NFTs: Medicine or Poison?

An Editorial by Dawoud Kringle

Let’s wind the clocks back to the early 1630s, in Holland. Tulips were considered a status symbol for the elite. By 1634, tulipmania swept through Holland. Rich people held onto them as investments, and rare and unusually-colored tulips became highly prized. According to The Library of Economics and Liberty, “it was deemed a proof of bad taste in any man of fortune to be without a collection of tulips.” The Dutch stock markets even traded the bulbs as a commodity. The value of tulip bulbs became so inflated that a single Semper Augustus tulip bulb was valued at 3,000 florins (adjusted to modern currency exchanges, the equivalent of over $1,100,000).

By the end of 1637, however, Dutch tulip wholesalers found almost no buyers for them and the tulip bubble burst. Within days, the price of tulips plummeted, resulting in a devastating crash of the entire tulip market. The collapse of the tulip trade caused a widespread economic disaster throughout the Dutch economy. Many people lost massive amounts of money by betting on an investment that was doomed to fail from the start.

Status symbols and vanity aside, these 17th Century people invested heavily in tulips for no reason other than that they believed there would always be someone willing to purchase the bulbs from them at a higher price. This practice is built on the gamble that one would not be the last person holding on to the asset when its value collapses.

It was greed and not caring if one makes one’s fortune by filling the world with worthless shit, pure and simple

NFTs are the modern Tulip Mania – or they are being treated as such.

NFT stands for Non-Fungible Token. It uses blockchain technology: a digital ledger based on a distributed network, a network of computers that run a program. The name blockchain comes from “blocks” that represent the blocks those transactions are processed on and “chain” because they are bound like a chain. The computers are connected, but no one controls the network. The main uses of this computing power are processing transactions or keeping the database that writes and stores those transactions. Anybody can run the open-source program (also called mining programs) and be a part of the computer network. The reward is part of the coin for connecting a block of transactions.

In short, it is nothing more than a means of using blockchain technology to verify the ownership of something. That something could be literally anything.

Celebrities, video game developers, influencers, and everyone in between have jumped onto the NFT bandwagon in order to take advantage of this new electronic gold rush. There are many stories of successful traders making hundreds of thousands a month flipping NFTs. On March 12th, 2021, digital artists Beeple sold Everydays: the First 5000 Days, a collage of images from his Everydays series for $69,400,000.

$69.4 million for a piece of digital art! No wonder it made front page news. But for every story of NFT success, there are dozens, maybe hundreds, whose losses are not mentioned. And unlike the creators of NFT art, it’s the buyers who end up as the biggest losers.

Let’s look at a few examples.

YouTuber and social media personality Logan Paul launched his own cryptocurrency, as well as an NFT; both of which lost up to 97.6% of their value since they debuted. His brother Jake has done the same; which after hitting a trading high, lost 98% of its value.

Elon Musk’s ex-girlfriend Grimes started selling NFTs in early 2020, for around $7,500 apiece. Less than two years later, they are selling at up to an 84% loss over the original sale price.

The rapper Tekashi 6ix9ine made millions of dollars in NFT sales. However, after he failed (or refused to) deliver on the promises he made to his audience, he deleted all online mentions of his NFT collection. His fans, who’d invested in his NFTs, were kicked to the curb.

These, and others like them, are examples of NFTs bringing profit only to those who create them.

The above concerns – and my playing devil’s advocate – aside, being dismissive of NFTs as a whole is not a good idea. It’s possible for NFT technology to be applied to ownership of art and music beyond the worthless fads we see and hear about.

Examined objectively, faddish digital art sales is not the end of what this technology is capable of. The technology behind NFTs has advantageous potential. A few examples of this are simplifying legal paperwork, more easily passing on inheritances, revolutionizing the way we express ownership, and potentially eliminating middlemen, entire government departments, and needlessly complicated bureaucracies.

NFTs have a unique digital identification code, which ensures true content ownership that remains with the creator, regardless of digital replication. This enables audiences to interact directly with the artists’ music, and give royalties directly to those producing the content each time the NFT collectible is resold. There are also royalties the creator can set, which means every time his work gets sold, he gets a percentage of the transaction.

Music NFTs give the artists a new distribution platform. Some artists have already made significant royalties compared to the traditional audio streaming and media services. This could be used as a means of circumventing the hegemony that streaming services like Spotify have over musicians. Currently, online music streaming services are the destination of choice for listeners, providing them with ever-increasing ease with which people can listen to music. But artists receive only 12% of the money made by the entire music industry. Furthermore, musicians have faced limitations on live performances and engagement with fans since the beginning of the pandemic, and before, when economic concerns and business practices as unworkable as they are unethical imposed obstacles upon musicians. NFTs can help change this.

Music NFTs can be used for creating unique and exclusive contact for audiences. The artists can use it to sell beats or stems, concert tickets, or even rights for a song or an album so that whoever holds the specific NFT gets a revenue cut. This can give musicians independence, and the power to negotiate with companies or record labels as an equal.

The Canadian rock band Our Lady Peace decided to release music directly to fans as an NFT. In January 2022, they announced they’d sold all 500 NFTs of their forthcoming album, Spiritual Machines 2. Each NFT sold for $39.99. This is evidence of the viability of NFTs as a legitimate means of exchange for art and music.

NFTs could bring more participation to the music industry with an opportunity for greater profit for musicians, and greater value for the audiences. As a higher percentage of income flows to content creators, they have an incentive to create higher-quality works. This will increase the overall quality of music and democratize the entire music industry.

Despite being a relatively new thing, music NFTs can be found in NFT marketplaces. OpenSea and NiftyGateway are the leading NFT marketplaces, although those sites mainly sell artwork. A new company called Opulous is offering decentralized financing to artists, and attempting to provide a launchpad for the first music copyright-backed NFTs.

Coachella is jumping on the NFT bandwagon by selling lifetime festival passes for the first time through the purchase of an NFT. They launched a marketplace built by FTX US, with three collections of NFTs going on sale on February 4th 2022. They are auctioning a group of 10 NFTs called The Coachella Keys Collection. This allows holders lifetime tickets to the festival. Owners of the token will get passes to Coachella every year, and perpetual access to Coachella-produced virtual experiences. NFT purchases also include special perks at the 2022 festival like front row access and a celebrity chef dinner.

Clearly, something has been set into motion that will determine how business will be done. Ultimately, no transaction is good unless both sides end up with something that is of value. Art or music based NFTs have to, first and foremost, possess utility and intrinsic value, and provide real service to the customer. This is the only way that NFTs can serve the music community without degenerating into the game of trading idiotic pictures of penguins and bored apes – or tulips, for that matter – for ridiculously high prices, and hoping you’re not the one holding it when its value collapses.