulation or corporate oversite. However, I believe there is far more sinister reason for the cost of getting your transactions logged in the blockchain, and its due to artificial scarcity. For example, take the below NFT art, CryptoPunk #7523, which sold in June of this year for $11,754,000.00.
According to the Sotheby’s, the website where this CryptoPunk was sold, #7523 is “One of 9 Alien punks” and includes the accessories “Earring (2459 punks have this); Knitted Cap (419 punks have this); Medical Mask (175 punks have this).” Part of the reason this picture was so highly valued is ostensibly that it is the only alien punk with a medical mask. However, why does that matter? I have access to the picture for free, and so do you. So why does “ownership” of #7523 cost so much? The reason, I believe, is the artificial scarcity of logs in the blockchain as a result of the unnecessary and extreme environmental impact of crypto mining and minting.
Without getting too in the weeds, in order to mine crypto or mint an NFT on the blockchain, a computer runs programs designed to complex math equations. Solving the equation adds a piece to the blockchain, and after a block is completed a bitcoin (or whichever cryptocurrency is being solved for) is “created” split equitably among those who solved the math problems to create it. However, as each block is created, the equations that needed to be solved for the next block become increasingly difficult, and the more difficult the math equations the more computing power necessary to solve them. Minting NFTs works similarly, and the environmental impact is unsustainable; according to the Columbia Climate School, “The average NFT generates 440 pounds of carbon — the equivalent of driving 500 miles in a gas-powered car — producing emissions 10 times higher than the average Ethereum transaction.” This is where I believe the perceived value in NFTs and cryptocurrency derives from, the depletion of non-renewable resources. Because the equations are solved by computers, no labor goes into minting an NFT or mining a bitcoin. And, as opposed to physical art and mining, there is no service rendered or physical good produced. The value is not tied to anything that creates anything, the way a stock is tied to the real life performance of a company, nor is it backed by a state, the way the US dollar is backed by the US economy and military. This is the logical conclusion for capitalism, particularly in an increasingly online world: in exchange for your money you get a digital receipt saying that you exchanged the money, a paint by numbers .png created in a matter of seconds, and it only uses the same amount non-renewable energy a small country.
