NFTs Are a Scam / NFTs Are the Future: The Early Years: 2020-2023

PROLOGUE

Many people I know in Los Angeles believe that the Sixties ended abruptly on August 9, 1969, at the exact moment when word of the murders on Cielo Drive traveled like brushfire through the community, and in a sense this is true. The tension broke that day. The paranoia was fulfilled.

—JOAN DIDION, THE WHITE ALBUM

Just one week before Woodstock, the summer music festival that symbolized the sixties love and peace movement, the hippie cult leader Charles Manson directed four of his disciples to brutally murder the pregnant actress Sharon Tate and four other victims. The Manson family murders (along with the Altamont concert stabbing several months later) closed the chapter on an era defined by daisies, VWs, and long hair. The hippies had a good thing going, resisting the constraints of American social mores, dropping out of conventional careers, and practicing free love and liberal drug experimentation. Critics, however, deemed their antiestablishment attitudes as solicitation of social decay and immorality. In her essay Slouching Towards Bethlehem, the writer Joan Didion zeroes in on the dark side of the culture fomenting around Haight and Ashbury in that decade. From her perspective, hippies were less about revolution and more about aimless runaways, rampant LSD abuse, and societal atomization. Manson and his devotees were the worst possible outcome of the socially disjointed, shapeless hippie way of life.

To be fair, Charles Manson wasn’t a hippie at all. He was a criminal that had spent more than half of his life in prison before his release in 1967, whereupon he preyed on and manipulated young women to join his clan through drugs and orgies. Although the hippie movement professed positive and progressive ideals, it also exposed the naive and overly trusting to dark predators. In a Vice interview, the Columbia professor Joshua Furst says, From 1966 to 1969, there was a conscious attempt by counterculture leaders to attempt to break down the existing social structures and find some better contract between human beings … Peace and love was the obvious thing, but peace and love is vague and abstract—and that’s the issue. The late-sixties counterculture stripped away old systems of control and opened up a blank space in society, but they weren’t sure what would fill that space. And Manson preyed on that ambiguity.

For the last few years, I’ve been immersed in Web3, an umbrella term for the next internet that is based on NFTs, the Metaverse, and blockchain ownership. When I entered in 2020, Web3 was a hopeful and idealistic space for crypto bros, artists, and futurists who pictured a better world for all. NFTs could help struggling artists bypass the gatekeepers, the Metaverse might give people the opportunity to be their most honest selves, and smart contracts should make for more efficient exchanges. Soon, much of mainstream culture also shared a curiosity, if not enthusiasm, for what Web3 could bring.

At the close of 2021, the Collins English Dictionary selected NFT as Word of the Year. This was the exclamation mark on a sensational twelve months that witnessed over $40 billion in cryptocurrency transactions (surpassing traditional art sales), the artist Beeple’s $69 million Christie’s auction, JPEG Summer led by Bored Ape Yacht Club (BAYC), and Nike’s acquisition of metaverse fashion brand RTFKT. Just between Q2 and Q3 of 2021, NFT trading increased by 700 percent.

By the end of 2022, however, a downward economy and crypto slump took the wind out of the NFT market. In late spring, the Terra Luna crash vaporized $45 billion worth of crypto in a couple days, destabilizing the entire industry. The final blow was the collapse of FTX, a cryptocurrency exchange that, once valued at $32 billion, filed for bankruptcy in November. FTX’s thirty-year-old founder, Sam Bankman-Fried, was arrested in the Bahamas and extradited to the U.S. on fraud and money laundering charges. He was accused of stealing billions of dollars of his clients’ money (and losing it), and U.S. Attorney for the Southern District of New York Damian Williams called SBF’s offense one of the largest financial frauds in American history. In fact, we’ve yet to grasp the enormity of the devastation as the investigation continues and the trial has yet to begin. Everyday investors have had their lives upturned, but it’s theorized that the ramifications will tear not just across crypto but the global economy. At the least, mainstream sentiment toward crypto has been muted if not obliterated since the scandal. It seems likely that Bankman-Fried’s swindle will continue to leave a bitter aftertaste around the crypto conversation for years to come.

And yet Web3 continues to thrive in the shadows beyond the bright circle of the spotlight. Not only does money continue to pour into the ecosystem, but artists, entrepreneurs, and brands haven’t stopped innovating in the space. In 2023, corporations like Starbucks, Nike, and Amazon are set to plant deeper flags in digital collectibles and blockchain-backed rewards programs. And although traditional NFT brands like Bored Ape Yacht Club continue to sell out (in January 2023, BAYC yielded over 4,000 ETH [over $6 million] in total sales volume within hours of releasing their Sewer Pass collection), NFTs are expanding beyond speculative digital assets and being more thoughtfully utilized as membership cards, fandom badges, and tickets. The current trend is to jettison the word altogether and rebrand NFTs as digital collectibles. The reality is that visionaries, artists, and cash-grabbing opportunists never stopped throwing their entire weight behind Web3, and the ones that remain are doubling down. NFTs and the Metaverse are still early in the process of being defined, legitimized, and proven. The core creators and collectors believe that the journey has only just begun.

That’s because NFTs embody more than the million-dollar cartoons that the media depicts them to be. There are tremors of a cultural revolution rattling. Artists are circumventing the traditional gatekeepers and partaking in royalties for their work. Corporations are being decentralized, the brands being governed by their communities. And society is assigning financial value and ownership to digital property in a way that is transactable and records provenance. We’ve never seen anything like it before.

NFTs Are a Scam / NFTs Are the Future is a time capsule, a snapshot of us as we sit between worlds: Web2 versus Web3. Prepandemic versus postpandemic. Doubt versus belief. (I’m as much a skeptic as an early adopter and so I’ll be reporting from both sides.) NFTs Are a Scam / NFTs Are the Future is based on a series of essays that I wrote on the subject from 2021 to 2022. Disclaimer: Yesterday’s facts are today’s fables. I’m cognizant that there are ideas that haven’t aged well. The space and innovation are moving faster than any technology paradigm shift in history, so there are plenty of thoughts I got wrong or that died on the vine. Having said that, look beyond the text. In these essays, I’m not just explaining the technology, but documenting attitudes, culture, and the truth behind who we are at this juncture in time. Somewhere between the lines, I believe there’s a reason this is all happening.

Joan Didion was wrong.¹ She missed the forest for the trees and was likely influenced by the media’s negative depiction of the sixties counterculture. The hippie movement wasn’t inherently evil or bankrupt, although bad actors did exploit its fissures. Furthermore, Charles Manson and his followers went on a murderous spree, but the hippie movement never died. The term dissipated in a puff of smoke, but hippie ideals planted deep roots for environmentalism, marijuana legalization, natural foods, and revised attitudes around sexuality. Just look at modern technology. Steve Jobs and Steve Wozniak were hippies whose personal computing machines channeled beliefs of antiauthoritarianism and nonconformity. Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes.

Half a century later, the hippies have won the culture wars, when you scan music, social justice, and even the psychedelics renaissance in treating mental health disorders. Another by-product of the hippie worldview? Web3. And like the hippies, Web3 participants will continue to exist, whether in mainstream culture or relegated to a subculture. You can lay NFTs to rest at SBF’s sentencing, but my bet is that Web3’s principles will inspire and affect culture for generations to come.

Much like the space in the span of these two years, I use the words crypto, NFTs, the Metaverse, and Web3 liberally and, at times, interchangeably. It’s important that you understand, however, that they are distinct concepts and, in many ways, exist on different planes.

Crypto is short for cryptocurrency, which is a relatively new form of digital, decentralized currency.² It’s not fiat money that is government-issued and backed by a commodity like gold (think the U.S. dollar or Japanese yen). With cryptocurrencies like Bitcoin, you can send and receive value with someone directly over the internet without having to go through a centralized corporation like a bank. There is no middleman. Crypto isn’t just about money, however. It’s a culture that houses NFTs and the Metaverse. It’s also a philosophy that challenges and subverts many of the systems we participate in today, like finance, government, and art.

NFTs stands for non-fungible tokens, which are essentially records of property and assets on the blockchain. Kind of like a house deed or an art certificate. This property can be digital art in the form of JPEGs, which is the most mainstream representation of NFTs today.³ When I talk about NFTs in this book, I will almost always be referring to the PFP variety, which is probably the same kind you’re thinking about (million-dollar cartoon animals). PFP stands for profile picture because collectors use them as their social media avatars to express identity and tribal associations.

It is important, however, to understand that NFTs can also refer to one-of-one art (think of precious paintings), music, digital fashion, and membership cards for subscription services.⁴ These are all wholly different things with their own values, expectations, and rules. Unfortunately, NFT is used as a blanket description across all these assets and services, and it’s caused massive confusion and frustration among its participants. You don’t think of a Picasso painting the same way you would a loyalty rewards card or a streetwear T-shirt. They are sold in different places, have different purposes, and carry different values. Today, in Web3, they’re are all rolled together as NFTs.

The Metaverse is essentially a repackaged offering of Second Life, video games, and virtual reality (VR), which has been pursued for decades. Many founders and companies are building metaverses, which collectively comprise the Metaverse with a capital M. The top examples of modern metaverses are Roblox, Fortnite, and Meta’s Horizon Worlds. The Metaverse is lumped into the crypto conversation because companies are working on making assets interoperable among devices and applications. An illustration of this would be if you could wear your NBA 2K Nike sneakers—that you own—as an Instagram filter. To achieve this, the sneakers would have to be NFTs that are registered to you on a universal blockchain.

Web3 is the umbrella term for this new iteration of the internet where users can have and track ownership of digital assets. Web2 loosely covered the social media era of Facebook and Instagram, whereby Big Tech accumulated disproportionate amounts of wealth off its users’ content. Web3 seeks to repair that exchange through decentralizing power and ownership.

Finally, breaking down the blockchain would take an entire book. Without getting into the granular details, imagine a network of computers around the world all having to come into agreement with one another (consensus) to determine fact. Once set in place, to disassemble that truth would be nearly impossible, requiring unraveling the record one computer at a time. It’s a rigid, foolproof system in an era where everything is liquid, Photoshoppable, and relative.

What brought me into this world of NFTs were their art, culture, and community components—all languages I love and speak daily. But there are many doors to enter this room. You can walk in as a trader or a flipper. You can be a patron of the arts, a venture capitalist, or a scammer. Among other things, my Web3 journey has been inspired by equitable systems for artists, potential for wealth parity, better means of community building, and a reformation of the brand-consumer relationship. My last book, This Is Not a T-Shirt, chronicled the story of our streetwear label, The Hundreds, and how we built a brand around community. NFTs Are a Scam / NFTs Are the Future is about what happens when the community builds the brand. However, this book shouldn’t be taken as infallible truth. It’s far from being perfect and permanent—like the blockchain! Instead, it should be used to provoke dialogue and new ideas. When it comes to NFTs, we’re all building the definition, in real time, together.

In the meantime, here’s what I think …

NFTS ARE A SCAM

After Trump left office, America found itself on two sides of a gorge. It wasn’t solely Donald’s fault that our nation became so split (we can also thank social media, wealth disparity, a global pandemic, etc.), but four years of his polarizing presidency exacerbated a deep divide between ideological tribes. So much so that once Biden took the wheel many Americans didn’t know where to direct their passions. Trumpers were lost without a leader, but his haters may have been even more disoriented. My neighbor Tim’s entire identity throughout the Trump administration was to grumble about the president’s tweets and mishaps, but after the election he was rocked off-center. It was like watching a boxer roam aimlessly around the ring alone, swinging at GameStop stonks and anti-vaxxers. Just days after Biden’s inauguration, Tim approached me as I was taking out the trash.

You know what I don’t get about NFTs? He had been reading my tweets.

What’s that? I asked.

Why would you buy something that you can’t hold? Look, I get art. If I want to buy a painting, I want it in my hands and on my wall. But I can just screen-grab an NFT. People are idiots for paying so much money for them.

I chuckled and shrugged. I thought Tim was just trying to make small talk, so I turned to walk back up my driveway.

No, really! he shouted after me. It’s such a gimmick. The new Pet Rock!

Tim wasn’t asking for clarification. He was demanding an answer. The NFT thing was bothering him, and as the months went by and I delved deeper into the space, his ire grew.

My PlayStation One had better graphics than the Metaverse!

Did you see Seth Green got his Bored Ape stolen? What’s he gonna do now?

I heard that NFTs can change. I thought the blockchain was forever!

NFTs were the new Trump and Tim wasn’t the only dissident. His jabs mirrored the comments and DMs in my Instagram feed. Whenever I’d publish anything related to NFTs, hecklers would swarm my account, ridiculing me for promoting crypto and threatening to unfollow me after all these years. I wasn’t even mad about it. I was intrigued. NFTs started getting so popular and so noisy so fast that it fanned the flames from critics and trolls. To take the piss out of the tension, we printed The Hundreds T-shirts that read NFTS ARE A SCAM and also posted the statement on a digital billboard in the center of Times Square. During NFT.NYC week, we staged a protest in front of our New York pop-up shop. We hired Craigslist actors to march with signs that read GOD HATES NFTS, MAKE FIAT GREAT AGAIN, and REPENT OR GET RUGGED. The video went viral across TikTok and other meme sites. Of course, most of the likes and comments were by people who didn’t get the joke and sympathized with the anti-NFT sentiments. In the spring of 2022, once the market turned bearish, we printed NFTS ARE DEAD hoodies and the reactions were priceless. Wearing that sweatshirt through the airport brought so much joy and schadenfreude to travelers.

Right on! Fuck NFTs!

I just wanted to say, man, I love your sweatshirt. They’re such a scam.

From an anthropological stance, the fact that the topic of NFTs was eliciting such a visceral response was almost more interesting than NFTs themselves. This went beyond tribalism and side-picking. NFTs were making people uncomfortable. Perhaps they made people feel stupid or irrelevant. Maybe cynics felt like they were being left behind while all their friends were making money. It’s also possible that they felt like the only noncrazy ones. Whenever the issue was broached at dinner parties, I could see the disgust wash over people’s faces like they’d eaten a bad oyster. Half the table was amused by the conversation. The other half would leave for the bar.

We’ve survived so much tumult and disorder over the last several years that many of us just want the ground to stop shaking. After all the mandates, the illnesses, the racial strife, and gender debates, the last thing some people want is to hear that we’re going full Ready Player One on their ass. The majority of people don’t understand how the art, stock, or vintage markets work as far as trading and secondhand sales go. Yet here we are trying to force digital versions of those assets down their throats. Of course they’re gonna barf.

Whether or not NFTs are a scam poses a philosophical question that wanders into moral judgments and cultural practices around free enterprise, mercantilism, and materialism. If NFTs are a scam, what about the blue-chip art galleries and auction houses that charge millions of dollars for oils on canvas? What about mass-produced Air Jordans that fetch thousands of dollars on reselling sites—and they’re not even used to play basketball? If crypto is corrupt, what about the U.S. financial system that continues to benefit the rich and disenfranchise the poor? What about the ruthless throes of capitalism itself?

In 1944’s The Great Transformation, the Hungarian American political economist Karl Polanyi contends that some commodities, like land and human labor, are entirely concocted to be bought and sold on the market. What’s worse, it’s morally wrong to put price tags on these things when they should remain public goods and necessities to live. If we leave it up to the market to determine their value, the ramifications for humankind can be devastating. Fred Block summarizes Polanyi’s thoughts: Polanyi insists that this sleight of hand has fatal consequences. It means that economic theorizing is based on a lie, and this lie places human society at risk. Money is the third of these lies that Polanyi zeroes in on. Money … is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance.

I don’t disagree with Polanyi. Many commodities begin as myths, fictions, and lies but then they become normalized and deeply embedded in our social experience. Nowadays, it’s customary to pay for land, hire labor, and exchange money without a second thought of these transactions being based on completely fabricated phenomena. So much changed over time in order for land to be considered ownable and labor to be more than the human beings themselves of which every society consists. Polanyi would’ve abhorred the idea of crypto and NFTs, but only time will tell how broadly they’ll be adopted and normalized in the years to come.

So, are NFTs a scam? Or are they just new?

There are two faces to radical technology, and the hopeful future promised by crypto and Web3 is undergirded by controversy. For one, there are dire environmental concerns around the methods by which cryptocurrency is mined. The United States mines over a third of the Bitcoin in the world, creating over forty billion pounds of carbon dioxide alone. Globally, Bitcoin’s CO2 emissions are the equivalent of energy used by 2.6 to 2.7 billion homes in one year. There are even studies that suggest Bitcoin could push global warming beyond 2°C.

Another cause for concern: Like any technological upheaval and nascent marketplace, Web3 is fertile ground for bad actors and scams. Crypto is assembling at light speed, so the opportunity for rapid wealth is bountiful. That also means there are ample ways to be drained, rugged, and scammed. Since the creative conversations and ideation are outpacing the infrastructure (facilitated by town squares like Twitter and Discord), the systems are being built hastily, resulting in flimsy and porous scaffolding, exposing security holes and vulnerabilities. Factor in the snake oil salespeople, the anonymity, the froth and hype, and the lack of education and regulation in the space, and it’s a perfect storm of