Thread by @punk6529

1/ On Why NFTs Are The Worst Way To Sell Digital Art*

*Except for all the others that have been tried

Winston Churchill famously said: “democracy is the worst form of government – except for all the others that have been tried.”

2/ I always read critiques of cryptocurrencies, blockchains and NFTs, well-meaning or otherwise, with interest.

Often, there is something you can learn, something can be improved, nothing is perfect, nobody is perfect.

I believe in human progress and that things can improve.

3/ After I finish the "what I have learned" part, I then invert the essay/thesis that I just read and ask myself:

"OK, what is the alternative, what is the other way that it can be done? If the author was in charge of the world, how would they do it?"

4/ Usually I find when I do this exercise that:

a) the alternatives are all worse
or
b) the author has not bothered to think about alternatives

5/ For me, critiques are worth X and proposals for how to do it better are worth 1,000X.

Saying "this is a problem" and generically handwaving that there should be a better system and someone should go invent it, but being unable to describe that system is not worth very much.

6/ Every day 8,000,000,000 people wake up and live, work, create, love, fight, get sick, get well and live their lives in the current system.

The real test for every change is not whether it is worse than some theoretical system that does not exist, but the current ones that do.

7/ With that as background, let's take a moment to assume the critics of NFTs could get their way and make NFTs (and, by extension, crypto) vanish.

In that world, what does the sale and collecting of digital art look like?

8/ Conceptually, humanity has, to date, only found two ways to record the ownership of a digital object:

a) someone writes it down on a ledger (physical or database) that they control (the "trusted third party")

or

b) a cryptocurrency/blockchain

There is no third way

9/ So when someone says "I do not like the fact that you are using NFTs to record ownership of digital art because [fill in the standard reasons]", what they mean is that they prefer that someone is in charge of managing the ownership records and marketplaces of digital art.

10/ I have found that an excellent question to ask these people is:

"Who do you propose keeps the records of:
a) who owns all the digital art in the world
b) under what terms of use
c) how can it be composed (used in different applications)
d) how is it bought and sold?"

11/ The wonderful thing about NFTs (and cryptocurrency in general) is that there is no "who" in that question.

You can own a token in a wallet you own yourself, you can buy/sell it wherever, you can display in virtual galleries/metaverses, anyone can participate globally

12/ In the alternative universe where this does not exist, there are only two options:

a) private companies run databases, marketplaces and APIs

b) National governments or semi-governmental orgs run databases, marketplaces and APIs

13/ In the private company scenario:
a) well, it won't be one company, there will be thousands, so digital art will be fragmented in thousands of sub-scale companies / accounts / market places

b) it is fully centralized and a CEO and Board of Director are in charge

14/ c) the legal (fiduciary duty) of the CEO and Board of Directors is to the shareholders, not to artists or collectors

d) If the company does not succeed in its line of business, it will shut it down and the ownership records and the art vanishes

15/ e) larger companies will emerge and then engage in competitive fights in terms of composability.

e.g. just like the fact that YouTube does not work on Alexa, GoogleVerse Digital Art will not work on AmazonVerse

16/ f) the platforms would have all the leverage versus the artists, and so things like 'secondary royalties' would never emerge

BUT, MOST IMPORTANT OF ALL, given all the above, nobody would buy high value digital art.

Why?

17/ Imagine me, collector, buying a Fidenza #313 in this world, where I had to buy it from Art Blocks Inc, and the only place it was recorded that I owned this Fidenza was on Art Blocks servers.

So I would have to believe that AB would be around for decades and centuries

18/ I like Art Blocks and I think the team is nice and capable, but the company is like 14 months old or something.

Of course I am not, at this point, comfortable that the company will be around for 50 years and therefore my large investment is safe.

19/ The great part is we have run this experiment:

✅Digital art is several decades old
✅Databases are several decades old

If "buying digital art recorded in a company's database" was an exciting opportunity for artists and collectors, where are the big successes?

20/ The reason it has not happened yet is the reasons described above.

People new to crypto/NFTs see the rapid rise in value, trading, volume and say, as with BTC 2013, "SCAM! BUBBLE!" and so on.

What we are instead seeing is product-market fit.

21/ NFTs have unlocked the mechanism for a collector to buy a piece of digital art and:
a) have perfect provenance
b) have sovereign ownership (as with physical art)
c) have no reliance on a third party

This makes digital art more valuable and so values and volumes go up

22/ For completeness, I will cover the case that "200 national governments" or the "international union of artists" will build a global, effective, interoperable technological platform and marketplace for digital objects in the metaverse.

My official statement is: 😂😂😂😂😂

23/ A government run version has most of the issues of the corporate approach (ex-longevity) plus new problems:

a) political interference & competition

b) the fact that governments appear to be wholly incapable of building modern performant internet based services at scale

24/ So this is my tip to you. When someone explains the problems with NFTs, with blockchains, with the OpenSea API and so on, take good notes on what can be improved.

And then ask them to describe their perfect system. Pay particular attention to "who is in charge".

25/ In these discussions, I tend to particularly enjoy arguments of the type:

"Your current NFT system has these imperfections from complete decentralization so I propose instead a perfectly centralized system" as if this is some type of "gotcha" and not, well, stupid.

26/ It is an argument of the type:

"Democracy is imperfect to due big money, media, [fill in your favorite complaint about democratic imperfections]"

and so instead

"I propose as a solution to this imperfect democracy that I am made Supreme Dictator"

27/ The analogy holds really well because the usual argument the centralized systems people make is "centralized systems are more efficient"

This is the same arguments dictators make.

Of course it is more efficient when someone is Supreme Ruler...

28/ Being more efficient in the short-run tends to have a cost in terms of long-run innovation.

Companies, and political leaders, that are efficient and successful, in later stages move to capture value for themselves not the ecosystem, killing off competition and innovation

29/ So I think this is a useful exercise in onboarding.

Have people work through an alternative idea/approach on how it could be done.

NFTs are not problem-free; they are simply much much better than the current alternative solutions to this topic.

30/ If you came here for the first time through this thread, the goal here is an open metaverse.

40 threads on this topic and 1 game plan are here

https://twitter.com/punk6529/status/1448399827054833668