A public response to The Guardian on the impact and challenges of NFTs

(above, an empty collection of digital ones and zeros that the author created as part of some of his artistic explorations; not yet an NFT but will soon be).

A week ago I caught notice of an article published in The Guardian by none other than Adam Greenfield on the topic of NFTs. Mr. Greenfield is a seasoned innovator, someone who understands trends in a broader and deeper sense than many others, an analyst with a strong ability to come up with a different point of view that typically adds to the debate. In this occasion I disagree with some of his remarks, and with the way he generalizes a problem of a given technology to a whole new paradigm of digital distribution. He expressed his concerns about the emptiness of the current NFT wave, more so when coupled with the environmental impact that the underlying technology has in networks such as Ethereum, based on Proof-of-Work consensus mechanisms. While I share his environmental concerns regarding Proof-of-Work and a big part of the content being distributed through NFTs is not aligned with my taste (such is life!), I believe there are positive aspects about the whole movement that need to be highlighted. And some remarks to make regarding the environmental impact of other networks based on different consensus mechanisms.

Before I proceed to present the points I'd like to touch upon, I must make a disclaimer: I have been involved in the NFT world since late December 2020. I minted some works on OpenSea under the Ethereum network, and moved quickly over to Hicetnunc, on the Tezos blockchain, due to the environmental impact of Ethereum. I currently publish and distribute works through Hicetnunc. Now on to the remarks I'd like to put forward.

The environment

First, the environmental aspects. Of course it is true that Proof-of-Work consensus requires huge amounts of energy to run by design. The consensus algorithm is the way that blockchains have to guarantee (or at least try to) that the information written on the chain is agreed upon. That is, that you can trust that the transaction written is approved by the participants in the chain. To understand this, let me comment briefly on why blockchains are designed in this way. In general, every blockchain is based on requiring the participants to stake a scarce resource in order to be able to write on the blockchain, to have a vote on the governance, etc. This is made to ensure the proper functioning of the network when there is no central authority: decentralization is at the core of the design philosophy of all these systems, and has profound impact in terms of the potential transformation of public and private entities as we know them. The available technology and organizational paradigms at a given time shape the activities that can take place within a given system; decentralization, if properly executed, has the capability to change power structures, societal rules and so on. Note that "properly executed" is not detrimental: probably all organizational models, when "properly executed", bring about the benefits they were designed for: communism, capitalism, federalism, whichever political ideology that respects basic and universal human rights is theoretically well-intended when you read about it on paper, or is not inherently rotten at the very least. However, there is no political system in the world that has ever / is / will ever be operating at their ideal conditions. This is so because we are human beings and not purely rational entities. We have our biases, our differences, and this makes the proposition "properly executed" basically false always. So even when blockchain decentralization is not perfectly executed it won't be in disadvantage with respect to any other existing model. More so, probably it can be better positioned than any other system so far to bring advances in terms of distribution of wealth and creation of opportunities for all.

In order to make decentralization work, blockchains create incentives towards proper behaviour (defining "proper" as conductive towards the benefit of all the participants in the network) by requiring participants to stake something scarce. If you misbehave, it will have a sizeable impact on your stake, whatever it is, and will render useless/worthless the potential benefits you'd have from such misbehaviour. In the case of the Proof-of-Work (PoW) consensus mechanism, the scarce resource you have to stake is computational power, which gets translated to energy used (and gigantic electricity bills). If you want to misbehave (e.g., rewrite blocks on the blockchain, that is, rewriting the already recorded transaction history) you need to have a significant amount of computing power (basically more than half of the computing power of the network), which is impractically costly. Also, the other participants will notice if you alter the records, and the value of the chain will drop since it is no longer trustable. So all your evil efforts go to nothing, they are useless.

(above, "mechanisms: dreams ii", a useless NFT by the author; it actually is part of an exploration around human-machine emotional response, but perhaps it's futile to search for alternative means of expression)

There are other consensus mechanisms. Proof-of-Stake (PoS) is one of the most popular among non-PoW networks. In PoS chains, the scarce resource you need is a considerable amount of the currency used on that chain. In order to write blocks, validate blocks, etc. you have to set a high amount of coins and leave them untouched, as if they were in a frozen bank account that you cannot use. The rationale behind this system is that if you want to rewrite history, you need then more than half of all the money on-chain, and if you actually get to do it all your stake will basically be worth zero. Note that there is no need for extra computing power here, so there is no extra energy needed to run the chain other than servers / nodes running the chain software (typical energy costs equal to any other server infrastructure of any other web service that you use, or less since the power requirements are low). The Tezos blockchain, on which the Hic et Nunc NFT platform with thousands of artists is running, uses a version of Proof-of-Stake. With a slight variation, that enables any participant on the network to delegate their voting rights via staking their Tezos (the currency on the chain) through delegators, but still getting the interest on their staking (on Tezos, staking your coins gives a yearly return of around 5%). That is, it's not a chain for the rich in Tezos, but rather a chain where everyone can participate towards its evolution and governance.

The list of consensus mechanisms goes on: Proof-of-Storage, Proof-of-Identity and others. The consensus mechanism also impacts on the degree of decentralization, the scalability of the network, the speed and other factors. Some mechanisms rely on certain functions run by central nodes, making the network less decentralized and more prone to certain types of attacks / problems. Proof-of-Work is typically regarded as the best in terms of decentralization & security but it comes with the cost of energy use and poor speed and scalability; Proof-of-Stake, and specially some variants, is regarded as a good balance between decentralization & security and speed & scalability.

There have been many other articles commenting on the differences between consensus mechanisms, energy use of different blockchains, etc. I would recommend to read these two if you want to know more.

Having covered these basics, back to the first issue: how bad is it environmentally to run decentralized applications such as NFT marketplaces on Proof-of-Work blockchains? The answer is that the amount of energy required to run the chain is indeed very high. But this is not inherent to NFTs, it only is to Proof-of-Work chains. Besides the fact that Ethereum will evolve into a Proof-of-Stake platform sometime in the coming year or two, if we are going to talk about NFTs and their impact on the environment we also need to understand that there is a large NFT marketplace going on in blockchains that don't use PoW. Actually, the number of daily transactions happening in other, non-PoW chains, is higher than that of PoW chains. OpenSea, the largest marketplace on Ethereum (PoW), registers currently around 5200 transactions per day and 2500 unique active users per day. Hic et Nunc is well past that figure with around 25K transactions per day and around 3000 users per day. The marketplace with the most users transacting per day is AtomicMarket, built on top of WAX, another PoS chain, with over 25000 users per day transacting. Ethereum has a larger number of transactions per day as a whole (1.3M transactions) than, say, the Tezos network, but most of them have to do with exchanges where traders are buying, selling and converting cryptocurrencies, and other applications. Not NFTs. The bulk of NFTs are traded in greener alternatives. As green as any other online services we all use.

I want to underscore that yes, there is a problem with the energy use of PoW blockchains. I'm not going to open the debate of whether it is something that can be outweighed by the benefits of the decentralization and security that we gain by using this system. I understand it feels wrong to burn all that energy into a single transaction of any nature (not just an NFT) on PoW blockchains. However, if we talk about NFTs, we should stress out the fact that most NFTs are traded in chains with mechanisms other than PoW. That is, the majority of NFTs are created and traded without these energy issues.

The blockchain is not God, but it helps to bring transparency to human agreements

Having touched on the environmental aspects, let's move on to other remarks that I'd like to comment on. The way the article in The Guardian criticised NFTs for the case of the Mars House dispute, in my opinion,  probably misses the point of what NFTs do. NFTs guarantee the traceability of the piece: as it is sold in secondary markets, you can always know which address created the NFT. It guarantees that there are only a certain number of digital copies signed by the creator of the NFT. It guarantees that you are the owner of one of those copies if you buy it. No, it doesn't guarantee the identity of the address that created the NFT (if I take a photograph of the Mona Lisa and register it on the blockchain that doesn't make me Leonardo da Vinci, and the blockchain has no way to know who originally painted the Mona Lisa). Nor it solves the issue of human problems off-chain. Humans still have the responsibility of solving their differences before they create the smart contract (the NFT). Smart contracts are not so smart so as to discern the absolute truth about what humans are writing in there. That wouldn't be a blockchain, that would be some kind of deity. In any case, with the Mars House the problem is not in the smart contract (the NFT), the problem is in the working agreement between the artist and the person who did the 3D model. Had they used a smart contract to represent their agreement, however, it would be possible to check publicly what they signed, so perhaps they would've been better off by actually using more of the blockchain.

The non-existing problem that actually exists

Now on to other aspects which to me are equally important when talking about NFTs. The article on The Guardian pointed out that NFTs were created to solve a problem that didn't exist. I disagree with this view.

In the case of NFTs and their use for art - in any form - I think there was a problem indeed (there still is). Digital artists and digital content in general has long lived in a world of no-value. At least no value created for the artist. Digital photographs, digital illustration, music in digital form... they all have lived long periods of discredit in the eyes of the internet user. Images can be downloaded for free, you can listen to music for free, you can download 3D models for free... everything is free. After a while there appeared the streaming / subscription models, which are indeed a step forward because they make the broader masses understand that you can pay for content in the digital world, and at the same time bring convenience to said masses. However, these business models that have been built on the internet reduce progressively the value and identity of each content piece, and shift the value to the service wrapping the content. So content is still king, as they say, but oddly enough content is not necessarily well regarded and respected, as I wrote in this article.

How each of us may perceive this as a problem is a different thing, of course. For those who enjoy art, consciously or not, it is a problem. And art has a very wide range. I enjoy the beauty of contemplating a nicely drawn doodle. I find delight in music and it moves me deeply. I feel something vibrating in my inner self when I experience a well-designed dance show. To me it is important that arts survive in all their glorious diversity. To me it is very important that arts can continue their journey of exploration, of digging into the future, into the depths of the human condition, into any theme that the artist may find interesting or necessary to explore. The article in The Guardian apparently disregards that arts actually do all that. It prefers to consider only the large economical transactions that take place in the art markeplace. Still, there is much more art in the world than what the mass media likes to highlight just because it sells newspapers. All that art is created by artists who have a rough time to find ways to fund their activity and explorations. "Consumer arts" have partially found a way to survive and even thrive thanks to those subscription models (or not so much, given how different platforms work... but that's probably a topic for a different occasion or you'll wear out from reading this too soon). To be clear: the internet is, for so many things in general and for art in particular, a wonderful opportunity to reach more people and therefore to expand their impact. It has been easier than ever to discover new styles, to be inspired by artists you like, to learn more about them, about their narrative, about the topics they cover. But there still is no good solution to show respect for their work. To support them. Of course we had the option to "donate with Paypal". Hire me for cheap. However, as so many critics of NFTs know (I see many designers, innovators and business people chanting for the demise of the whole thing), it is critical to design an experience that will make it work for both the seller and the buyer. The streaming / subscription platforms know! But their model translates little value to the majority of the artists. NFT marketplaces bring a new option to this landscape. They have created a new way to discover and support artists. Of course, each marketplace has a different approach. Not all will thrive. Each will find their niche in terms of artists and fans. We are all different and it is a mistake to try to please everyone (which is what subscription models try to do, by the way). But among the flora and fauna of NFT marketplaces, NFT flavours, NFT artists, NFT collectors, etc. I'm pretty sure there are relevant answers to the problem of supporting artists and at the same time getting greater pleasure out of it for the supporters of said artists.

Making artists self-supported via their art has many other implications. To start with, it elevates people. Knowing that you stand on your own, thanks to your work, is a recipe for well being.  Art that doesn't depend on public programs tied to political agendas, art that can be independent is what the world needs. Yes, there is a market which will probably introduce its own biases. Still, a market that lets art express itself largely uncensored or unconstrained (hello benefits of a truly decentralized experience - not all NFT marketplaces are like that, but have a look around Hicetnunc and you'll breath in the freedom).

NFTs as bringers of opportunity creation & distribution of wealth

Since I commented on the decentralized nature of these marketplaces, let me just briefly mention the global redistribution of wealth that is actually happening with them. No middlemen, no strange commissions or hidden fees. In some platforms, no gatekeepers. Transparency is one of the core ingredients of blockchains, and everyone can see money changing hands. Sure, we cannot query the blockchain to see where the artists and collectors live (thank all deities and intelligent human beings who designed it like that), but as you spend enough time in the community you see the diversity of regions where artists live, and start waking up to a reality where wealth is flowing around the planet thanks to... art. One note about middle men: I, for one, understand fully that many intermediate roles do actually add value. However, if you want to do this on your own, or you cannot afford to hire someone to help you with any step of the process... you can still sell / showcase your art directly to a global audience. As a collector, you can access directly artists from everywhere. Etc.

Even more so than a redistribution of wealth, it is critical to understand that these marketplaces have become a real chance of financial independence for many. Financial independence supports three basic universal human rights: the right to independence, the right to development and the right to an adequate standard of living. Perhaps low-priced works in markets such as Hicetnunc may seem irrelevant to some who furiously tout the high-priced extravaganzas of other networks as lesive for the planet, but they represent a mean of living for many who find, at last, a real embodiment of the eternal promise of internet being a land of opportunities for all.

There wouldn't be a problem if there would be no prior problem, anyway

Finally, coming back to the point about the existence of a prior problem that needs solving: NFTs don't need to solve any problem. They can just enable significant new things that would otherwise be difficult, even when there was not a clear problem with that issue in particular. The history of innovations is full of such examples, and so is the history of evolution in biological species. Evolution starts with a random mutation that responds to no previous problem or need. But if the mutation proves useful, it will prevail in the coming generations. I believe this is the best way to look at what NFTs mean and can do. I'm sure many of you know the work ‘sä-v(ə-)rən-tē by Micah Johnson. An NFT that is funding the future of two children through a work of art that is alive, accruing funds and releasing them to the children the day they turn 18. Perhaps you've caught glimpse of Kevin Abosch's initiative to fund the healthcare of some people without resources. At a very small scale, I am trying to follow similar paths building a platform that can fund Project Lighthouse, an initiative from my dear friend Sultan Akif to bring education and an acceleration platform for children without access to secondary education (or even primary). I'm sure there are many other uses that will unfold. The article in The Guardian points out that many years have passed since the invention of the blockchain and there's nothing revolutionary going on. To that, besides trying to dig now numerous examples of interesting & promising realities built on the blockchain, all I can say is that innovation works like that. There is this famous quote from Roy Amara that says "We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run". When the short-term impact fails to meet our overestimated expectations, we think it's all bogus. Wait and see.

I understand that most of the mainstream news are talking about Nyan Cat selling for 300 ETH, Beeple, punks, glitch art and many other things that many don't understand (and sometimes perhaps don't want to understand, but I can empathise with their point of view). Coupled with the energy characteristics of Proof-of-Work blockchains, the ready-made opinion served hot on the plate for the masses is easy to prepare. Still, as is typically true with everything in life, there is more to the question than what everybody talks about.  And in this case, I believe there is ample reason to be optimist about the impact of NFTs for the planet, not the other way around.

If you read this, Adam, please feel free to reach out and comment on what you'd like. I enjoyed the conversations we had some years ago, and I'm sure I have much to learn from your way of dissecting reality. I just happen to disagree with those things you said.