The fact that I even have to pretend cryptocurrency and NFTs are anything other than a scam because of their widespread institutional adoption means we live in hell.
But before we can even truly understand the idiotic, exploitative, and nefarious world of NFTs, we must first begin with a primer on the money laundering (oh, excuse me, "value transfer") technology that started it all: cryptocurrency.
A Brief History of Crypto
Cryptocurrency is a blockchain-based digital commodity with a predetermined volume of "coins" that can either be purchased or "mined" by solving complex mathematical calculations with a computer network. While their value is technically speculative, like stocks, most coins can't actually be used to purchase goods or services outside of dark-web, crypto, and NFT marketplaces. The coins only have real-world value when first purchased with fiat currency, or sold to gain fiat currency. In order to maintain scarcity, the amount of calculations required to mine a coin increases exponentially. Transactions along the blockchain will increasingly take more computing power and more electricity to run. Right now, a single Bitcoin transaction can use up as much energy as the average American household uses every six days. The energy required to mint NFTs is even worse. Global crypto transactions currently account for the same amount of electricity consumption as Bangladesh, a nation of several hundred million people. Horrific climate implications are baked into crypto's essential functions, since most of that electricity comes from oil, gas, and coal.
This is why "money running on oil" is a ubiquitous and valid criticism.
To be totally fair, crypto didn't start out as the MLM cult it has become. When it was just a few libertarian tech bros trading Bitcoin back and forth, crypto offered an online haven for those wanting to escape increasing digital surveillance of their purchases. Naturally, Satoshi Nakamoto's novel invention (Bitcoin) was used for criminal online enterprise for commerce on sites like the Silk Road—which, let's be honest, was the whole intent of crypto to begin with. When the market exploded, and the value of Bitcoin skyrocketed, governments and investors caught wind. Far from wanting to shut it down—as the initial crypto adopters warned—they wanted their cut.
Investors soon realized they could make a quick buck if they rode the waves of speculation. Once institutional investors jumped in, crypto underwent a reputational transformation. More coins like Ether and Litecoin began to spring up. Suddenly, banks started adopting blockchain technology. Authorities started playing whack-a-mole with darknet markets, and when that inevitably failed, they infiltrated and honey-potted existing markets to keep an eye on criminal transactions. Effectively, the anti-government surveillance tool became one of the most effective means of government surveillance of online criminal activity. With the primary function of the crypto market irrevocably corrupted by government interference, the market had to create a new form of tax evasion (sorry, "VALUE TRANSFER") in order to justify its existence.
Enter: NFTs, the harbinger of the apocalypse, and purveyor of our late-stage capitalist modern hell.
[Editor's Note: we'd insert a Bored Ape image here, but we're not sure about rights and don't care to look it up, so just imagine it ... or Google it, your choice.]
1. The Value Does Not Exist
NFTs, or "non-fungible tokens," are marketed as unique digital assets only purchasable through cryptocurrency—in most cases, Ethereum. These "tokens" denote ownership of an asset on the blockchain. However, the "asset" is not the image the NFT references, nor the item it's meant to represent. The "asset" is the unique blockchain identifier.
Aka a link to a JPEG.
Yes, it is that simple.
Yes, it is that stupid.
Seems Marx and Engels really weren't kidding when they said capitalism would make up fake commodities once the real ones have been exhausted.
Most would argue that NFTs are basically like Pokémon or baseball cards. Pokémon cards don't have "intrinsic" value either, in that they have no utilitarian value outside of the collector's market you buy them in. People enjoy collecting them, so what's the harm? The difference is, with NFTs, you aren't buying a holographic Charizard. You're buying a link to a picture of a holographic Charizard.
When you purchase an NFT, you gain no rights to the artwork, image, or item associated with it—like the idiot who bought a $650K link to a picture of a house instead of just buying the house. On top of that, the currency used to purchase NFTs, Ethereum, has no transfer value outside of that currency's blockchain ledger until you cash out. It's monopoly money on a multibillion-dollar scale.
"WELL, ACKTSHUALLY"—the crypto bros reply, summoned like moths to the flame of unchecked "FUD" (coiners' term for fear, uncertainty, doubt)—"Fiat currency is just monopoly money by that logic. Its value is neither inherent nor intrinsic. Most of our transactions are totally digital, and the gold standard went out the window decades ago. How is crypto any different than the U.S. dollar?"
Yes, sweetie, we all know by now that capitalism is a pyramid scheme and money is just a societally agreed upon representation of value.
But unlike crypto ... money can be exchanged for goods and services, as confirmed here:
"W-well, we'll see widespread adoption any day now! Didn't you see the Super Bowl ads? People will flock to it once they realize that the lack of centralized authority or bank backing makes crypto immune to value manipulation like regular currency. In many ways, it's purer than fiat."
This is an easily debunked selling point, by nature of the market's own structure. 5-10% of users typically own 90-95% of the coins (and in some cases 99.9%) and can effectively determine the value by choosing when to sell or hype it up online. Elon Musk singlehandedly tanked Bitcoin's value 30% by tweeting and demolished Dogecoin in the same fashion when he sold his massive stake. "Rug pulling," or the act of creating a new crypto coin, hyping up the price, then immediately selling one's entire holdings, is so common that it happens with nearly every new coin on the market.
2. Cryptocurrency and NFTs are a Cult
By now, you've probably started to notice a trend when you get into arguments surrounding crypto. No matter what logic you use, crypto adopters will either ignore you, accuse you of "hating" or "FUD," or repeat your criticisms back to you as if they've won. The Sacred Science of Crypto requires that every adopter of a cryptocurrency must 100% believe in the value and utility of these tokens. The moment you stop believing in it, it ceases to have value. Since this "diamond hands" belief is in fact the only thing keeping the monetary value of their investment from crashing, it's a self-fulfilling feedback loop.
Adherents of crypto—NFT owners in particular—are rewarded for their belief in a token or an NFT by gaining "status" within the community. If a user owns a particularly rare Bored Ape or Cryptopunk, other users will shower them with praise and adulation. By contrast, spreading FUD is enough to get you kicked from most forums. Thought terminating clichés, such as "Hodling" or "diamond hands," keep adherents from questioning the overarching dogma. "FUD" has essentially the same function as Scientology's "suppressive person" moniker, which labels non-believers and separates them from the cult to prevent dissent.
NFT communities have rapidly adopted this same style of in-community verbiage and use of brainwashing tactics. Any criticisms, no matter their validity, are simply parroted back as positives. "We're degenerates for buying this." "Only autists have diamond hands!" "Right click save as, lol." It doesn't matter that there's no rhyme nor reason to the money being spent. It doesn't matter that most people think they're idiots. As long as the community stays insular and enough "traditional" institutions buy into the dogma, they can keep the scam going through sheer force of will.
3. "The Bigger Fool Scam"—Theft as the Primary Business Model
Since belief is the only thing maintaining the value of their investments, crypto and NFT holders are required to constantly find new rubes to buy in and increase their value. This is what's known as a "Bigger Fool" scam. The only reason the coin or NFT's value increases is because there's a "bigger fool" who will buy it at a higher price. Once you run out of new buyers, the value crashes, and the crypto whales "rug pull." For proof, look no further than virtually any coin outside Bitcoin or Ethereum, from memecoins like Doge to Logan Paul's DinkDoink. Or, you can just watch this clip of Jimmy Fallon and Paris Hilton trying desperately to pawn off their shitty ape jpegs on the masses because they got suckered.
On top of the general scam, there's also a secondary scam at work here. Since it requires so much energy to process a crypto transaction or minting an NFT, the network is limited to the amount of transactions it can run at once. Consequently, it takes forever for them to go through ... unless, of course you're willing to pay a premium for it to go faster. "Gas fees" account for a huge amount of the money going into crypto, and are actually required for minting NFTs. They don't exactly explain why it costs a few hundred bucks to mint an NFT when energy costs are nowhere near that, but again, it's a scam, so the logic doesn't matter.
Multi-level marketing schemes, or MLMs, work in the same way. Instead of a market of actual monopoly money, the worthless product they tout is the currency. The top of the pyramid sells their inventory to their downline, who then has to sell the product to others further along the chain if they want to recoup their investment. Since the product itself is virtually worthless and almost no one outside the organization buys it, maintaining a downline is essential for the grift. Our boy Elon is a master at this. Remember Dogecoin?
NFTs mirror this same scam. The entirety of the market is predicated on FOMO, or fear of missing out. If the original minters of NFTs can con the market into thinking these tokens are worth millions of dollars, they're able to offload their investments at a profit. Those who bought the NFTs at the all-time high now have hurdle to sell them to the next round of rubes. Some are successful, but with striking diminishing returns. Most, unfortunately, crash and burn. If you want to point to the massive prices NFTs fetch, or stalwarts like Bitcoin or Ethereum as proof that not every coin is a scam, I have bad news for you. Just because the markets are bigger than Doge or Dinkdoink, they are not too big to fail. The rug just hasn't been pulled yet.
Aside from the "bigger fool" scam underlying the entire market, which is theft enough itself, art theft is rampant in the NFT space. In some cases, unscrupulous dealers will even use art posthumously from deceased artists, without permission. With no real enforcement in major NFT marketplaces, artists trying to take down counterfeit NFTs using their work are left with little to no recourse except complaining on Twitter.
The market, born and bred in a culture of fraud, then utilizes the ensuing controversy to hype up the tokens or gain notoriety with those outside the artists' fan-base. Most of the time, they can do it with no consequence. Artists aren't exactly known to have massive legal funds or societal influence to put a stop to the practice. However, plenty of NFT sellers have raised the ire of major corporations whose IP they've stolen. One particularly ballsy seller quickly got a smackdown from Hasbro when they tried to NFT the company's popular "Magic the Gathering" trading card series, which Hasbro has since begun minting themselves.
Again, we live in hell.
But hey, at least not all NFT art is stolen. Some of it's just ... bad. Most of it is aggressively bad. Either the images are procedurally generated through an algorithm, like Bored Apes, Meta Girlfriends, and Cryptopunks, or they lack any conceivable visual appeal. On occasion, you might see a beautifully rendered digital gif of a fantasy or cyberpunk environment, but these actual art pieces hardly fetch the same prices as a buxom Meta Girl flipping you off. At times it feels like the NFT market is competing to see how much money someone can get for the worst possible piece of art, just to troll the high-end art market.
This is hardly a surprise, given that NFTs were originally introduced to the masses through multimillion-dollar auctions at Sotheby's and Christie's. These auction houses, of course, make their bank laundering millions for high-end art buyers. Does it matter that some paintings they've sold are totally fraudulent? Not if the buyer can't tell the difference. Thus, the jump to NFTs wasn't exactly much of a jump at all. You don't even need to pretend the painting is subjectively valuable in the first place, since the buyer's not actually buying anything real.
4. The Market Rewards the Rich and Preys on the Poor
Like the crypto and high-end art markets that started this whole stupid trend, the vast majority of the "winners" of the NFT space are early adopters or those with the capital to push these massive multimillion dollar sales. It's no accident that the insular high-end art market was the first to introduce the concept of NFTs, or that high-finance introduced cryptocurrency to the general public. Those with huge stakes in crypto or able to buy multimillion-dollar NFTs were likely already patrons of the market simply by having that massive amounts of money to begin with. Once again, look no further than billionaire memer Elon.
The fact that only those who are already rich benefit from the system is technically true of capitalism and the stock market as well, so it's arguably natural that the crypto and NFT markets mirror this dynamic. However, unlike money and stocks that have actual value when sold—so there's at least a minuscule chance of recouping the cost—the only thing sold to retail crypto and NFT investors is false hope. "You too can make a fortune off conning some idiot into buying a picture of an ape for $100K!" However, unlike the rich folks that originally owned and sold the goods, those secondary investors don't have another $100K in their back pocket in case their investment goes tits up.
We've seen it over and over. The guys on Twitter who lost their six-figure NFTs in phishing scams. Posts on r/wallstreetbets about wives leaving husbands who took out mortgages to purchase their golden crypto tickets. In a world where wages remain stagnant, sky-high cost of living and inflation, and the exorbitant price of real estate making owning a home unattainable, desperate people are looking for hope. With their glitzy ads, celebrity appeal, and apparently massive potential returns, it's no wonder that some would turn to NFTs to transform their financial future. All the better for the parasitic worms minting NFTs they know are worthless, who are are willing to sell these desperate people literally nothing to steal their savings and retirements.
5. The Fake "Rug Pull" That Will Crash the Real Economy
Even though crypto and NFTs are valueless, the money poured into them from your average Joe or Jane is not. That money has to come from somewhere. Remember the guy who took out a second mortgage on his house? What happens when there are no more bigger fools for him to con? What happens when he—and everyone else—can't offload their investments and are stuck with that same worthless link to a jpeg?
What happens is a beat-for-beat repeat of the roaring twenties. Gobs of retail investors (and some institutional ones) take on cheap debt at record low interest rates and jump into the market—crucially, buying on margin. All of these investors pump the value up of stocks, crypto, and other non-liquid assets. As a result? We're seeing a bubble eerily reminiscent of the one prior to the crash of 1929. Famously, legendary investor Joe Kennedy got out right before the crash after a shoe shiner tried to give him tips on investing in oil. With that many ordinary, uneducated people buying into the market by taking out loans, he knew there was only one way things could possibly go.
He was right.
Eventually, the party has to come to an end. Like all cults, NFTs and crypto's reach are limited to those willing to buy in, and the truth will eventually expose their fakery. The sad truth is that the crypto whales will do the same as ol' Joe Kennedy once they've burned through the limited market of rubes to fleece. They'll pull their holdings out of NFTs and crypto and stick them in safer investments, like hedge funds and real estate. Instead of $650K pictures of houses, they'll buy real ones, because they can. The only ones left using crypto will be career criminals and certain countries needing to avoid financial sanctions. If you have any holdings, you might want to brush up on your Russian.
Unfortunately, many average NFT investors won't have that safety net to retreat to. Most of their money is trapped in this volatile commodity in the hopes of cashing their lottery ticket. This will rightfully trigger a panic amongst NFT holders who will search in vain to find someone—anyone—willing to buy their ape jpegs. They'll be met with silence and face financial ruin. Once the money poured into these investments disappears off the face of the earth, this will trigger a greater collapse amongst debt holders. Since they bought on margin, these people will not only be stuck with the lost investment, but unable to pay off their debtors. Coupled with record-high amounts of consumer, healthcare, and student debt, it's a veritable powder keg.
We all know the effects of the crash of 1929—some of which are still being felt to this day.
We also know the cause: the rampant greed and fraud of a deregulated financial market. Sound familiar?
*Feature image by Bri Janes (available as an NFT—non-negotiable price: $94b)