Thread by @smdiehl

Lets finally talk about how NFTs are a giant scam. (1/) 🧵

First let's talk about what the NFT market actually is. Unlike buying bonds, equities, real estate, or actual art you're not buying something with any tangible existence, rights or utility. You're buying an expensive entry in someone else's database. (2/)

There is one comparable market to NFTs: The Star Naming Market.

Back in the 90s some entrepreneurs found you could convince the public to buy "rights" to name yet-unnamed stars after their loved ones by selling entries in an unofficial register.

en.wikipedia.org/wiki/Internati…
(3/)

You'd buy the "rights" to a name the star and they'd send you a piece of paper claiming that you were now the owner of said star. Nothing was actually done in this transaction, you simply paid someone to update a register about a ball of plasma millions of light years away. (4/)

Thing with star registries is they're not unique and don't actually convey ownership. The entire grift is in convincing other people that it has meaning. The value of naming is a star is precisely how much bullshit your loved one is willing to buy in this enterprise (5/)

In addition to the 'International Star Registry' several other 'registrar chains' popped up claiming to offer the same service. NameAStar, StarNamingGifts, Star Name Registry etc. All claiming to offer the same service with an equally alleged authoritative registrar. (6/)

NFTs are the evolution of this grift in a more convoluted form. Instead of allegedly buying a star, you're allegedly buying a JPEG from an artist. Except you're not buying the image, you're buying a digitally signed URL to the image. (7/)

Except now instead of buying your digital star with dollars there's a second leg to the scam. You have to purchase the star by exchanging your dollars for some weird token whose value fluctuates on some secondary market. (8/)

And listing digital stars on the register is a pay-to-play game that requires you to purchase these weird tokens at whatever the available exchange price is, thus creating synthetic demand for the token and driving the price up. Which is convenient for those who own token. (9/)

The core of the NFT grift is outsourcing the marketing for this artificially scare registrar to artists who are forced to pay large sums of money upfront to list URLs to their artwork in the hopes of recovering their lost costs. (10/)

Artists are like hamsters in a wheel that powers a giant casino for crypto bros to gamble on these signed URLs in the hopes that they can flip their purchase around to greater and greater fools for a profit. (11/)

every.to/napkin-math/nf…

NFTs impart no legal ownership, give no rights to the artwork, are non-unique, and provide nothing of intrinsic value except the sign value of owning bragging rights to announce to other crypto bros about a shared collective delusion about database entries. (12/)

And the market for these exhibits some strange behavior. We see a lot of cases where:

Person A buys an NFT for $10.
Person A sells it to Person B for $10,000.
Person B sells it to Person C for $100,000.
Person C sells it to Person D it for $10,000.
(13/)

In the above scenario Person A, B, C are the same person shuffling money between anonymous accounts. And Person D is a sucker tricked by artificially fake demand.

This is known as wash trading and it's illegal in most other markets. (14/)

en.wikipedia.org/wiki/Wash_trade

NFTs are also a nearly perfect vehicle for money laundering. Say you're sitting on several million in tokens that are traceable back to a ransomware attack and want to cash out for won at a South Korean crypto exchange. The exchange won't let you because of AML laws. (15/)

So you create an NFT of rock or something, sell that to yourself on one of the NFT platforms and presto, you've used the NFT platform to turn dirty tokens into clean tokens that the exchange will let you cash out into real money to hide the crime. (16/)

You can repeat this process launder basically unlimited amounts of funds through an entirely synthetic markets for JPEGs that could mask arms sales, cartel deals, human trafficking, terrorism financing or whatever illegal activity you want to layer funds to get away with. (17/)

Like every market madness since the South Sea Bubble or Tulip Mania, everyone knows that selling million dollars JPEGs is an irrational exercise in greed. Yet people suspend their sense of reason and believe in popular delusions when in fact there is no there there. (18/)

"Whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”
-Charles Mackay

Like all crypto scams, the essence of the NFT grift is in recruiting new believers by convincing them a blessed database is an authoritative registrar of value. Just like star naming the grift isn't about utility it's simply a shared delusion in a get rich quick scheme.

/fin