What follows from the collapse of NFTs?

Dom Aversano

Almost a quarter of a century after Napster fired a torpedo into the record industry one might have expected stability to have returned, but the turmoil continues well into the new century without any signs of resolution.

The story is familiar. MP3 collections never felt like record collections, making them ripe to be superseded by full-catalogue music streaming. Streaming is unprofitable for the companies selling it and unsustainable for the musicians on it, so in a bid to save themselves, not music, the platforms are now transforming into rivers of algorithmically recommended muzak. Ironically, the oldest medium is in the healthiest state, vinyl, and while it is inspiring to know people still go out and buy records, it does not help solve the problem of digital music.

Given this context, it was always tempting to see NFTs — or non-fungible tokens — as the saviour of digital music. But with Sam Bankman-Fried now standing on trial and 95% of NFTs estimated to be worthless we should be asking, what went wrong?

It is beyond the scope of this article to explain what NFTs are — which has been done well elsewhere — but what can be said is the heavy nomenclature they carry can make it feel impenetrable and confusing: you have blockchain, minting, wallets, cryptocurrency, drops, Bitcoin, Metaverse, Web 3, smart contracts etc. The time required to make sense of this — much like an NFT — is a luxury few can afford, providing a wall of obscurantism that imbues the culture with an aura of mystique and intellectualism.

My experience took me down a winding path. Initially, I found NFTs interesting, as they seemed like an innovative method for digital ownership that could help fund the creation of new music and provide fans with a strong connection to their favourite artists, but as my research accumulated their appeal steadily diminished. A combination of too-good-to-be-true promises and scammy behaviour made it seem murky, if not at times actively sinister.

While I am not closed off to the possibility of something valuable emerging from this world (for instance, smart contracts seem genuinely interesting) based on the evidence, NFTs were always doomed to fail.

Here is why.

  1. The torrent of terminology in this culture makes it easy to be blinded by the science and lose sight of the obvious — for instance, cryptocurrencies, despite the name, are not currencies. There is barely a thing on Earth you can buy with crypto. It is actually an asset untethered to economic activity, or simpler yet, an elaborate gambling token. Just as nobody wants to appear a philistine for not appreciating a certain art form, nobody wants to feel like a Luddite for not understanding a particular technology, but spend your evenings and weekends dispassionately breaking down the terminology and you’ll find little of substance remains.

  2. Most people try to understand cryptocurrency in a purely technical sense and ignore the sociological of its emergence. Bitcoin arose shortly after the 2008 financial crisis when mistrust of banking was at an all-time high. At this time having a so-called currency circumventing banks was music to people’s ears, and the Hollywood superhero manner in which Bitcoin entered the world through a mysterious unknown figure called Satoshi Nakamoto only added to its anarcho-utopian appeal.

  3. Blockchain sounds cooler than it is. Some blockchains create huge environmental damage, have very long transaction times, and are vulnerable to privacy breaches and theft. If you lose your password to your digital wallet or if it falls into someone else’s hands you may lose everything, without any recourse to institutional support or insurance. Most concerning of all, far from being a tool for honesty and transparency, cryptocurrency is regularly used by organised criminals as a tool for money laundering. For these reasons, blockchain has been referred to at various points as ‘a solution in search of a problem’.

  4. Experts have much less faith in cryptocurrency than the public. An economist who famously predicted the 2007–08 subprime mortgage crisis, Nouriel Roubini, called crypto ‘a scam’ and a ‘Ponzi scheme’ that preys on young people, people on lower income, and minorities, and advises people to ‘stay away’, referring to those who run the industry as ‘crooks’ that ‘literally belong in jail’.

Even if none of the above really dents your belief in the validity of cryptocurrencies/NFTs/blockchains, there is a gaping flaw that is impossible to ignore.

NFTs have no intrinsic value.

I can put a photo of the Taj Mahal on a blockchain and link it to you, but that doesn’t mean you own a brick of it.

Writer and programmer Stephen Dhiel, who is a vociferous critic of cryptocurrencies, offered the following analogy about NFTs in a Twitter/X thread.

There is one comparable market to NFTs: The Star Naming Market (…) Back in the 90s some entrepreneurs found you could convince the public to buy “rights” to name yet-unnamed stars after their loved ones by selling entries in an unofficial register (…) You’d buy the “rights” to a name [sic] the star and they’d send you a piece of paper claiming that you were now the owner of said star. Nothing was actually done in this transaction, you simply paid someone to update a register about a ball of plasma millions of light years away. (…) NFTs are the evolution of this grift in a more convoluted form. Instead of allegedly buying a star, you’re allegedly buying a JPEG from an artist. Except you’re not buying the image, you’re buying a digitally signed URL to the image. 

With NFTs now largely worthless, it’s hard to argue with Dhiel’s analysis. So where does this leave us?

Few genuinely innovative ideas remain, but a company called JKBX has proposed that people can buy royalty shares of their favourite musicians’ songs. The problem is, even if it worked, would it be healthy to have fans treating their favourite artists’ songs as investments? Would listening to All You Need is Love feel the same if you were waiting for your share of a royalty payment to come through? Is turning music into a weird stock market for royalties really the best thing we can dream up?

After nearly a quarter of a century of unsuccessfully trying to resurrect the 20th-century music recording industry for the 21st-century, perhaps it is time to ask, was this ever the right goal? MP3s, streaming, and NFTs, did not balance the boat, which still rocks about aimlessly on stormy seas.

Perhaps the original goal was never ambitious or imaginative enough, after all, why resurrect an old method of distributing music when you could create a new one? NFTs were attractive to people for many reasons, but a major one was they promised a new internet culture — Web 3, metaverse etc. — that could offer ordinary people economic dignity. That people found this appealing is grounds for hope, as it demonstrates there is an appetite for a radical departure from the stagnant and centralised world of the social media empires.

The question that remains is: can we imagine it and build it? And if not now, when? If music wishes to remain a relevant art form, it can’t afford another quarter-century of floundering.

Do you have thoughts on what you have read? If so, please leave your comments below.

Further information on cryptocurrency/NFTs/blockchain

The Missing Crypto Queen — Podcast by investigative journalist Jamie Bartlett

The Case Against Crypto — Essay by programmer Stephen Diehl

Crypto is dead — Debate between Yanis Varoufakis & Viktor Tábori