Outside Physical Currency
by Karina Le | published May. 6th, 2021
In 1965, Gordon E. Moore, co-founder of Intel, predicted that every two years, the number of transistors in a given space would double.
His statement rings true, as technology has been evolving much faster than the average person understands, nearly exponentially. From computers taking up entire rooms to having computers in our pockets, our way of living has become so much more than people in the ‘60s could ever have imagined.
Take, for instance, the rising popularity of cryptocurrency. Currently, the spotlight is on the non-fungible token (NFT). Despite not being a physical currency like American dollars, it’s got people jumping to claim one.
NFTs: A Summary
Before breaking down NFTs and how they operate, we need to break down the economic concept of fungibility.
Firstly, fungibility is a term in economics where an item can be exchanged for something of equivalent value. Even the American dollar, what many would consider the basic unit of economics, is a fungible item.
Say you lend your friend a dollar bill to buy a snack. Your friend pays you back a week later with another dollar bill. It is not the same dollar bill that you gave them, but it acts in the same way as your dollar bill did. That’s what makes it fungible. In the same way a five-dollar bill is basically the same value as five one-dollar bills, they’re mutually interchangeable.
Dan Gross, a digital content reporter for News8 and WROC, further explained fungibility through how we utilize money to also exchange goods and services of equal value.
“Say you pay five bucks for five bus tokens, which then can pay for five rides,” Gross said. “Though the token is non-monetary, it has value.”
“Say you pay five bucks for five bus tokens, which then can pay for five rides. Though the token is non-monetary, it has value.”
Other cryptocurrencies like Bitcoin are fungible, in that you can trade a Bitcoin for a Bitcoin. In contrast, what makes an item non-fungible, like NFTs, is that they are not interchangeable.
A house would be an example of a non-fungible item. Your childhood home isn't the same as the house you live in currently. Though they function the same — having bedrooms, kitchens and bathrooms — they are intrinsically different from each other in make and model. This difference is found in NFTs and how they're non-fungible.
To utilize NFTs, there are several steps. First, you have to make one. To do so, you would have to to use a software platform, such as Ethereum.
Ethereum is used to create the blockchain. To utilize a blockchain as a ledger for your NFT transactions, you need a ‘smart contract’ that the NFT 'lives' in. A smart contract is defined as a line of code that signifies the agreement between the person selling the token and the person buying the token.
Matt Costanza, an RIT alumni, offered a simple comparison.
“A better way to think about [NFTs] is an apartment complex,” Costanza explained. “The smart contract is the address, and the NFTs are the people living there.”
“A better way to think about [NFTs] is an apartment complex ... The smart contract is the address and the NFTs are the people living there.”
A problem arises socially, however, when someone utilizes an image for their NFT that they may not originally own.
Just selling a blank NFT won't bring in interested buyers. To make an NFT stand out, people use things such as images to promote them.
When NFTs entered the mainstream discourse, it was in reference to how individuals were attempting to use artists’ images as a means to sell their own NFTs, often without the artist's consent.
One artist who worked for AAA Games, Anna Poededworna, experienced this. However, the potential seller immediately took their NFTs down after she posted about it, presumably due to fear of legal action.
For many artists, they’re concerned that by having someone use their art without their permission, it may infringe on their copyright for that art. However, it’s not as clear cut as that.
Artists naturally have copyright control over the creation of their art. However, if someone were to buy a print the artist was selling, the consumer would own the specific physical copy. With NFTs, another layer is added as well.
“When we’re talking about selling art as an NFT, what you’re actually buying is not the art or even the copy of the art. You’re buying something that has commercial use,” Gross explained.
It’s like when you find someone’s art on a search engine, and copy and paste it to your social media. You don’t own the art, but you technically own the post that contains it. It doesn’t infringe on copyright law, but admittedly, it’s pretty rude to do it.
The big question for NFTs is if they can remain a sustainable part of our economy.
“My gut says that it’s too complicated and too hard for the everyday person to get involved with,” Gross said.
This complication and nuance makes it hard to weigh the pros and cons of NFTs. On one hand, it’s generally complicated to make an NFT through a contract, but NFT marketplaces like OpenSea cut out the middleman and make NFTs more accessible to a broader audience.
“Once cryptocurrencies become more widespread, it would be easy to replace non-fungible items ... with an NFT,” Costanza said.
However, there are more direct consequences to the creation of NFTs. To create an NFT, one has to 'mine' for it, which requires the solving of cryptographic equations through the use of computers, and that requires a significant amount of energy. The output for one NFT is reported to be equivalent to driving a car for 1000 kilometers.
“Mining takes a lot of energy. These things use a tremendous amount of power to render ... but because there’s relatively a small amount of people we don't know the [future] impact of it environmentally,” Gross said.
In the end, the future is unclear. The reason why cryptocurrency has value in the first place is because the people utilizing it has denoted it a value, and continued to do so. It’s hard to say whether they will be commonplace or otherwise.