How Non-Fungible Tokens Work - NFTs Explained, Debunked, and Legitimized - Expensivity

4/9/2021 How Non-Fungible Tokens Work: NFTs Explained, Debunked, and Legitimized – Expensivity
How Non-Fungible Tokens

Work: NFTs Explained,
Debunked, and Legitimized
Filed Under: Business, Crypto, Economics, Highlights, Investing, Money, Op-Ed
Bernard Fickser
August 23, 2021
1 Rat Poison to an Infinite Power?

Poised to radically reconfigure the crypto-asset market, non-
fungible tokens, or NFTs, are revolutionizing our conception of
money and value, creating not just entirely new markets but even
new economies that are able to scale globally and to discover
value in undreamt places, relegating to oblivion fiat currencies and
old ways of doing business.
Just kidding. The previous paragraph is a parody (if such is

possible) of the hype that in the first half of 2021 has come to
https://www.expensivity.com/how-non-fungible-tokens-work/ 1/60
surround non-fungible tokens. Indeed, the hype has become so

overpowering that it may even defy parody. Non-fungible tokens
can have legitimacy, and I’ll discuss how that can be at the end of
this article. But for now the overwhelming majority of what passes
for NFTs is delusion, fueled by the hope of a quick return and the
belief that something can be gotten for nothing (or virtually
nothing).
Warren Buffett famously remarked in 2018 that Bitcoin (and by

implication all cryptocurrencies) were “probably rat poison
squared.” That seems unduly pessimistic given that
cryptocurrencies provide a way of securely moving around things
that at least look like currency and that in some locales are actually
being used like currency. In Venezuela, for instance, Bitcoin
provides one way around the country’s corrupt central bank and
the hyperinflation it has created. And in early June of 2021, the El
Salvador government even approved Bitcoin as legal tender.
But non-fungible tokens are very different from currency. Fungible

refers to things that can be interchanged without gain or loss. If
you and I swap one-dollar bills, neither of us is better or worse off.
If we swap equal amounts of bitcoins, we’re likewise no better or
worse off (save for transaction fees). And if we swap the same
number of fungible tokens (such as gambling tokens, whether
these be physically stored behind a casino counter or digitally
stored on a blockchain), we’re likewise no better or worse off.
But non-fungible tokens are not interchangeable in this way.

They’re essentially digital collectibles. And even as collectibles,
they’re nothing like physical collectibles. If I own a physical work of
art, there’s no other physical object in the world that is exactly like
it. Distinct medium-sized physical objects (such as can pass as a
work of art, in contrast to atomic or quantum-scale particles) have
the property that they differ in their constitution and structure in
some discernible way (perhaps apparent only with the use of a
microscope) even if the difference is minute.
This is important. Setting aside science fiction counterexamples

(such as that we’re all living in “the Matrix” and so our entire
existence is inherently digital), the real physical world can only be
digitized by approximation and never exactly. What’s more, our
technology can tell the difference. This is not to say that real-world
physical objects can’t be faked. Clifford Irving’s Fake and Anne-
Marie Stein’s Three Picassos Before Breakfast testify to the gullibility
and incompetence of many so-called art experts. The case of Eric
Hebborn, considered the greatest art forger of the 20th century, is
particularly revealing about the extent to which the art market may
be populated with fakes.
Nonetheless, physical collectibles have built-in safeguards against

replication. Even a print-run with multiple copies of the same
baseball card, for instance, cannot avoid that each card will show
minute differences, even right off the press. Moreover, these
differences will increase as the cards end up in individual hands
and are thus handled and marred. And even putting them in
plastic cases will only decelerate the work of entropy. Anything
physical never stays the same but gradually transforms, and,
because of entropy, typically for the worse. Rust, for example,
lightens cars by about ten pounds every year (see Jonathan
Waldman’s Rust: The Longest War).
But digital collectibles, whatever else they may be, are—without

exception or remainder—digital files. In other words, they’re just
strings of bits. As a string of bits, a digital file has a fixed number of
bits, with the bit at any location in the string having a definite value
of either zero or one. What this means is that digital collectibles
can be copied exactly, which in turn means that you’re no better or
worse off owning a copy in place of the original (whatever “original”
in a digital context may mean).
Compare this to owning an oil painting. If I own a copy of the Mona

Lisa, it is a verifiable fact that I don’t own the original (which hangs
in the Louvre). Even if my copy is stunningly close to the original,
and perhaps more emblematic of Leonardo da Vinci’s technique
and brushwork than what’s in the Louvre, provenance (i.e., a thing’s
history) will demonstrate conclusively that the painting in the
Louvre and not my copy is the original. Moreover, I know that this
copy holds vastly less value and influence than the original. That’s
just the way it is with physical collectibles, and it applies as well to
baseball cards, coins, stamps, etc.
But with a digital collectible, the file anyone owns is

indistinguishable from the other copies out there. With physical
collectibles, copies are always discernibly different. With digital
collectibles, on the other hand, the copies are exact (error
correction protocols guarantee as much). So what’s the point in
paying extra for a digital collectible that takes the form of an NFT?
By Warren Buffett’s logic, if cryptocurrencies are rat poison
squared, non-fungible tokens are rat poison to an infinite power.
Not so fast, say proponents of NFTs. The issue is not replication but
scarcity. Blockchain technology allows for digital collectibles to be
scarce even if they are replicable. Granted, a digital file can always
be copied exactly. But a digital file on a blockchain when
cryptographically signed by some person or organization of
standing (such as Jack Dorsey in tokenizing and then selling his
genesis tweet) can be scarce, maintain its scarcity, and thereby
achieve value that is negotiable and thus a medium of exchange.
But which blockchain? There are many blockchains. What is to

prevent someone from uploading the same NFT on multiple
blockchains (less of an issue for now because Ethereum seems to
run all the NFTs)? What is to prevent someone, once having
uploaded an NFT on a given blockchain, to promise not to upload
anymore copies, but then to break the promise and, in effect,
increase the print run?
For comparison with real physical objects, consider the woodcuts

of Albrecht Dürer. As Dürer produced these woodcuts by
repeatedly applying ink to his carved wood blocks and imprinting
them on paper, they would become increasingly fuzzy as the wood
carving wore away with each successive imprint (real-world
entropy again). Even long print runs could therefore meaningfully
distinguish earlier from later imprints for Dürer’s woodcuts (the
earlier ones being sharper and thus more valuable). Ditto for
copies of physical art objects in general.
Dürer’s Four Horsemen of the Apocalypse woodcut.
Digital collectibles, by contrast, can be copied with complete

fidelity within and across blockchains. Moreover, they can be
cryptographically signed again and again. At best, some sort of
social validation can control their proliferation. Thus, in the case of
Jack Dorsey’s genesis tweet, it’s not the tweet itself, represented as
a digital file, that’s so important in gauging its value as his standing

as the founder of Twitter and author of the tweet, and his ability to
validate its digital transfer from himself to another party.
But whatever you can do digitally once, you can do digitally again.
Unlike physical processes, which typically are irreversible (entropy
again), digital processes are generally reversible, and where they
are irreversible, there’s often a workaround, such as with a
computer game where you simply restart it from any desired point
in the history of play. In consequence, we have no technological
guarantees that Dorsey’s genesis tweet will not be retokenized by
him as an NFT. Instead, the only constraint on proliferation is
Dorsey’s promise not to do otherwise and the social norms that
would hold him to that promise.
In this introduction, I’ve been unduly negative about non-fungible

tokens. There is in fact a core idea underlying NFTs that is
potentially powerful and revolutionary. But the devil is in the
details, and the details, as they are presently being worked out in
the theory and practice of NFTs, are making NFTs into a caricature
of what they might be. NFTs such as CryptoKitties, Beeple art, and
Jack Dorsey’s first ever tweet are trivial, mediocre, forgettable.
Insofar as they aspire to be art, they’re kitsch.
If NFTs are going to have a future, they need to do better.
2 Digital Signatures in Digital

Marketplaces
Of course, there’s more to the story. As already suggested, when
someone buys a non-fungible token, they’re not simply buying a
digital file of some collectible that can be readily copied. So what

exactly are they buying? To understand what they’re buying, let’s
consider a particular example. Specifically, let’s turn again to the
NFT of Jack Dorsey’s first, or genesis, tweet, which he sold for $2.9
million and which currently ranks as the fifth most expensive NFT
ever sold.
Dorsey’s genesis tweet on Twitter, is, like every other digital thing, a
digital file. For convenience and ease of display, let’s take his
genesis tweet to be the following digital file available here at
Expensivity.com: https://www.expensivity.com/wp-
content/uploads/2021/05/Dorsey-Twitter-NFT-orig.jpg. Because
this is a jpeg file, it can be readily displayed as follows:
Now granted, Dorsey’s genesis tweet was not, at its inception, a

jpeg file. It was some sort of Twitter file embedded in the Twitter
database. Although he has access to this file, we don’t. Instead, we
could focus on the characters that Dorsey punched in on his
keyboard to create his genesis tweet. In that case, his tweet could
be represented as a text file with a time and date stamp: “just
setting up my twttr 2:50 PM Mar 21, 2006.” Any of these digital
representations might do. They’re all equivalent for the purposes of

transforming his genesis tweet into an NFT.
We now confront the obvious question: what is the magic alchemy

that turns any old digital file like this into an NFT potentially worth
millions of dollars? You’ve got the digital file that represents the
item of interest in its full glory. Indeed, you’ll never find some
missing or hidden aspect of that genesis tweet by probing deeper
or even getting its author, Jack Dorsey, to reveal some hidden
digital layer.
In answer then to the question about what turns any old digital file
into an NFT, it is this: what’s needed additionally is a digital
signature applied within a digital marketplace. To see what’s at
stake with digital signatures, which is the key concept here, it
helps to go back a generation or two when people and banks
were much more comfortable in signing over checks to other
people. I recall about forty years ago having a friend who worked
with gang members in the inner city, trying to help them break free
of drugs and violence. I happened to have a check that was made
out to me when we met one night at church. Rather than cash it
and give him the cash for his work with the gangs, I simply signed
the check over to him by endorsing it on the back.
Given the signature on the back of the check, my friend was able
to cash it, which he did. But if he wanted, he could have signed the
back of the check under my name, and given the check to
someone else, who could then have cashed it or else signed it to
still someone else. Such signing of the check over to others could
have continued until room on the check ran out. These days,
checks have a horizontal line on the back and an explicit statement

that nothing written below that line is valid. But back in the day,
you could keep signing the check over to others, in effect turning it
into a negotiable instrument.
Digital signatures on a blockchain work in the same way. The

blockchain functions as a digital marketplace in which ownership
of digital items is transferred from one party (usually called “Alice”)
to another party (usually called “Bob”) by Alice applying a digital
signature to it and designating Bob as the recipient (assign and
sign: Alice is the assignator, Bob the assignee). In a blockchain-
based digital marketplace, Alice, Bob, and any other commercial
agents each use a public/private cryptographic key. The public
key serves as the address to which digital items are assigned, the
private key as the way to sign these digital items, authorizing their
transfer from one party (or address) to another.
Thus, if Alice wants to sign a digital item over to Bob, she takes the
digital item, attaches to it Bob’s address (from his public key), and
then signs it with her private key. By signing with her private key,
she authorizes the change in ownership of the digital item from
herself to Bob, making clear to all members of the blockchain-
based digital market that Bob now owns the digital item. And
because the digital market is a blockchain, it is a secure,
untamperable ledger that reliably records the transaction (at least
it’s supposed to be secure; Bruce Schneier argues persuasively
that the security of distributed peer-to-peer networks that run
blockchains is less than ironclad).
In this account of digital signatures within a digital marketplace,

there’s an interesting irony. Even though medium sized physical
objects can never be perfectly copied, physical signatures that get
attached to such physical objects can often be convincingly faked.
Yet conversely, even though digital files of whatever size can be
perfectly copied (error-correcting codes ensure faithful copying
even for humongous files), cryptographic signatures can get
attached to such digital files in ways that uniquely identify the
signer and thus cannot be faked (except by a vastly improbable
lucky guess of a private cryptographic key, a guess less likely to
succeed than the sun failing to rise).
In this account of digital signatures within a digital marketplace,

there’s an interesting disconnect between digital ownership and
real ownership. When I own a physical item, often it’s close by me
and transferring ownership simply means moving it from my hands
into someone else’s hands. If it is particularly large, bulky, and
valuable, such as a piece of property, transferring ownership will
involve signing paperwork with an official recording office, thus
ensuring that the transfer has the full endorsement and power of
law behind it.
In a real marketplace, even if the property is intellectual property

(such as a patent or copyright, whose form can be entirely digital),
there will likewise need to be a contractual transfer of the rights to
that intellectual property to a new party, with the transfer again
having the full endorsement and power of law behind it. For
instance, if in making an intellectual property purchase, I acquire
the copyright to a picture, even a digital picture, the real market
that operates in our society ensures that the transfer is subject to
its laws and strictures. Through my purchase, I will own the picture
in a real sense and can take legal action against anyone who tries
to infringe on my copyright (such as by posting it on a blog without
my permission).
By contrast, the concept of owning an NFT on a blockchain is

specific to the blockchain with no legal force in the society at large.
Suppose I snap a digital photo. Because I’m the one who snapped
the photo, US law agrees that I own the copyright to it. Within the
real marketplace of our society, I can sell the photo, license it, or
just keep it. But suppose I decide to take it, as a digital file, upload
it onto a blockchain, and then “sell” it to another party as a
cryptographic transfer in a cryptocurrency that runs on that
blockchain. This party signs over to me a certain amount of the
cryptocurrency and I sign over to that party the digital file, all on
the cryptocurrency’s blockchain.
Now answer this: in what sense did I “sell” the digital file? Within
the marketplace of that blockchain, as a matter of convention, it
could be said that I no longer own the digital photo and the other
party now does. So in that sense I sold it. But such conventional
reassignments of ownership within a blockchain ecosystem mean
nothing as far as the real marketplace and real legal system of our
society is concerned. I could, for instance, put that digital photo as
an NFT on the Ethereum blockchain, get paid handsomely by you
in Ether, and then, when you use that photo on your website, sue
you and try to collect damages for copyright infringement.
Unless my signing over of the digital photo on the Ethereum

blockchain is combined with a parallel signing over of actual
copyright in the real marketplace of our society at large, all you

can do is negotiate/trade this digital photo (i.e., NFT) on the
blockchain where it was uploaded and signed over to you. So
you’re in effect stuck on the blockchain where the NFT resides.
Perhaps laws will at some point be changed so that points of sale

in the virtual marketplace of the Ethereum blockchain are treated
as points of sale in the real marketplace of the society at large,
conferring all the rights and guarantees of the real marketplace.
But that’s not the case now, and there’s no prospect for that
becoming the case anytime soon.
It’s time to wrap up the review of Jack Dorsey’s genesis tweet and
its transformation into an NFT. Since that tweet was essentially a
short text with a time and date stamp, there’s nothing here to
copyright. Short texts other than poetry can be regarded as having
educational value, and thus can be represented and copied at will
with no copyright infringement, as a matter of what is called “fair
use.”
Specifically, then, here’s what actually happened: Dorsey uploaded

his genesis tweet onto the Valuables platform, which served as an
auction house for it. The auction house then handed over Dorsey’s
signed tweet to the highest bidder, namely, the Malaysian
businessman Sina Estavi. The transaction was run over the
Ethereum blockchain, with Estavi in early March 2021 paying
1630.5825601 ETH (about $2.9M at the time), 5 percent going to the
Valuables platform as a commission and the remaining 95 percent
going to Dorsey, who in turn gave his portion to people in Africa
impacted by COVID-19.
Anyone besides Dorsey could have taken his genesis tweet and
likewise put it up for auction on the Valuables platform or one
equivalent to it. Anyone can still do this. Dorsey can do it again,
putting his genesis tweet up for sale a second time. What if he did
it a second time? Would the second signed version of his genesis
tweet sell for a lot less than the first time around? Probably. Would
putting it up again devalue the version that Estavi bought?
Probably. While NFTs are new, the debasement of value by
proliferating copies whose marginal value is close to zero has a
long and ignominious history (compare the debasement or Roman
coinage in the first centuries A.D.).
3 The Do-It-Yourself Minting of NFTs

The process of creating NFTs, along with buying and selling them,
is simple and straightforward. All that’s required is
1. setting up a crypto wallet that handles Ethereum
cryptocurrency (ETH),
2. loading it with some of that currency,
3. visiting an NFT marketplace (a third party that accesses the
Ethereum blockchain),
4. connecting the crypto wallet to that NFT marketplace, and
5. create/upload/sell or else buy an NFT by spending some
cryptocurrency at the marketplace.
Since it’s always better to actually see how something is done than
merely to describe it, I’m next going to provide two helpful
YouTube videos and then walk readers through the creation, sale,
and purchase of an NFT by me.
3.1 Two How-To Videos on NFTs

The following two YouTube videos lay out “how to do it.” The first is
a bit more general, the second gets more into the nuts and bolts of
turning art into NFTs. The videos are about 15 minutes each.
They’ve had many views. They’re worth watching carefully, not only
for the how-to instruction but also to understand the motivations
underlying the creation and monetization of NFTs:
How to Make and Sell an NFT (Crypto Art Tutorial)
How to turn your art into an NFT – Step by Step Tutorial
3.2 A Selective Montage of the 2007 Iowa Democratic

Primary
The NFT that I’m going to create, upload, and put up for sale will
be a montage of the Iowa Democratic primary for the US
presidency from over a decade back. As it is, my family was in
Iowa in December 2007, and it was a wild time in the lead-up to the
2008 presidential election. My wife and daughter attended
numerous rallies and got some great pictures of candidates and
press. Here’s a montage of some of the pictures my wife took
(many of them were with the candidate or journalist next to my
daughter, whom I cropped out for privacy reasons). The associated
png source file on this website is given in the caption.
SOURCE: https://www.expensivity.com/wp-
content/uploads/2021/06/Iowa-Campaign-Dec-2007.png
3.3 Turning This Montage into an NFT

Let’s now go step by step in turning this montage into an NFT:
3.3.1 GET CRYPTOWALLET
Get yourself a cryptowallet that can handle Ether (ETH). I already

had an Electrum wallet for Bitcoin. For ETH, I went with MetaMask:
https://metamask.io/. This wallet seems to have a large following.
It’s also got an app that works well with my iPhone. Additionally, it
integrates readily into Chrome, which is my go-to browser (a point
of ambivalence for me given my misgivings about surveillance
capitalism).
Using the MetaMask wallet is reasonably straightforward, but do a

Google query if you get stuck. For instance, I ran into a problem
when it wasn’t clear whether I needed to get into Chrome settings
or the MetaMask settings (the latter are not clearly marked and are
accessed by clicking on the top right icon).
Once you get your wallet set up, you’ll see a sequence that looks
like this (which happens to be the one in my wallet):
0x4f74085dfE2f580BaAb770b0DA9c41E6f38E065F
That’s the public address. It’s readily copied by hovering over it and
hitting “copy to clipboard.” You’ll need this address for people to
send you Ether, to send yourself Ether to load onto the wallet, and
to pay for setting up an NFT.
Two caveats regarding the MetaMask wallet, and crypto wallets in

general, are worth bearing in mind:
All this convenience with the MetaMask wallet comes at a
security cost. For instance, in this age of unbridled surveillance,
easy integration of the wallet into Google Chrome seems hardly
a recipe for privacy (Google being second in surveillance
perhaps only to the National Security Agency). I’m therefore

leaving just enough Ether in my MetaMask wallet to cover the
costs of this exercise of showing how to work with NFTs. So if I
lose everything in this wallet, I can live with that. But if you put a
serious amount of Ether into a cryptowallet, I would probably
work exclusively with the Brave browser (given its commitment
to anti-tracking) and a VPN. I’d also get a crypto hardware wallet
(such as the Trezor or Ledger, available on Amazon). The
advantage for security with these hardware wallets is that it
keeps you offline as much as possible, limiting attacks from
cybercrooks (although not eliminating all attacks because you
still need to get online to work with cryptocurrency).
Be sure to keep good track of your 12-word seed phrase when
you set up your wallet. If you lose it, you lose your wallet and
everything in it. It’s often suggested that you write down the
seed phrase on paper and keep it entirely out of digital reach.
But paper is easily misplaced, and the news is filled with people
who have lost a lot of cryptocurrency by forgetting or misplacing
their seed phrase. Here’s one 2021 headline from Business
Insider: “People have lost roughly $140 billion in Bitcoin because
they forgot their passwords or got locked out of accounts, and
would-be millionaires are struggling to access their wallets.” I
therefore prefer to record the seed phrase in an image file, and
then hide the image among a plethora of other images where it
gets hidden from view unless you know what you’re looking for.
3.3.2 BUY ETH/ ETHER
The next thing to do is buy some ETH/Ether. The MetaMask wallet

tries to make this convenient by allowing you to buy Ether directly
through Wyre. But Wyre was not supported in my state. So the
surer course will be to work through an exchange, buy some Ether
there, and then transfer the Ether to your wallet using your wallet’s
public address.
Coinbase.com is the most popular exchange, and I’ve got an

account there. But I bought some Bitcoin and Ethereum there in
2016 when the cost of both was ridiculously low compared to

today, and I didn’t want to generate a “tax event” by using that
account in this exercise of NFT creation. Other exchanges exist and
also work well. Kraken.com is solid, but you have to wire money
into your account there before you can use it.
Gemini.com (run by the Winklevoss twins) has higher transaction

fees, but works quickly with a debit card. I used it in this exercise.
Buying and moving the Ether from Gemini.com to my MetaMask
wallet took maybe two minutes. I had, however, confirmed my
debit card beforehand with Gemini.com. For confirmation,
Gemini.com made two small reversible deposits into the bank
account of the debit card. I then had to verify those amounts with
them. This was also handled quickly (minutes, not hours).
3.3.3 VISIT NFT MARKETPLACE
In connecting to an NFT marketplace, you have a range of choices.

Popular NFT marketplaces include:
1. AsyncArt
2. AtomicMarket
3. BakerySwap
4. Enjin
5. Foundation
6. KnownOrigin
7. MythMarket
8. Open Sea
9. Portion
10. SuperRare
Some of these marketplaces cover the full range of NFTs, such as

Open Sea. Others are more specialized. MythMarket, for instance,
focuses on trading cards. SuperRare, as the name implies, strives
to be more selective, listing NFT creators only after first accepting
them to its platform via an artist profile submission form.
I would urge readers of this article to browse all these sites to get a
feel for how these marketplaces work and what NFTs are really
like. For me, the overwhelming impression I get from browsing
these platforms is that they make a virtue out of promoting
ugliness, triviality, insipidness, sensory overload, and unoriginality
(notably the kluging and repackaging, via photoshop and similar
technologies, of existing digital items).
For a revealing contrast, I would urge readers also to visit the art
auction houses of Sotheby’s or Christie’s. Granted, NFTs are now
being sold at these auction houses as well, but have a look at this
Sotheby’s auction of American art or this Christie’s auction of 19th
century European art. Not only are you at these auctions buying
unique items of art that cannot be replicated, but once you buy
them and take delivery, you own them in every conceivable sense.
For instance, once they’re in your possession, you can take photos
of them, and the photos will be under your copyright.
In any case, to create my NFT from the montage of photos taken in

December 2007 at the Iowa Democratic Primary, I decided to go
with Rarible. Rarible is large as these NFT marketplaces go. It
requires no invitation to use their services, and set up is
straightforward.
3.3.4 CONNECT CRYPTO WALLET

Once at Rarible.com, connect to your crypto wallet by clicking on

the “connect wallet” button in the upper right. If you’re using
Chrome, MetaMask will be the first option you see. Connect to this
wallet if you have it. Otherwise use a different wallet. If you’re in
another browser such as Brave, Rarible will give you options for
connecting a non-MetaMask wallet. Use one of those options.
First time around, you’ll be asked for a MetaMask password or you

may be asked for your entire seed phrase. Once you get your
wallet connected, set up a profile in your name with Rarible. The
profile requires just a few items, and you can edit it later at your
convenience.
3.3.5 CREATE OR BUY NFT
With your wallet connected and some Ether in it to cover costs,

now either create a new NFT at Rarible or else buy an existing NFT.
We’ll do both.
To create an NFT, I’ll use the png above that’s the montage of
politicians and press at the 2007 Iowa Democratic Primary. The
image file is about 2MB. To turn this png into an NFT, hit “create” in
the upper right menu at Rarible. You then need to hit either “single”
or “multiple” depending on whether you want a one-of-a-kind NFT
or one that has a fixed number of copies. For my NFT, I chose
“single.”
Next, upload your image or other digital file. I uploaded my png,

and then filled out the requested information. I chose “fixed price”
and set the price for this NFT at .1 ETH, or by today’s exchange rate
at about $230. You could also have gone with a timed auction in
which you set a minimum price and time for the auction (much as
at eBay). You could as well have chosen an unlimited auction
(which is unexplained on the site but means an auction that simply
runs until you call it). And finally, you have the option of uploading
the NFT but not putting it up for sale.
Title and description of my NFT were at my discretion. I titled it

“Iowa Democratic Primary, December 2007.” I went with a 15
percent royalty, so that whenever the NFT is sold subsequently, I’ll
see 15 percent of the selling price (10 percent seems to be the
default). With regard to choosing the collection (ERC vs. RARI), I
went with RARI since it was the easier option (the ERC option
required some additional identifiers for putting the NFT on the
Ethereum blockchain).
Finally, there’s the issue of lockable content. For simplicity, I went

with not activating the “unlock once purchased” option. By not
activating this option, I made the full png of my NFT available at
Rarible, as you can see here (the png that Rarible exhibits is thus
identical with the one on this website given above):
https://rarible.com/token/0x60f80121c31a0d46b527
9700f9df786054aa5ee5:1082997?tab=details
But I could also have gone with the option to “unlock once
purchased.” The result of doing so is explained on the Rarible FAQ
page:
As a content creator, you can add unlockable content to

your collectibles, that only becomes visible after a transfer
of ownership (i.e. selling or gifting your NFT). Artists use
this feature to include high res files, making ofs, videos,

secret messages, etc.
By uploading the digital file that’s being transformed into an NFT

and then answering the other questions, you now just need to hit
“create item.” From there it’s simply a matter of telling your wallet to
authorize three steps: 1) mint, 2) approve, 3) set fixed price. The first
two of these will debit your crypto wallet, which for me came to
about $23 in ETH given the exchange rate that day. Once you
complete these authorizations, your NFT will be created. Mine is at
the Rarible link given above. Here is a screenshot:
That’s all there is to creating a new NFT. So long as you have a

compatible ETH-based wallet with sufficient Ether in it, and so long
as the digital file that you are turning into an NFT is readily
available for upload, creating a new NFT is straightforward and
takes but a few minutes.
Finally, buying an NFT is even simpler. Because I’m deeply

skeptical of what ownership of NFTs on the Ethereum blockchain
even means, I decided to go with the cheapest NFT I could find at

Rarible. This was the following image of the Mona Lisa:
The stated cost was .003 ETH, which at the rate of exchange at the
time came to about $7. But there was also a .0063 ETH “gas fee,”
which is the service cost paid to Ethereum miners for inputting
transactional information onto the Ethereum blockchain. By the

exchange rate at the time, that came to another $15, so that buying
this NFT ended up costing me three times its asking price ($22).
For the time being, I’m not putting this NFT up for sale.
In one respect, creating an NFT proved more straightforward than

buying an NFT. Once I hit “create item,” the NFT I created (the Iowa
montage) got registered under “my items” on the Rarible site
almost immediately. On the other hand, when I bought the Mona
Lisa NFT, I saw an animation with confetti congratulating me on the
purchase, but when I looked under “my items” on the Rarible site, I
didn’t see anything related to the NFT until about half an hour later,
at which point my ownership was finally acknowledged.
So in the interim between attempting to buy the Mona Lisa NFT

and actually taking possession, there was nothing I could find on
the Rarible site to indicate that my purchase had gone through or
that my possession of the NFT was pending (thus causing me to
wonder if the purchase was successful at all). So, presumably, it
wasn’t until the Mona Lisa NFT was fully transferred to my address
on the Ethereum blockchain, about half a hour later, that my
purchase appeared under “my items” at Rarible. Be aware,
therefore, that purchases of NFTs may experience a lag of the sort
that we’re not used to with conventional vendors (such as eBay or
Amazon).
4 What Just Happened?

The creation and purchase of an NFT as described in the last
section raises a lot of interesting—and troubling—questions. It’s
easy enough to go with the flow and simply load a crypto wallet
with the Ether needed to create or buy an NFT, and then do what
you need to get the NFT you want. But NFTs are supposed to
impart some sort of ownership, whether it be full possession in a
real-world sense or even a partial claim that nonetheless has real
traction.
In fact, ownership of NFTs is much more tenuous than such

conventional understandings of ownership suggest. I therefore
want next to reflect on what the creation and purchase of NFTs as
outlined in the last section reveals if we probe beneath the surface.
On the surface, a site like Rarible looks like eBay (though not
nearly as extensive or sophisticated). But in fact, something very
different is going on.
4.1 No Limit on Proliferation, No Guarantee of Scarcity

If I put up a real physical item for sale at eBay, I can only put up as
many items as I actually possess. For instance, if I’ve got three
items of the same widget, then I can sell no more than three of
them. But with the NFT that I created (i.e., the montage of photos
from the Iowa Democratic Primary), I can retokenize it at will and ad
nauseam. I can go to Rarible and simply re-upload the png of that
montage, pay the service fees, and have it reappear as an NFT. I
can keep doing this at Rarible as many times as I like. And so I can
put up for sale as an NFT the same png as many times as I want to
repeat this exercise.
I can also redo this NFT not as a “single” but as a “multiple” NFT
where I specify the number of copies buyers can purchase of it.
The analogy here is with a limited edition of baseball cards, where
buyers can only buy so many copies until they’re gone. But just as
with baseball cards, where you can always do a second print run,
you can always do a second print run with such “multiple” NFTs. In
fact, it’s even easier with NFTs because it’s all digital. And because
Rarible imposes no limits on what its users can upload as NFTs
(short of pornography or hateful content that violates clear
guidelines), I could hit “multiple” in retokenizing my NFT multiple
times. I could also mix and match “single” and “multiple” any way I
like.
And, of course, I don’t have to stay with Rarible. Having saturated

Rarible with my NFT of the Iowa Democratic Primary, I could go to
any other NFT marketplace that requires no prior approval of its
users, and do the same exercise there, uploading the png of the
Iowa Democratic Primary there as an NFT. Granted, word of my
unbridled proliferation of the same NFT might get around and ruin
any chance of turning a profit with it. But that’s not the point.
The point is that such unbridled proliferation, with its assault on

scarcity, has no technological solution (though it may have a
sociological solution—see subsection 4.4). Note that I don’t have to
be so wooden-headed in approaching the proliferation of my NFT
as in simply replicating the NFT with no plan or purpose. Suppose
my NFT, with just one copy in existence, sold for a good price.
There’s nothing to prevent me as its author from then retokenizing
it in an effort to get a better return but thereby ruining the market
for it. From a technological or feasibility standpoint, the only
constraint on my retokenizing an NFT is the service costs.
4.2 Where Is My NFT?
In his book Cybernetics, the mathematician Norbert Wiener

remarked that “information is information, not matter or energy.”
True enough, but information that makes a difference in the real
world is not disembodied information; it is digitized data that
resides on real physical hardware run by software written by
human programmers.
So where is my NFT? The usual answer is: On the Ethereum

blockchain. But although all Ethereum-based NFTs (which includes
just about every NFT at this time) have some toehold in the
Ethereum blockchain, to say that they’re on the Ethereum
blockchain is almost never the complete answer, and can be
highly misleading. Some NFTs do reside entirely on the Ethereum
blockchain, such as CryptoKitties, for which ongoing expenditures
of Ether are needed “to fuel transactions, which include purchasing
and breeding CryptoKitties.”
But the fact is that the Ethereum blockchain, even though it can
function as an all-purpose computer (i.e., Turing machine) and thus
act as a database, it is not adapted for large-scale storage. “Gas,”
the intermediation fees to do anything on the Ethereum
blockchain, can mount quickly, and there are also limits to how
much gas can be spent in a transaction block.
One calculation suggests that it would require 66 blocks, given an

average block time of 13 seconds, and thus 14 minutes to upload
one megabyte onto the Ethereum blockchain. My NFT of the Iowa
Democratic Primary was about 2 megabytes, and thus would have
required almost half an hour to upload, along with large gas fees.
Accordingly, one comprehensive guide to NFTs remarks, “most
projects store their metadata off-chain simply due to the current

storage limitations of the Ethereum blockchain.” (Metadata here
would include my png montage of the Iowa Democratic Primary.)
As a consequence, all the actual content of an NFT—in other

words, what makes it collectible, artworthy, or of any interest—will
typically reside off the Etherium blockchain. But where? In the case
of the NFT I created at Rarible, it will reside (big surprise) at Rarible,
with what’s on the Ethereium blockchain simply registering the
NFT and pointing to Rarible for the png that’s at the heart of this
NFT.
So my NFT, to exist at all, must reside in two places, namely, the

Ethereum blockchain AND the Rarible website. If either fails, I lose
my NFT.
4.3 How Secure Is My NFT?

Not very. Most NFTs, as just noted, have to reside in two places at
once and face the danger that if either place of residence fails, the
whole NFT fails. If the entire NFT could be uploaded onto the
Ethereum blockchain, despite its storage limitations, that would be
better. But even leaving aside that NFT metadata may reside off
the Ethereum blockchain, the long-term prospects for the health of
the Ethereum blockchain, considered in and of itself, don’t inspire
confidence.
4.3.1 Why Trust Ethereum?
Ethereum’s history of hard forks, including the one that caused the
split into Ethereum (ETH) and Ethereum Classic (ETC), is troubling,
suggesting that a cadre of miners, and especially Ethereum’s

founder Vatalik Buterin, far from democratizing and decentralizing
the Ethereum blockchain can, when push comes to shove, do
anything they like with it. Additionally, there’s the worry that miners
will lose motivation and no longer service the blockchain. That
seems unlikely for now, given current enthusiasm for Ethereum,
but if you’re thinking of NFTs as a long-term store of value, the
prospect that the peer-to-peer distributed network that runs
Ethereum may at some point run out of steam (or should I say gas)
needs to be taken seriously.
Perhaps the biggest concern for me personally with tying NFTs to

the Ethereum blockchain, or indeed any blockchain running a
cryptocurrency, is that it presumes that blockchain technology is
the final point of evolution in cryptocurrencies, and that Bitcoin and
Ethereum will never face displacement by newer and better
technologies. To hear some enthusiasts of blockchain describe it,
blockchain is the greatest invention since the wheel. But a
blockchain is simply a ledger that resists tampering. Ledgers have
been around for centuries, and securing them against tampering
has likewise been a point of concern and redress for centuries. In
any case, securing them by blockchains, though useful, does not
constitute an infinite value-add, as it’s often portrayed.
So what happens if a better technology comes along for doing

cryptocurrencies? I have some ideas, and I’ll offer some possible
directions at the end of this article in attempting to put NFTs on a
firmer foundation. But even if my proposals hold no water and if
the prospects for a replacement technology remain for now
completely murky, the concern that we’ve not reached the final
technology for cryptocurrencies should give us pause. In the

history of technology, paradigm shifts are common. Many tech
companies that were behemoths a generation or two back have
gone the way of dinosaurs.
One last point about blockchain technology: the ability of create

novel blockchain-based cryptocurrencies at will and ad nauseam
ought also to give us pause. Bitcoin and Ethereum for now have a
prime-mover advantage. But what can be digitized can be
redigitized. As of April 2021, there were 10,000 blockchain-based
cryptocurrencies. Even if individual cryptocurrencies can build
scarcity into themselves by limiting the total supply of coins (such
as Bitcoin’s 21 million upper limit), the proliferation of
cryptocurrencies by simply building new blockchains knows no
such limitation or scarcity. If you haven’t done so, scroll down the
cryptocurrencies listed at CoinMarketCap to appreciate how
readily blockchain-based cryptocurrencies have proliferated.
4.3.2 Why Trust NFT Marketplaces?
Perhaps you have good reasons to think that my worries about

Ethereum are unfounded. In that case, you should still be
concerned about the NFT marketplaces that help “host” your NFT.
(The word “host” here should set off alarm bells. We don’t think of a
bank, for instance, as “hosting” our money. But NFT marketplaces,
as we’ll see momentarily, host NFTs with no obligation or liability.)
So, even if your NFT remains unproblematic insofar as it resides on
the Ethereum blockchain, because your NFT is a dual resident that
also resides at an NFT marketplace, you want some assurance that
it is secure there as well. Unfortunately, no such assurance is

forthcoming. Quite the contrary.
As emblematic of the security concerns you face at NFT

markeplaces, I’ll focus on Rarible, which is where I created and
bought the NFTs described in the last section. Although we’ve
grown accustomed to automatically approving the terms and
conditions required to use an online service, in fact you need to
carefully read the “Rarible Terms and Conditions” if you are serious
about preserving your interests there in creating and purchasing
NFTs. In fact, once you’ve read these terms and condition, there’s
no way you can be serious about preserving your interests there in
creating or purchasing NFTs.
The crucial thing you’ll find in reading these terms and conditions
is that Rarible is a platform, much like Facebook or YouTube. You
can put stuff up on these platforms, but the platform assumes no
liability (repeat, NO LIABILITY, NADA!) for what can happen to your
stuff once there. What’s more, at its discretion the platform can
entirely remove your stuff. Here’s one relevant passage:
Rarible Company may from time to time remove certain

Collectibles from the Rarible Apps or restrict the creation
of Collectibles on the Rarible Apps in Rarible Company’s
sole and absolute discretion, including in connection with
any belief by Rarible Company that such Collectible
violates these Terms or the terms and conditions or
privacy policy of the Rarible Apps. Rarible Company does
not commit and shall not be liable for any failure to
support, display or offer or continue to support, display or

offer any Collectible for trading through the Rarible Apps.
Later, the Rarible terms and conditions document makes the same
point even more starkly:
Rarible May Deny Access to or Use of the Offerings.

Rarible Company reserves the right to terminate a User’s
access to or use of any or all of the Offerings at any time,
without or without notice, for violation of these Terms or
for any other reason, or based on the discretion of Rarible
Company. Rarible Company reserves the right at all times
to disclose any information as it deems necessary to satisfy
any applicable law, regulation, legal process or
governmental request, or to edit, refuse to post or to
remove any information or materials, in whole or in part, in
Rarible’s Company sole discretion. Collectibles or other
materials uploaded to the Offerings may be subject to
limitations on usage, reproduction and/or dissemination;
Users are responsible for adhering to such limitations if
you acquire a Collectible. Users must always use caution
when giving out any personally identifiable information
through any of the Offerings. Rarible Company does not
control or endorse the content, messages or information
found in any Offerings and Rarible Company specifi cally
disclaims any liability with regard to the Offerings and
any actions resulting from any User’s participation in any
Offerings.
These are essentially the terms and conditions of a Facebook or

YouTube. Only with Facebook or YouTube, you’re not plunking
down any cash. You’re simply uploading material to your account,
and there’s the danger that this material may get removed or that
your account may get terminated. Ditto with Rarible. Only at
Rarible, you are creating and buying NFTs for serious money.
Check out, for instance, Beeple Round 2 Open Edition at Rarible (as
of June 2021), with offerings valued in the six figures (in US dollars
given the current ETH spot price).
Now it’s true that Rarible could not stay in business long if it willy-
nilly started taking down or taking over its customers’ NFTs. But it
can legally do with NFTs what banks would be held criminally
liable for if banks attempted the same thing with their customers’
money. You may be able to profitably wheel and deal in NFTs at
Rarible for a while. But for how long? Rarible gives all appearance
of a game of musical chairs in which everything proceeds happily
until the music stops. Or, to change the metaphor, it’s like Russian
roulette. You may enjoy the excitement for a time. And perhaps
getting caught up in the excitement is all that matters to you.
A final point to consider about the instability of NFT marketplaces

is link rot. Even if an NFT marketplace guaranteed that your NFTs
would remain on its site forever, the fact is that such marketplaces
are businesses, and businesses can fail. Even with the best of
intentions, an NFT marketplace may simply not be able to make
good on its intention to keep your NFTs alive. The Wikipedia
definition of link rot is pertinent:
Link rot is the phenomenon of hyperlinks tending over time

to cease to point to their originally targeted file, web page,
or server due to that resource being relocated to a new
address or becoming permanently unavailable.
The problem of link rot is real. The average lifespan of a web page
as of March 2021 is 2 years and 7 months. Hence the emergence of
such organizations as the InterPlantetary File System (IPFS).
Addressing the short average lifespan of web pages, and its efforts
to prevent them from being “gone forever,” IPFS states on its about
page: “It’s not good enough for the primary medium of our era to
be this fragile. IPFS keeps every version of your files and makes it
simple to set up resilient networks for mirroring data.”
IPFS has therefore identified a legitimate concern and is

attempting to redress it. Rarible is not only aware of this concern
but has even contracted with IPFS to store its collectibles. So
Rarible is on it, yes? Unfortunately, there’s still a problem. Here’s
what Rarible writes about IPFS in its terms and conditions
document:
The Collectible Metadata for Collectibles created through

the Rarible Applications are typically stored on IPFS
through an IPFS node operated by Rarible Company. The
Collectible Metadata for Collectibles created outside the
Rarible Applications may be stored in other ways,
depending on how such Collectibles were created.
So far so good. But later in the terms and conditions document is

not so good:
Collectibles created on Rarible have their Collectible

Descriptors stored on the IPFS system through an IPFS
node operated by Rarible Company, but Rarible Company
cannot guarantee continued operation of such IPFS node
or the integrity and persistence of data on IPFS.
So good luck ensuring the permanence of your NFTs.
4.4 Does Creating/ Buying NFTs Make Business Sense?

For NFT users with a large social media following and a short time-
horizon, I can see NFTs making business sense: get in and cash out;
pump and dump. But for an NFT Joe Schmoe like me, NFTs make
little business sense. We’ve already seen that the service fees
needed to do anything, whether in creating NFTs or in buying
them, entail a cost of about $20 given the current spot price of
Ethereum. That just seems out of hand given the absence of such
service costs at conventional vendors like eBay or Amazon.
True, one might argue that credit cards impose a hidden service
cost, so conventional vendors are always handing us those costs
without making it obvious. But then again, there is also the service
cost of simply loading one’s wallet with cryptocurrency. And then
there’s just buying the cryptocurrency at an exchange (before
transferring it to your wallet): there’s always a cost in exchanging
one currency into another, and that includes changing fiat
currencies into cryptocurrencies.
I also saw the price of Ethereum drop about 8 percent from the
time I bought it to the time I created and purchased the NFTs
described in the last section (in line with cryptocurrency volatility,
it’s gone way down and way up since). Maybe I would feel more
positive had the price of Ether gone up from the time I bought it to
the time that I completed this exercise, but at every point in the 5-
point process for creating NFTs described in section 3, I had the
sense of being bled.
And then there are the commission costs. Conventional vendors

like eBay and Amazon charge commission costs. But commission
costs also exist at NFT marketplaces, on top of the service costs
simply to upload a new NFT (create one) or move one to your
items (buy one). For instance, Rarible’s Must Read Guide for People
New to NFTs states that for each transaction “Rarible takes a
commission at the very end; it’s 2.5% on each end, so 5% of final
sale price.” Ouch.
Laying aside all these costs, what happens once you upload and
create an NFT, putting it under “my items”? What about buying an
NFT and putting it under “my items”? Good luck with any potential
buyer finding it. Take my montage of the Iowa Democratic Primary.
Its exact title at Rarible is “Iowa Democratic Primary, December
2007.” Suppose I punch in “Iowa Democratic Primary” and hit enter
using Rarible’s search feature. A panel of NFTs at Rarible appears,
and you’d think that my NFT should get pride of place, situated in
the upper left as the first thing that users making that search
should see.
But my montage is nowhere to be found on this search output

panel. The very first NFT that appears is titled “Crypto Drinks” and
shows an iPad displaying a bottle of beer. There’s an NFT titled
“Crying Assange.” There are a bunch of NFT with representations of
Bitcoin. Everything I see in response to my search is irrelevant to it.

There’s absolutely nothing in the search panel that even hints at
my NFT.
The only way that I’ve been able to get to my NFT at Rarible is by
punching in the title “Iowa Democratic Primary, December 2007” or
some portion of this phrase into the search bar and then, instead of
hitting enter, I need to be attentive enough to see that the search
bar has dropped down and is suggesting my NFT. I then have to
click on that drop down link to get to my NFT.
Perhaps it’s just that search in these NFT marketplaces is primitive

right now and that down the line it will get better and be able to
compete with the mature search capabilities of an eBay or
YouTube. But I’m not holding my breath. I suspect the inadequacy
of search at Rarible is baked into the system to promote NFTs that
are likely to sell and thus lead to more commissions for Rarible.
Rarible’s homepage highlights the NFTs they want to highlight: “top
sellers,” “live auctions,” “hot bids,” “hot collections,” etc. Leaving
aside the merits of my NFT (minimal as they are), my NFT never
had a chance. In fact, it’s only chance is that someone will read this
article and want to buy it.
=====ADDENDUM JULY 26, 2021=====

The searchability of my NFTs at Rarible has improved since I wrote
about it last month (see immediately above). But the searchability
there is still not great. Presently, searching on my name and on the
name of my NFT does show the right items on a search results
page, but still not at the top, where it should be. One still gets the
sense that my NFTs are being buried among the NFTs that Rarible
is trying to promote.
=====================================
But, someone may retort, people are making good money creating
and selling NFTs. Just because Joe Schmoes like you, who create
NFTs in an uninspiring exercise, can’t make any money with them
doesn’t mean there isn’t a business model here that can’t thrive.
Such optimism about NFTs is misguided. Certainly, the other
concerns raised earlier in this section should dampen such
optimism. But let’s examine this optimism more closely and see
why it is unjustified.
The premier NFT marketplace for now is SuperRare. This is the

place to be if you’re an artist who wants to put your NFTs up for
sale and get the best prices for them. So, what does it take to be
an artist at SuperRare? To answer this question, SuperRare’s Help
Center is particularly helpful and revealing. Unlike Rarible, where
anybody can create and trade NFTs, SuperRare is by invitation
only. Artists in SuperRare’s stable need to fill out an application
form and then be approved. What is SuperRare looking for in the
artists it accepts into its stable? The answer is found on the
SuperRare page titled “Tips for Getting Accepted as an Artist on
SuperRare.” The tips include the following (these are all direct
quotes):
1. Be able to prove your identity as original artist. [SuperRare
wants] to make sure we are protecting our collectors by
ensuring all artworks tokenized on the platform were actually
created by the artist that tokenized it.
2. Promote your art on social media! We’ve seen very clearly that
the artists doing a good job of promoting themselves and their
art on social media sites like Twitter/Instagram/Cent are the

ones that attract the most collectors on SuperRare.
3. Have an original, consistent style. [T]he artists that do the best
on SuperRare are the ones that focus on being original and
having a consistent look & feel.
4. Scarcity Scarcity Scarcity. We take scarcity very seriously, and
we’re strong believers that the artists spending more time on
creating the best possible works of art do far better with
collectors, rather than flooding the market… Are you tokenizing
multiple artworks every day? Or are you spending more time
creating and tokenizing better artworks less frequently? …
We’re more inclined to accept artists with a lower total supply
of existing artworks than artists that have already tokenized
hundreds of works across multiple platforms.
The things that SuperRare is looking for and desiring in its artists
make perfect sense. In fact, if NFTs as currently structured at NFT
marketplaces are to have a future, then NFT artists will need to
address and satisfy the concerns raised in these points.
The interesting thing to note about these points, however, is that

they don’t admit technological solutions. Where is blockchain
here? A big motivation for Satoshi inventing blockchain was to
allow for anonymous transactions, but here we find SuperRare
wanting to prove identity. To the second point listed, promoting art
effectively on social media likewise feeds into this anti-anonymity.
So too, the question of style and branding is personal, reflecting
the artist’s work and not its technological implementation.
The last point about scarcity goes to what I’ve been saying right
along in this article, which is that NFTs can be proliferated at will.
The technology allows such proliferation. In fact, the only thing that
can disallow it is integrity and trust, integrity on the part of the
creator of the NFT (especially the commitment not to proliferate it)
and trust on the part of the buyers (that the creator and
marketplace will stand against proliferation and thus ensure
scarcity).
If NFTs are to make any business sense, the question of

proliferation and scarcity needs to be addressed in earnest,
especially as these relate to value and ownership of NFTs. We turn
to these topics next.
5 Digital Scarcity
When jumping into the world of NFTs, one finds a certain
breathless awe in the face of blockchain technology. One even
hears that blockchain has for the first time made if possible to
create digital scarcity, as though scarcity of physical goods is the
only type of scarcity that existed before blockchain was invented.
Such a claim is both misleading and ludicrous.
First off, it bears repeating that blockchain is a ledger security

technology. In other words, its whole point is to keep ledgers
secure from tampering. But ledgers have been kept secure by
various means for centuries. Notarization using time-date stamps
along with attestation by witnesses is old and well proven. It is still
used to set up bank accounts and to buy and sell property.
Independent accountants who keep parallel books provide
another form of security (if the books don’t match, there’s been a
mistake or tampering). I’m not saying these are best or foolproof, or
that blockchain may not be better. I am saying there are
alternatives.
The use of peer-to-peer distributed systems to implement

blockchain should not be regarded as a magic bullet. Such
systems constitute third parties, and the claim that they don’t
require trust (i.e., that they’re “trustless”) is naive. Blockchain
technology is consensus based, which in practice means majority
rule (the slogans “decentralized” and “democratic” supposedly
providing legitimation). But the problem with majority rule is that
the majority can do anything it wants.
What, then, is digital scarcity? In the physical world, scarcity is

obvious and looks like this: There are only a fixed number of items
answering to a given criterion or specification. Take, for instance,
barrels of crude oil. There are only so-many-so many produced on
a given day. There are only so-and-so many that can be produced
on a given day given maximal production. In the state of California
or Texas there are only so many barrels that can be extracted to
the end of time. Note that scarcity for physical items comes in
degrees and admits numerical comparisons. If the criterion for
scarcity is weight, then diamonds are scarcer than crude oil.
What, then, does digital scarcity look like? Given that a digital item
is just a file consisting of bits that can be copied with complete
fidelity once the full file is in hand, digital scarcity cannot mean a
limit on the number of such copies, since there can be no such
limit for digital files. Scarcity must therefore mean some limitation
on the digital file in question, limiting access to it or the ability to
make certain changes to it. Moreover, such limitations can only
arise with the originator of the file by baking in such limitations
from the start. Digital scarcity therefore can only mean one of three
things (these are exhaustive though not mutually exclusive):
1. Partial Availability. The full digital item is unavailable but

instead only a partial form of it is available, whose copying or
use is regarded as unproblematic. The partial form of the
digital item thus constitutes an approximation of or limited
access to the full item, the full item being kept inaccessible
except to certain authorized parties.
2. Digital Marking. The digital item is marked in such a way as to
identify the author of the mark or otherwise distinguish it. The
mark can be hidden, invisible to people viewing the item,
though becoming plain once it is pointed out. Or the mark can
be evident from the start. Scarcity of the item may consist of
the presence of the mark or its absence.
3. Algorithmic Immutability. The digital item is the output of an
algorithm whose operation has followed a clear and verifiable
path, and there’s no way to change the output given the history
of the algorithm’s behavior to that point.
To illustrate these three points, I’m going to review the sale of the
artist Beeple’s (aka M.J. Winkelmann’s) NFT titled Everydays: The
First 5,000 Days. This is the highest priced NFT ever sold, selling on
March 11, 2021 at Christie’s auction house for 42,329 Ether, which at
the time amounted to over $69 million.
Beeple, EVERYDAYS: THE FIRST 5,000 DAYS, low res jpeg,

1,600 x 1,600 pixels
The above representation of Everydays: The First 5,000 Days is a

1,600 x 1,600 pixel jpeg image. As such, it is a low-res partial image
of this digital work of art. The jpeg above is just a little over 1
megabyte. The full image that was on sale at Christie’s came to
21,069 x 21,069 pixels and weighed in at over 319 megabytes. This
full image was part of the Christie’s sale and went to the winning
bidder, namely, Vignesh Sundaresan (aka MetaKoven).
This disparity between a partial jpeg image of Everydays, which

was used by the auction house to represent the work of art to
potential bidders, and the full image that constitutes the actual
work of art, illustrates the partial availability form of digital scarcity.
The full image also raises some interesting questions of its own. It’s
certainly large as jpeg images go (over 319 megabytes). But as a
collage of 5,000 images (one created everyday by Beeple since
2007), it actually does little justice to the original images.
If you visit Beeple’s website, you will find individual jpeg images of
the sort that Beeple used to populate the Everydays collage—the
types of images that he produced one a day over 5,000 days.
These images are on average about 3 megabytes. So if Everydays
fully represented each of the images in the collage, the file size
should have come to 3 megabytes x 5,000, or about 15 gigabytes,
or about 50 times the size of the image that was put up for sale. As
it is, each image making up the collage can have only about 319
megabytes ÷ 5,000 on average, or just under 64 kilobytes. The
purchaser of this collage might therefore have insisted on
including in the sale all the individual images making up the
collage.
If the winning bidder Vignesh Sundaresan was only interested in

acquiring the 21,069 x 21,069 pixels jpeg image of Everydays, and if
that’s what he paid $69 million for, he would be playing a
dangerous game. Individual self-contained files are easily hacked
and copied. For his purchase to be safe and make any sort of
sense, there had to be more to it than simply this large jpeg file,
and there was.
This takes us to the second form of digital scarcity listed above:

digital marking. The purchaser of Everydays, in addition to receiving
the full high-res jpeg of this digital work of art, had it signed over
to his Ethereum address by Christies once he paid for the work in
Ether. It’s that cryptographic signature consistent with Ethereum
protocols that’s the value-add here and what Sundaresan
ultimately paid for.
Because the actual work of digital art was too storage-intensive to

put on the Ethereum block chain, storage of the work had to be
put in one place and its signature on the Ethereum blockchain in
another place, with a pointer connecting the two. But conceptually,
what the Sundaresan purchased was a signed version of Beeple’s
Everydays, signed by Christie’s and assigned to Sundaresan. This
signed assignment of the work constituted a digital marking. Only
Christies could impose that digital marking with itself as the
assignator and Sundaresan as the assignee.
Note that digital marking is not confined to cryptographic digital

signatures. The field of digital data embedding technologies
(everything from watermarking to steganography, which
introduces hidden messages into digital files having a clear
surface meaning) also answers to this form of digital scarcity. Thus
via steganography one might adjust pixels in a jpeg image so that
they spell out some message (e.g., “this is not the original file”) or
one might watermark it as a sign of authenticity or inauthenticity.
This is well trodden territory and it predates blockchain.
The final form of digital scarcity to be considered is algorithmic

immutability. It obviously calls to mind blockchain, where a well-
defined peer-to-peer software implementation of a blockchain
protocol (which constitutes the algorithm) can only produce
outputs consistent with prior blocks. Cryptocurrencies clearly need

algorithmic immutability because you can’t just have new coins
emerging from nowhere.
At the same time, it’s hardly the case that blockchain is the only
way to achieve algorithmic immutability. The current state of a
system may be reliably determined without blockchain technology
(perhaps by such low-tech means as attestation by human
witnesses), whereupon the algorithm operates as it must. Our
present banking system, without the aid of blockchain, operates by
algorithmic immutability.
Beeple and Christie’s together ensured that Everydays would

reside on the Ethereum blockchain, thus also conferring
algorithmic immutability as a form of digital scarcity onto this work
of art. But as with partial availability, this form of digital scarcity
seems less essential to what makes Everydays valuable. If the full
319 megabyte jpeg of Everydays suddenly appeared online,
Sundaresan would still own the image in the sense that he would
be the winning bidder in the auction for it and Christie’s would be
signing it over to him and no one else.
That it was signed over to him on the Ethereium blockchain, or any

blockchain for that matter, seems unessential. Christie’s and
Sundaresan, for instance, could each have set up a private/public
cryptographic key for themselves, and Christie’s could then have
signed over Everydays from its key to Sundaresan’s. The public
keys and the signing over of the artwork using private keys would
have been noted far and wide given all the public attention to this
sale, and Sundaresan could have paid for it in any currency
mutually agreed upon by the buyer and auction house. Blockchain

could thus have been sidelined.
This last point may seem counterintuitive and even absurd given
the current hype over blockchain in cryptocurrencies and NFTs,
but I’ll justify it more fully in the next two sections. For now,
however, it remains the case that all three forms of digital scarcity
outlined in this section appeared in the sale of Beeple’s Everydays.
6 Value and Ownership of NFTs

In this section, I want to answer two key questions that have been
touched on throughout this article: What makes NFTs valuable?
And what does it mean to own them? Let’s start with the question
of value. Leaving aside partial availability as a form of scarcity to
confer value on NFTs (this omission seems advised because
anything digital that’s partially available can be made fully
available with a single upload or download, and thus constitutes
an open temptation to hackers), the question then becomes this:
What turns a publicly available digital file, one that is complete,
into something of value?
I’ve said before that the crucial element in this alchemy that turns a
digital file with no clear value into an NFT that can be monetized
and transacted is a signature. To understand how digital signing
produces value in NFTs, it helps to consider what physical signing
does to produce value in physical things. In practice, physical
signatures create value for physical things in two ways (these need
not be mutually exclusive):
1. AUTOGRAPH VALUE-ADD. The signature is an autograph by a
notable person whose notability is captured by the signature
and thereby adds value to the thing. (Think of sports

memorabilia signed by hall-of-fame athletes.)
2. AUTHORIZATION VALUE-ADD. The signature is an
authorization by a person of standing that confers rights and
privileges over the thing. (Think of documents signed to buy or
sell physical property.)
Digital signatures can perform the same function. We’ve seen

digital signatures operate as an autograph for Jack Dorsey’s
genesis tweet and Beeple’s Everydays. Even if for Dorsey’s tweet
the signature was technically by the Valuables platform and for
Beeple’s Everydays by Christie’s auction house, because these
services were acting as official representatives for Dorsey and
Beeple respectively, the autograph value-add of the signatures on
these digital items nonetheless took effect.
With autographs, it’s the notability of the person that adds the
value, and the signature need have no intrinsic connection to the
thing that’s signed. Anything that’s signed by the notable person
becomes more valuable simply in virtue of the signature, and this
applies as much to physical as digital signatures. Of course, if the
notable person signs too many things ( with digital signatures it’s
possible to go crazy with signing by automating the signing
process), the value of the autographs will go down.
The other task of signatures is to authorize rights and privileges

over the thing signed. The ultimate right and privilege to authorize
with a signature is ownership, thereby ceding all one’s rights and
privileges over it and giving them to another. Unlike the autograph
value-add, which requires only a signer, the authorization value-
add requires both a signer and an assignee. The signer signs the
item over to the assignee. The authorization value-add therefore
implies a transfer that takes place on account of the signature. The

autograph value-add, by contrast, requires no transfer. Of course,
these two value-adds can be combined, so that the autograph and
authorization value-adds operate in concert.
Unfortunately, when it comes to the authorization value-add for

digital files, confusion is widespread over what is actually being
authorized by a digital signature. It’s widely reported that what is
being authorized is a transfer of ownership. But as we’ve seen, in
the case of NFTs on the Ethereum blockchain, actual ownership
with legal standing is never in fact transferred for the underlying
digital file. The NFT literature is filled with equivocations about the
meaning of the word “own” as it relates to NFTs. Consider the
following highlights from a brief article at SuperRare titled “If
Anyone Can Download the Art File, Why Would I Buy the NFT?”
The creation of the internet made it nearly impossible for

digital artists and creators to 1) prove they created a digital
work and 2) monetize these digital creations because
everything could be freely downloaded. Ethereum, and the
non-fungible token standard (ERC-721) has made huge
strides towards solving this problem. For the first time ever,
digital creators now have the ability to tokenize their digital
artworks as 1 of a kind assets that can be bought, sold and
traded, with the provenance of ownership and previous
sales/bids being forever recorded on the blockchain…
Yes, anyone can download and view the image for free, but
they don’t own it and they can’t gain any value from it
without owning the NFT as well. As a collector you want as
many people as possible to be downloading and enjoying

the artworks that only you provably own because this is
how the artwork gains value. Imagine if one million people
around the world were featuring an artwork that only you
owned on digital frames in their houses. THAT is a piece of
art that has real value.
Hackatao, one of SuperRare’s most successful artist duos

said it best — “ Everybody sees it, only one owns it” .
This is the state-of-the-art argument for legitimating NFTs, and it is

deeply flawed. First off, proving that one is the creator of work that
exists only digitally is straightforward. Photographers do this all the
time, and photo banks such as Getty Images would be out of
business except for this fact. Usually, Getty Images applies
watermarks to images, which get removed when people
download the images for use (the watermarks providing a form of
digital scarcity). It’s possible to track unauthorized uses of these
images on the web, and some disreputable characters even make
a business of putting images out there and then suing people who
use them online, often inadvertently, without permission (it’s
actually quite a racket).
Proving creation of digital work these days usually requires having

a clear web identity, such as with a blog, and then posting the
digital work on it. This is what Beeple did for years, and no one
questioned that he was the creator of the digital art that appeared
on his website (see Beeple-Collect.com). Provenance is also
straightforward and simply amounts to identifying a point of origin
(usually the first place that a digital work appeared) and then
tracking its history across the web.
But perhaps the point of the previous quote is not that digital
artists cannot prove that they created a digital work but that they
cannot simultaneously prove that they created it and also monetize
it. But again, watermarking and digital data embedding
technologies, to say nothing of copyright laws and a digital artist’s
willingness to enforce them to protect one’s own work, make it
possible to prove that one is the creator and to monetize one’s
creation. It’s done all the time. Photo banks such as Getty Images
are money-making enterprises.
If there is a valid point in the previous quote, it is that NFTs promise

to take digital art and allow its creators to turn it into a negotiable
instrument, which is to say that the NFT becomes something like
an IOU that can be serially signed over to other people as a thing
of value and paid for in currency. The Ethereum blockchain is
supposed to provide a vehicle for turning NFTs into negotiable
instruments, at once recording the digital art and, through the
underlying Ether cryptocurrency, allowing NFTs to be paid for as
they are traded.
But there are two big problems here. The first is one I’ve noted
repeatedly: ownership on the Ethereum blockchain is not
ownership in the real world. Real world ownership is ownership
with the force of law behind it. Ethereum blockchain-based
ownership is purely conventional ownership. It applies only within
the Ethereum ecosystem, and nowhere outside. Intellectual
property law, for instance, remains in full force and will hold
irrespective of NFT ownership. Hence, if you want to use or post

the digital art that is the basis for your NFT, you’ll need to get
separate authorizations for it (perhaps with the help of an
intellectual property attorney).
The other problem is that NFTs shouldn’t even be on a blockchain.

Blockchain makes sense for cryptocurrencies. But
cryptocurrencies are fungible tokens. The most important reason
for blockchain in cryptocurrencies is to avoid the double-spend
problem, which is spending the same item of digital currency
twice. This is a problem with fungible tokens because they are all
interchangeable. But non-fungible tokens, precisely because they
are non-fungible, cannot be controlled in the way that fungible
cryptocurrency can.
If I have 10 Ether in my cryptowallet, I can try to send 10 Ether to

one address and simultaneously 10 Ether to another address
(ignore gas fees), but the Ethereum protocol will catch my attempt
to double spend and invalidate one or both payments. Moreover,
to get new Ether I will either have to mine them or buy them on an
exchange. But if a piece of digital art that I created is the basis of
an NFT I own, I can sign it over to other parties as often as I please.
True, blockchain can prevent me from signing over the same
instance of the NFT to two parties, but I can retokenize the same
piece of digital art over and over and then sign different copies
over to different parties.
But what about payment for NFTs? Don’t such payments need to
be made with cryptocurrency? Absolutely not. In fact, NFTs can be
created without the need of blockchains and paid for with ordinary
fiat currencies. With one slight adjustments, NFTs could be

handled at eBay, the adjustment being that eBay make its archive
of past auctions available permanently rather than just for the past
90 days, as it does now. Moreover, it’s possible to roll into NFTs full
authorization for real legal ownership of the underlying digital
asset. We turn next to this revamped conception of NFTs.
7 A Protocol for Handling NFTs on eBay

The best way to challenge an existing idea is to replace it with a
better one. In this last section, I’m going to lay out a protocol for
handling NFTs that dispenses with cryptocurrency-based
blockchains and works in ordinary online marketplaces like eBay.
As an added benefit, transfers of ownership of the underlying
digital asset will have full legal force (none of this phony baloney
“ownership” of the digital asset solely from the standpoint of the
Ethereum blockchain but nowhere else).
STEP 1: Establish clear and true online identity.

In line with SuperRare’s guide to prospective digital artists, you
need to have a clear and true identity that people can associate
with the digital assets you create. Unlike cryptocurrencies and
fungible tokens, where anonymity is a virtue, anonymity is a vice
for creators of non-fungible tokens. For simplicity, let’s assume
therefore that you have a blog where your identity is made
manifest.
STEP 2: Create digital asset.

Next, create a digital asset. As a matter of intellectual property law,
as its creator, you own it, and you can transfer ownership or license
to it under whatever conditions you wish.
STEP 3: Assert ownership of digital asset.

Make clear that his is your digital asset. This can be done by
posting it on a blog, and perhaps only by making it partially
available (recall the first of the three approaches to digital scarcity
in section 5). One powerful approach to partial availability is to post
an “anticipatory hash,” i.e., use a cryptographic hash function such
as SHA-256 and apply it to your digital asset (which is just a digital
file). Post the hash. Because hash functions are one-way functions,
no one is going to be able to figure out from the hash what the
digital asset is. The moment the hash appears on your blog (or at
whatever space on the web that you control) and is marked with a
clear time and date stamp, your claim to the digital asset is in force
because at whatever later date the digital asset is revealed, it will
be clear that it was fully known to you at the point where the
anticipatory hash was made public.
STEP 4: Get yourself a public/private cryptographic

key.
Go with a public-key cryptosystem that you like (e.g., RSA) and get
yourself a public and private key that are secure along with a
convenient way to implement these to encrypt and decrypt
messages. The necessary cryptographic tools are readily available
online, such as here.
STEP 5: Publicize the public key and tie it clearly to

your identity.
The public key will serve as your address to which people can
send NFTs and from which you can send NFTs. Post the public
clearly on your blog. And, as always, keep your private key private.
STEP 6: Offer your digital asset for sale on eBay.

Provide a description of the asset on eBay along with the terms of
payment (fixed price, auction, best offer, etc.). Indicate that the
buyer will need to provide a public cryptographic key as an
address to which the digital asset will be made out (i.e., digitally
signed using your private key) once payment is made.
STEP 7: Receive payment in dollars via eBay.

Clear.
STEP 8: Receive buyer’s public cryptographic key as

address.
Clear.
STEP 9: Form an NFT consisting of the digital asset, a

transfer of ownership document, and an assignment
letter.
The digital asset is yours so you can do what you like with it. Write
up a transfer of ownership document that agrees to transfer
ownership of the digital asset to any current or future assignee of
any NFT in which the asset is embedded and which originally was
signed by the creator of the digital asset. The transfer of ownership
document can be a pdf scan of an actual document with your
actual (not digital) signature. Also, write an assignment letter that
identifies the eBay buyer, through the buyer’s public cryptographic

key, as the recipient of the digital asset. Collect together the digital
asset, the transfer of ownership document, and the assignment
letter into a zip file (or other single file) and sign the zip file using
your private cryptographic key. That’s your NFT.
STEP 10: Buyer downloads NFT and assumes

ownership of underlying digital asset.
This can be done from your blog or preferably from a link at eBay,
which can then maintain a time-stamped record of such NFT
transactions
STEP 11: Record sale of digital asset via this NFT at

eBay.
The crucial thing here is simply to keep track of the seller’s public
address and the buyer’s public address and that the NFT
transferred the digital asset, with full real-world ownership rights
from the one to the other.
STEP 12: Buyer becomes seller and in turn sells NFT.

This is straightforward, simply requiring that the former buyer now
add an assignment letter to the previous NFT, digitally sign this
augmented NFT, and thereby transfer ownership to a new buyer.
All this can be done on eBay in a repetition of the previous steps.
The NFT is now a negotiable instrument free of any cryptocurrency
blockchain. Of course, eBay, if it implemented this protocol, might
want to use a blockchain to ensure that time and date stamps on
digital-asset transactions were accurate and free of fraud. But that
would be a minimal use of blockchain. Moreover, payment would
be at the discretion of buyer and seller, as it always should be,

rather than being tied to a particular currency, crypto or otherwise.
Bottom line: NFTs are legitimate to the extent that they can be
made to reside off self-serving cryptocurrency blockchains like
Ethereum and can allow for real-world legal transfers of ownership
of the underlying digital asset. The protocol above shows how this
can be done.
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4/9/2021 How Non-Fungible Tokens Work: NFTs Explained, Debunked, and Legitimized – Expensivity

How Non-Fungible Tokens

1 Rat Poison to an Infinite Power?

Just kidding. The previous paragraph is a parody (if such is

surround non-fungible tokens. Indeed, the hype has become so

Warren Buffett famously remarked in 2018 that Bitcoin (and by

But non-fungible tokens are very different from currency. Fungible

But non-fungible tokens are not interchangeable in this way.

This is important. Setting aside science fiction counterexamples

Nonetheless, physical collectibles have built-in safeguards against

But digital collectibles, whatever else they may be, are—without

Compare this to owning an oil painting. If I own a copy of the Mona

But with a digital collectible, the file anyone owns is

But which blockchain? There are many blockchains. What is to

For comparison with real physical objects, consider the woodcuts

Dürer’s Four Horsemen of the Apocalypse woodcut.

Digital collectibles, by contrast, can be copied with complete

a digital file, that’s so important in gauging its value as his standing

In this introduction, I’ve been unduly negative about non-fungible

If NFTs are going to have a future, they need to do better.

2 Digital Signatures in Digital

digital file of some collectible that can be readily copied. So what

Now granted, Dorsey’s genesis tweet was not, at its inception, a

representations might do. They’re all equivalent for the purposes of

We now confront the obvious question: what is the magic alchemy

checks have a horizontal line on the back and an explicit statement

Digital signatures on a blockchain work in the same way. The

In this account of digital signatures within a digital marketplace,

In this account of digital signatures within a digital marketplace,

In a real marketplace, even if the property is intellectual property

By contrast, the concept of owning an NFT on a blockchain is

Unless my signing over of the digital photo on the Ethereum

copyright in the real marketplace of our society at large, all you

Perhaps laws will at some point be changed so that points of sale

Specifically, then, here’s what actually happened: Dorsey uploaded

3 The Do-It-Yourself Minting of NFTs

3.1 Two How-To Videos on NFTs

How to Make and Sell an NFT (Crypto Art Tutorial)

How to turn your art into an NFT – Step by Step Tutorial

3.2 A Selective Montage of the 2007 Iowa Democratic

3.3 Turning This Montage into an NFT

3.3.1 GET CRYPTOWALLET

Get yourself a cryptowallet that can handle Ether (ETH). I already

Using the MetaMask wallet is reasonably straightforward, but do a

Two caveats regarding the MetaMask wallet, and crypto wallets in

perhaps only to the National Security Agency). I’m therefore

3.3.2 BUY ETH/ ETHER

The next thing to do is buy some ETH/Ether. The MetaMask wallet

Coinbase.com is the most popular exchange, and I’ve got an

2016 when the cost of both was ridiculously low compared to

Gemini.com (run by the Winklevoss twins) has higher transaction

3.3.3 VISIT NFT MARKETPLACE

In connecting to an NFT marketplace, you have a range of choices.

Some of these marketplaces cover the full range of NFTs, such as

In any case, to create my NFT from the montage of photos taken in

3.3.4 CONNECT CRYPTO WALLET

Once at Rarible.com, connect to your crypto wallet by clicking on

First time around, you’ll be asked for a MetaMask password or you

3.3.5 CREATE OR BUY NFT

With your wallet connected and some Ether in it to cover costs,

Next, upload your image or other digital file. I uploaded my png,

Title and description of my NFT were at my discretion. I titled it

Finally, there’s the issue of lockable content. For simplicity, I went