NFTs explained: what they are, why rock stars are using them, and why they’re selling for millions of dollars
NFTs explained: what they are, why rock stars are using them, and why they're selling for millions of dollarsLuke Heemsbergen, Deakin University
A couple of days ago, the musician Grimes sold some animations she made with her brother Mac on a website called Nifty Gateway. Some were one-offs, while others were limited editions of a few hundred – and all were snapped up in about 20 minutes, with total takings of more than US$6 million.
Despite the steep price tag, anybody can watch or (with a simple right-click) save a copy of the videos, which show a cherub ascending over Mars, Earth, and imaginary landscapes. Rather than a copy of the files themselves, the eager buyers received a special kind of tradable certificate called a “non-fungible token” or NFT. But what they were really paying for was an aura of authenticity – and the ability to one day sell that aura of authenticity to somebody else.
NFTs are a cultural answer to creating technical scarcity on the internet, and they allow new types of digital goods. They are making inroads into the realms of high art, rock music and even new mass-markets of virtual NBA trading cards. In the process, they are also making certain people rich.
How NFTs work
NFTs are digital certificates that authenticate a claim of ownership to an asset, and allow it to be transferred or sold. The certificates are secured with blockchain technology similar to what underpins Bitcoin and other cryptocurrencies.
A blockchain is a decentralised alternative to a central database. Blockchains usually store information in encrypted form across a peer-to-peer network, which makes them very difficult to hack or tamper with. This in turn makes them useful for keeping important records.
The key difference between NFTs and cryptocurrencies is that currencies allow fungible trade, which means anyone can create Bitcoins that can be exchanged for other Bitcoins. NFTs are by definition non-fungible, and are deployed as individual chains of ownership to track a specific asset. NFTs are designed to uniquely restrict and represent a unique claim on an asset.
And here’s where things get weird. Often, NFTs are used to claim “ownership” of a digital asset that is otherwise completely copiable, pastable and shareable – such as a movie, JPEG or other digital file.
So what is an authentic original digital copy?
Online, it’s hard to say what authenticity and ownership really mean. Internet culture and the internet itself have been driven by copying, pasting and remixing to engender new forms of authentic creative work.
At a technical level, the internet is precisely a system for efficiently and openly taking a string of ones and zeroes from this computer and making them accessible on a that computer, somewhere else. Content available online is typically what economists call “non-rivalrous goods”, which means that one person watching or sharing or remixing a file doesn’t in any way impede other people from the doing the same.
Constant sharing adds up to a near-infinite array of material to view, share, copy or remix into something new, creating the economies of abundance on which online culture thrives.
TikTok is built around reimagining common audio loops with seemingly endless but unique accompanying visual rituals, which are themselves mimicked in seemingly endless variations. On Twitter, tweets are only valuable to the extent they are retweeted. Fake news only exists insofar as Facebook’s algorithm decides sharing them will increase engagement via driving more sharing.
Information wants to be free
The life and longevity of digital content has depended on its ability to spread. The internet’s pioneering cyber-libertarians had a motto to describe this: information wants to be free. Attempts to stop information spreading online have historically required breaking aspects of technology (like encryption) or legal regimes like copyright.
NFTs, however, bring code and culture together to create a form of control that doesn’t rely on the law or sabotaging existing systems. They create a unique kind of “authenticity” in a otherwise shareable world.
Nearly 40 years ago, Canadian science-fiction writer William Gibson famously described cyberspace as a “consensual hallucination” in which billions of users agreed that the online world was real. NFTs take this to the next level: they’re a consensual hallucination that this string of ones and zeroes is different and more authentic than that (identical) string of ones and zeroes.
NFTs work by reintroducing a mutual hallucination of scarcity into a world of abundance. There is no shortage of buyers: the NFT market is already worth hundreds of millions of dollars. Even humble sports trading cards will never be the same.
Are NFTs different enough to break the internet?
The real function of NFTs is to create a clear delineation between ordinary creators and consumers of online content and those privileged enough to be paid to produce content or claim to own “authentic” work. The internet decentralised content creation, but NFTs are trying to recentralise the distribution of culture.
At first take, it might seem that this presents artists everywhere with a recourse to get paid for their otherwise copy-pastable work. Yet creating normative rules around paying for content online has not so far gone smoothly: think of the lacklustre payments musicians receive from streaming services like Spotify.
NFTs have also been criticised for their profligate energy consumption, because they depend on a lot of computer power to encrypt their tokens. According to the online calculator at CryptoArt, the computations required to create NFTs for each of Grimes’ animations would have used enough electricity to boil a kettle 1.5 million times – and resulted in around 70 tonnes of CO₂ emissions. I’m not sure that cost for future generations was priced into the current market value, or any appreciation as tokens cryptographically change hands.
Other than their tonnes of CO₂ emissions, what’s real about NFTs is how their creation of technical scarcity enables a new cultural agreement about how something can be authentic and who controls that authenticity. NFTs create new forms of hierarchy, power and exclusion on the wider web. They have already created a new type of haves and have-nots.
NFT art: the bizarre world where burning a Banksy can make it more valuablePaul J Ennis, University College Dublin
A blockchain company has bought a piece of Banksy artwork and burnt it. But instead of destroying the value of the art, they claim to have made it more valuable, because it was sold as a piece of blockchain art.
The company behind the stunt, called Injective Protocol, bought the screen print from a New York gallery. They then live-streamed its burning on the Twitter account BurntBanksy.
But why would anyone buy a piece of art just to burn it? Understanding the answer requires us to delve into the tricky world of blockchain or “NFT” art.
It blends the niche subculture of cryptocurrencies with long running philosophical questions about the nature of art. No wonder people have difficulty explaining it all.
At its simplest, a NFT artwork is made up of two things. First, a piece of art, usually digital, but sometimes physical. Second there is a digital token representing the art, also created by the artist.
In the past, artists might have provided a signature or the gallery a certificate to authenticate an artwork. This is a method of verification or proof to show this really was a painting by, say, Matisse or Klimt.
In 2008 the creator of Bitcoin, Satoshi Nakamoto, introduced a new method of verification known as the blockchain. Blockchains were historically used to record financial transactions, but they’re pretty malleable. These days, you can find everything from collectable games to new methods of finance – all living on blockchains.
The most important feature of blockchain for art is that blockchains are impossible to change. An artist can provide a proof authenticating an artwork which can never be altered. This proof can then be sold at auction passing it from artist to collector, making blockchain art highly liquid.
What collectors buy are “non-fungible” tokens (NFTs). Non-fungible means either one or a limited run is ever made. NFT tokens cannot be replicated.
In some cases the art will be stored on the blockchain, but more commonly the NFT will reference an external artwork. While many people might not consider this “owning art”, it’s clear many collectors do. The implication is NFT artworks are scarce and therefore valuable.
Newcomers to an NFT marketplace might be struck by the low quality of the artwork. With no barrier to entry, everyone is free to become a blockchain artist – and it shows. But this is a naïve reading of what is going on. Much blockchain art is sought after for reasons beyond aesthetics.
For instance, many NFTs, such as Cryptopunks, are sought after because of their age, like blockchain antiques. The most expensive Cryptopunk sold for US$1,608,032(£1,161,481) and it is, on the surface, little more than crudely-drawn pixel art.
Cryptopunks are the oldest NFTs and it’s the data about them – their “metadata” – such as their longevity on the blockchain, that is desired. You have to look past the art and look at the medium to get what is going on.
Other NFTs, such as the Nyan Cat meme which sold for US$600,000, are already widely distributed memes. But they’re prestigious specifically in their NFT form because the creator has “signed” the work on the blockchain.
But why would someone want to destroy the original art? Well, this is what the BurntBanksy collective had to say about it:
To most, this probably sounds like gibberish. I suspect the collective are acting a little provocatively by inverting our usual preference for the physical over the digital. However, their argument follows perfect blockchain logic. They argue if we have a piece of art and an NFT, then most people will consider the former the “real” art.
To invert this they’ve decided to burn what many would consider a piece of art that is objectively valuable, a Banksy, and leave only the NFT. Unlike physical art that can be burnt or shredded or broken, an NFT is a digital token that lives on an immutable blockchain. It can’t be destroyed and should therefore, according to their logic, be perfectly safe from vandals – such as themselves.
With the “real” art work gone the NFT now stands in for the real work. What they are hinting at, of course, is that this is a potential transition from “real” to NFT in general and their stunt highlights this. Intriguingly, their act also suggests they have themselves become artists.
By burning the real piece they transform it into the NFT-only piece. To see the value in NFTs, we have to look past the art itself and at the blockchain.
Finally, it’s interesting that the collective decided to pick a Banksy piece of art to destroy, considering the artist shredded a piece of his own art live in 2018, immediately after it was sold at auction. Perhaps the work of these vandals is closer in spirit to the original artist than appears at first sight.
Why would anyone buy crypto art – let alone spend millions on what’s essentially a link to a JPEG file?
Why would anyone buy crypto art – let alone spend millions on what's essentially a link to a JPEG file?Aaron Hertzmann, University of Washington
However, I follow a community of artists on social media, and some of the artists there whom I respect, like Mario Klingemann and Jason Bailey, embraced and advocated for crypto art. Within the past few months, activity and prices seemed to snowball. I started thinking it deserves to be taken seriously.
Then the Beeple sale happened.
On March 11, Beeple, a computer science graduate whose real name is Mike Winkelmann, auctioned a piece of crypto art at Christie’s for US$69 million.
The winning bidder is now named in a digital record that confers ownership. This record, called a nonfungible token, or NFT, is stored in a shared global database. This database is decentralized using blockchain, so that no single individual or company controls the database. As long as the specific blockchain survives in the world, anyone can read or access it, and no one can change it.
But “ownership” of crypto art confers no actual rights, other than being able to say that you own the work. You don’t own the copyright, you don’t get a physical print, and anyone can look at the image on the web. There is merely a record in a public database saying that you own the work – really, it says you own the work at a specific URL.
So why would anyone buy crypto art – let alone spend millions on what’s essentially a link to a JPEG file?
Art is inherently social
It might be helpful to think about crypto art in the context of why people buy original works of art.
Some people buy art for their homes, hoping to incorporate it into their living spaces for pleasure and inspiration.
But art also plays many important social roles. The art in your home communicates your interests and tastes. Artworks can spark conversation, whether they’re in museums or homes. People form communities around their passion for the arts, whether it’s through museums and galleries, or magazines and websites. Buying work supports the artists and the arts.
Then there are collectors. People get into collecting all sorts of things – model trains, commemorative plates, rare vinyl LPs, sports memorabilia – and, like other collectors, art collectors are passionate about trying to hunt down those rare pieces.
Perhaps the most visible form of art collecting today, and the one that drives so much public discussion about art, is the art purchased for millions of dollars – the pieces by Picasso and Damien Hirst traded by the ultrawealthy. This is still social: Whether they’re at Sotheby’s auctions or museum board dinners, wealthy art collectors mingle, meet and talk about who bought what.
Finally, I think many people buy art strictly as an investment, hoping that it will appreciate in value.
Is crypto art really that different?
If you look at the reasons people buy art, only one of them – buying art for your home – has to do with the physical work.
Every other reason for buying art that I listed could apply to crypto art.
You can build your own virtual gallery online and share it with other people online. You can convey your tastes and interests through your virtual gallery and support artists by buying their work. You can participate in a community: Some crypto artists, who have felt excluded by the mainstream art world, say they have found more support in the crypto community and can now earn a living making art.
While Beeple’s big sale made headlines, most crypto art sales are much more affordable, in the tens or hundreds of dollars. This supports a much larger community than just a select few artists. And some resale values have gone up.
Value as a social construct
Aside from the visual pleasure of physical objects, nearly all the value art offers is, in some way, a social construct. This does not mean that art is interchangeable, or that the historical significance and technical skill of a Rembrandt is imaginary. It means that the value we place on these attributes is a choice.
When someone pays $90 million for a metal balloon animal made by Jeff Koons, it’s hard to believe that the work has that much “intrinsic” value. Even if the materials and craftsmanship are quite good, surely some of those millions are simply buying the right to say “I bought a Koons. And I spent a lot of money on it.” If you just want an artfully made metal balloon animal, there are cheaper ways to get one.
Conversely, the conceptual art tradition has long separated the object itself from the value of the work. Maurizio Cattelan sold a banana taped to a wall for six figures, twice; the value of the work was not in the banana or in the duct tape, nor in the way that the two were attached, but in the story and drama around the work. Again, the buyers weren’t really buying a banana, they were buying the right to say they “owned” this artwork.
Depending on your point of view, crypto art could be the ultimate manifestation of conceptual art’s separation of the work of art from any physical object. It is pure conceptual abstraction, applied to ownership.
On the other hand, crypto art could be seen as reducing art to the purest form of buying and selling for conspicuous consumption.
In Victor Pelevin’s satirical novel “Homo Zapiens,” the main character visits an art exhibition where only the names and sale prices of the works are shown. When he says he doesn’t understand – where are the paintings themselves? – it becomes clear that this isn’t the point. Buying and selling is more important than the art.
This story was satire. But crypto art takes this one step further. If the point of ownership is to be able to say you own the work, why bother with anything but a receipt?
It still seems hard to get used to the idea of spending money for nothing tangible.
Would anyone pay money for NFTs that say they “own” the Brooklyn Bridge or the whole of the Earth or the concept of love? People can create all the NFTs they want about anything, over and over again. I could make my own NFT claiming that I own the Mona Lisa, and record it to the blockchain, and no one could stop me.
But I think this misses the point.
In crypto art, there is an implicit contract that what you’re buying is unique. The artist makes only one of these tokens, and the one right you get when you buy crypto art is to say that you own that work. No one else can. Note, though, that this is not a legal right, nor is there any enforcement other than social mores. Nonetheless, the value comes from the artist creating scarcity.
This is the same thing that’s happened in the art world ever since photographers and printmakers had to figure out how to sell their work. In the world of photography, a limited-edition print is considered more valuable than an unlimited edition; the fewer prints in the edition, the more valuable they are. Knowing that you have one of a few prints personally made and signed by the artist gives you an emotional connection to the artist that a mass-produced print doesn’t.
This connection could be even weaker in digital art. But what you are buying is still, in part, a connection with the artist. Artists sometimes publicly tweet their thanks to their crypto art patrons, which may strengthen this emotional connection.
A bubble bound to burst?
Personally, I want to buy only art I can hang on my walls, so I have no interest in buying crypto art. There are also environmental costs. Certain blockchains used for crypto art are really bad for the climate, because they require computations that consume staggering amounts of energy.
That said, if buying it right now gives you pleasure – and you enjoy sharing what you’ve bought and the community around it and you’re using a more environmentally friendly blockchain – that’s great.
If you’re buying it for some future reward, however, that’s risky. Will people care about your personal virtual gallery in the future? Will you care? Will crypto art even be a thing in a few years?
As an investment, it just seems inconceivable to me that the higher prices reflect true value, in the sense of these works having higher resale value in the long term. As in the traditional art world, there are a lot more works being sold than could ever possibly be considered significant in a generation’s time.
And, in the crypto world, we’re seeing highly volatile prices, a sudden frenzy of interest, and huge sums being paid for things that seem, on the surface, not to have the slightest bit of value at all, such as the $2.5 million bid to “own” Jack Dorsey’s first tweet or even the $1,000 bid on a photo of a cease-and-desist letter about NFTs.
Much of this energy seems to be driven by price speculation. It’s also worth noting that the winner of the Beeple auction seems to be heavily invested in the success of crypto art. The cryptocurrencies that drive crypto art are often considered highly speculative.
I have no doubt that, right now, there’s a big NFT bubble.
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There have been lots of bubbles before – tulips, baseball cards, Beanie Babies – objects that were flying off the shelves one year and then piled up in landfills the next. And, in a bubble, a few headline-making winners get rich, while a whole lot of others lose their shirts. Even if crypto art lasts, maybe the particular artist or platform where you’re buying won’t be popular in the future.
My feelings about crypto art aside, I do believe that art is, fundamentally, a social activity. The more our social lives are lived online, the more it may make sense for some people to have their art collections online, too – whether or not blockchain is involved.
Social media has huge problems with free speech and moderation. Could decentralised platforms fix this?
Social media has huge problems with free speech and moderation. Could decentralised platforms fix this?Chris Berg, RMIT University; Elizabeth Morton, RMIT University, and Marta Poblet, RMIT University
Over the past few months, Twitter took down the account of the then-President of the United States and Facebook temporarily stopped users from sharing Australian media content. This begs the question: do social media platforms wield too much power?
Whatever your personal view, a variety of “decentralised” social media networks now promise to be the custodians of free-spoken, censorship-resistant and crowd-curated content, free of corporate and political interference.
But do they live up to this promise?
Cooperatively governed platforms
In “decentralised” social media networks, control is actively shared across many servers and users, rather than a single corporate entity such as Google or Facebook.
This can make a network more resilient, as there is no central point of failure. But it also means no single arbiter is in charge of moderating content or banning problematic users.
Some of the most prominent decentralised systems use blockchain (often associated with Bitcoin currency). A blockchain system is a kind of distributed online ledger hosted and updated by thousands of computers and servers around the world.
And all of these plugged-in entities must agree on the contents of the ledger. Thus, it’s almost impossible for any single node in the network to meddle with the ledger without the updates being rejected.
Because the Steem blockchain has its own cryptocurrency, popular posters can be rewarded by readers through micropayments. Once content is posted on the Steem blockchain, it can never be removed.
Not all decentralised social media networks are built on blockchains, however. The Fediverse is an ecosystem of many servers that are independently owned, but which can communicate with one another and share data.
Mastodon is the most popular part of the Fediverse. Currently with close to three million users across more than 3,000 servers, this open-source platform is made up of a network of communities, similar to Reddit or Tumbler.
Users can create their own “instances” of Mastodon — with many separate instances forming the wider network — and share content by posting 500-character-limit “toots” (yes, toots). Each instance is privately operated and moderated, but its users can still communicate with other servers if they want to.
What do we gain?
A lot of concern around social media involves what content is being monetised and who benefits. Decentralised platforms often seek to shift the point of monetisation.
Another purported benefit of decentralised social media is freedom of speech, as there’s no central point of censorship. In fact, many decentralised networks in recent years have been developed in response to moderation practices.
But even the most pro-free-speech platforms face challenges. There are always malicious people, such as violent extremists, terrorists and child pornographers, who should not be allowed to post at will. So in practice, every decentralised network requires some sort of moderation.
Mastodon provides a set of guidelines for user conduct and has moderators within particular servers (or communities). They have the power to disable, silence or suspend user access and even to apply server-wide moderation.
As such, each server sets its own rules. However, if a server is “misbehaving”, the entire server can be put under a domain block, with varying degrees of severity. Mastodon publicly lists the moderated servers and the reason for restriction, such as spreading conspiracy theories or hate speech.
Some systems are harder to moderate. Blockchain-based social network Minds claims to base its content policy on the First Amendment of the US constitution. The platform attracted controversy for hosting neo-Nazi groups.
Users who violate a rule receive a “strike”. Where the violation relates to “not safe for work” (NSFW) content, three strikes may result in the user being tagged under a NSFW filter. If this happens, other users must opt in to view the NSFW content, for “total control” of their feed.
Minds’s content policy states NSFW content excludes posts of an illegal nature. These result in an immediate user ban and removal of the content. If a user wants to appeal a decision, the verdict comes from a randomly-selected jury of users.
Even blockchain-based social media networks have content moderation systems. For example, Peepeth has a code of conduct adapted from a speech by Vietnamese Thiền Buddhist monk and peace activist Thích Nhất Hạnh.
“Peeps” falling afoul of the code are removed from the main feed accessible from the Peepeth website. But since all content is recorded on the blockchain, it continues to be accessible to those with the technical know-how to retrieve it.
Steemit will also delete illegal or harmful content from its user-accessible feed, but the content remains on the Steem blockchain indefinitely.
The search for open and safe platforms continues
While some decentralised platforms may claim to offer a free for all, the reality of using them shows us some level of moderation is both inevitable and necessary for even the most censorship-resistant networks. There are a host of moral and legal obligations which are unavoidable.
Decentralised platforms have had to come up with more complex, and in some ways less satisfying, moderation techniques. But despite being innovative, they don’t really resolve the tension between moderating those who wish to cause harm and maximising free speech.
Chris Berg, Principal Research Fellow and Co-Director, RMIT Blockchain Innovation Hub, RMIT University; Elizabeth Morton, Research Fellow of the RMIT Blockchain Innovation Hub, Lecturer Taxation, RMIT University, and Marta Poblet, Associate Professor, Graduate School of Business and Law, RMIT University
What are NFTs and why are people paying millions for them?Laleh Samarbakhsh, Ryerson University
Last week, Christie’s sold a digital collage of images called “Everydays: The First 5000 Days” for US$69.3 million dollars. This week, Elon Musk said he’s selling a tweet of his as an NFT, which contains a song about NFTs.
The bidding on Musk’s tweet has already topped $1 million and millions more are pouring into the market — he has since tweeted, “Actually, doesn’t feel quite right selling this. Will pass.” And sites like NBA Top Shot (where you can buy, sell and trade digital NBA cards) have individual cards selling for over US$200,000.
It might sound ridiculous but the explosive market of crypto-collectibles and crypto-art is no joke. I investigate cryptocurrencies and have academic publications on Bitcoin markets. To help you understand what an NFT is and why they’re becoming so popular, here’s an explainer to make sense of it all.
What is an NFT?
A non-fungible token (NFT) is a digital file with verified identity and ownership. This verification is done using blockchain technology. Blockchain technology, simply put, is an un-hackable system based on the mathematics of cryptography. So, that’s why you hear a lot of “crypto” when referring to NFTs — crypto-art, crypto-collectibles, etc.
What is fungibility?
Fungibility is the ability of an asset to be interchanged with other individual assets of the same kind; it implies equal value between the assets. If you own a fungible asset you can readily interchange it for another of a similar kind. Fungible assets simplify the exchange and trade processes, and the best example would be (you guessed it) money.
Is NFT the same as Bitcoin?
This is where I can explain and emphasize the “non-fungibility” property of NFTs. The main difference between NFTs and Bitcoins is the fact that Bitcoins are limited, and fungible (you can trade one Bitcoin with another and both have the same value and price). NFTs are unique but unlimited, and non-fungible (no two artworks are the same). While NFTs can appreciate in value (just like real estate), they cannot be interchanged for another NFT.
What does this mean for the future of money?
While not directly related to NFTs, it’s important to mention some properties of money. Among many properties, money has to be fungible (one unit is viewed as interchangeable as another), and divisible (can be divided into smaller units of value). NFTs are not fungible nor (easily) divisible.
For example, a single dollar is easily convertible into four quarters or ten dimes, but currently you cannot divide one NFT (although the blockchain technology behind may allow it in future). In fact, fungibility and divisibility are part of five requirements for a currency to exist in a regulated economy.
Why are NFTs being valued?
The importance of NFTs lies in providing the ability to securely value, purchase and exchange digital art using a digital ledger. NFTs started in online gaming, later with Nike’s patenting of its authenticity (CryptoKicks) and then by the famous Christie’s auction embracing NFT valuation of a digital art piece.
NFTs are commonly created by uploading files, such as digital artwork, to an auction market. Just like any other form of art, NFTs are not mutually interchangeable, making them more like “collectible” items.
The platform (typically Ethereum) allows the digital art to be “tokenized” and for the ownership to be safely stored using a decentralized, open-source blockchain (that is, anyone can check the ledger), featuring smart contract functionality. This means the traditional role of a “middle man” for selling the art is now digitized.
Is owning the NFTs the same as owning the copyright?
No, owning the NFT doesn’t grant you the copyright to the art; they are distinct from one another. The ownership of the NFT is established using a digital ledger, which anyone can access because it is stored openly. This ledger tracks who owns an NFT and ensures that the NFT can’t be duplicated or tampered with, essentially a “smart contract.”
What does the future hold for NFTs?
It is undeniable that digital assets and blockchain technology are changing the future of trade. As a result, NFTs are also at the helm of this positive growth. However, just like other examples in history (e.g. the Dutch Tulip, the dotcom bubble, etc.), certain valuations may see the need for future corrections depending on socio-economic desires and the chance of a bubble.
Every generation has its own niche attachment to certain valuations whether for vanity or other reasons. NFTs are currently very popular among younger generations, but whether this generation will have the economic power to purchase or find use for them in the future, is both a social and economic question.
For NFTs the true potential is yet to be uncovered. Whether big industry players in art, design or fashion will buy into it or not is also yet to be seen. One thing is for sure, NFTs did open the door for many digital artists to be identified and valued, and the smart contract functionalities of the blockchain technology will be used in future valuations of many assets.
This is a corrected version of a story originally published on March 17, 2021. The earlier story said Bitcoin was not divisible, but it is.
Can blockchain, a swiftly evolving technology, be controlled?Vasilis Kostakis, Tallinn University of Technology; Primavera de Filippi, Centre national de la recherche scientifique (CNRS), and Wolfgang Drechsler, National University of Singapore
The headlong pace of technological change produces giant leaps forward in knowledge, innovation, new possibilities and, almost inevitably, legal problems. That’s now the case with blockchain, today’s buzziest new tech tool.
Introduced in 2008 as the technology underpinning Bitcoin, a digital currency that is created and held electronically without any central authority, blockchain is a secure digital ledger for any kind of data. It simplifies record keeping and reduces transaction costs.
Its range of applications in commerce, finance and potentially politics continues to widen, and that has triggered a debate around how to regulate the tool.
Because it does not require a centralised authority to verify and validate transactions, blockchain enables people who may not trust each other to interact and coordinate directly.
With blockchain, there is no middleman in peer-to-peer exchanges; instead, users rely on a decentralised network of computers that interact through a cryptographic, secure protocol.
Blockchain has the ability to “codify” transactions by deploying small snippets of code directly onto the blockchain. This code, generally referred to as a “smart contract”, executes automatically when certain conditions are met.
An early example of smart contracts are the corporate-oriented digital rights management (DRM) systems limiting uses of digital files. Having DRM on your ebook may restrict access to copying, editing, and printing content.
With blockchain, smart contracts have become more complex and, arguably, more secure. In theory, they will always be executed exactly as planned, since no one party has the power to alter the code binding a given transaction.
In practice, however, eliminating trusted brokers from a transaction can create some kinks.
One high-profile smart-contract failure happened to the DAO, a decentralised autonomous organisation for venture capital funding.
Launched in April 2016, the DAO quickly raised over US$150 million via crowdfunding. Three weeks later, someone managed to exploit a vulnerability in the DAO’s code, draining approximately US$50 million worth of digital currency from the fund.
The security problem originated not in the blockchain itself but rather from issues with the smart-contract code used to administer the DAO.
Questions arose about the legality of the act, with some people arguing that since the hack was actually permitted by the smart-contract code, it was a perfectly legitimate action. After all, in cyberspace, “code is law”.
The DAO debate raised this key question: should the intention of the code prevail over the wording of the code?
A new legal realm
Blockchain proponents envision a future in which entire companies and governments operate in a distributed and automated fashion.
But smart contracts pose a series of enforceability issues, which are outlined in a recent white paper by the London law firm Norton Rose Fulbright.
How can we resolve disputes arising over a self-executing smart contract? How do we identify what types of contractual terms can be properly translated into code, and which ones should instead be left to natural language? And is there a way combine the two?
It is not yet clear that code can address the necessary levels of complexity to replace legal language. After all, the vagueness inherent in the language of law is a feature, not a bug: it compensates for unforeseeable cases that must be assessed on a case-by-case basis in a court of law.
Traditional contracts acknowledge that no law can index the entire complexity of life as it is, let alone predict its future development. They also precisely define terms that can be enforced by law.
Smart contracts, by contrast, are simply snippets of code both defined and enforced by the code underpinning the blockchain infrastructure. Currently, they do not have any legal recognition. This means that when something goes wrong in a smart contract, parties have no legal recourse.
The DAO’s founders painfully learned this lesson last year.
The creative friction of the law
If blockchain technologies are ever to go mainstream, governments will have to set up new legal frameworks to accommodate such complexities.
Positive law prescribes behaviour and penalises non-compliance. It can encapsulate the normative ideal that a respective government seeks to achieve, demonstrate an ethical vision for society or reify the power structure of the current regime.
Technological developments, on the other hand, are often oriented toward profit and change.
There’s an inherent tension here. Laws may delay the development of technology and hence hurt the competitive advantage of an entrepreneur or even a state.
Take the case of nanotechnology regulation in the European Union versus in the United States. European law so mitigates risks that it may end up limiting the technology’s potential, losing its competitive edge against the US.
That’s another fact about the law: slow and reactive, it can be a gross annoyance.
But ever since technological advances began speeding along on an exponential curve last century, the law has played a critical role in helping societies maintain certain previously negotiated standards for cohabitation.
Our legal system may sometimes seem antiquated in today’s fast-moving world. But before changing our laws to accommodate new technologies that may (re)define our lives, it is important to have room for debate and time for social struggles to take place.
The law serves this function of creative friction. It can restore human agency against fierce technological development.
Given all the excitement over blockchain technologies, it is probable that interested parties will soon enough seek legal recognition and state-sanctioned enforceability of smart contracts.
These emerging technologies are still too new to have been subjected to a sufficiently thorough analysis of their social, economic and political implications. More time is also needed to assess how blockchain could be deployed in a socially beneficial way.
Blockchain technology seems poised to constitute an important component of tomorrow’s society. The legal system – slow-paced as it is – might be just what we need at this juncture to ensure that this new tool is deployed in a way consistent with established principles and values, with the common good at its core.
Vasilis Kostakis, Senior Researcher of Technology Governance, Tallinn University of Technology; Primavera de Filippi, Permanent Researcher, Centre national de la recherche scientifique (CNRS), and Wolfgang Drechsler, Visiting professor, National University of Singapore
An industrialized global food supply chain threatens human health – here's how to improve itRobyn Metcalfe, University of Texas at Austin
In an outbreak that has now run for more than 28 months, at least 279 people across 41 states have fallen ill with multidrug-resistant Salmonella infections linked to raw turkey products. Federal investigators are still trying to determine the cause. In response to food company recalls, more than 150 tons of raw turkey products have flowed back through the supply chain as waste.
In an age when companies envision drone pizza delivery and hamburgers prepared by robots, why is it so hard to locate the source of food-borne diseases like this one?
As I show in my new book, “Food Routes: Growing Bananas in Iceland and Other Tales from the Logistics of Eating,” the challenge of tracing food-borne illnesses in the United States demonstrates that our high-tech food system is broken in fundamental ways. It also reveals a lag between announcements of new, cool tech advances and applying them to solve real problems. In the meantime people get sick, some die and food piles up in landfills.
Assembling food from far-flung sources
Unsafe food sickens about 600 million people every year – nearly 10% of the world’s population. Susceptibility to food-borne disease is rising as populations age. In addition, people are taking more medications, which often cause negative interactions with chemicals in highly processed foods. These interactions contribute to food-related illnesses.
And the costs of food-borne illnesses are significant – over US$15.6 billion yearly in the United States. Some of the recent increase is due to better tracking of food in the supply chain, which has improved tracing of outbreaks that might have gone unreported in the past.
But it’s one thing to detect outbreaks and another to prevent them. Globalization of the food supply chain makes this task more challenging. Ingredients come together from remote parts of the world to make pizza sauce. A simple hamburger patty from McDonald’s contains meat from 100 cows. Some 85% of the seafood Americans eat is imported, mostly from countries with lax food handling practices.
Improving the global food system in ways that address food safety offers enormous payoffs, but will require compromises. In response to consumers’ insatiable desire for more personalized, individualized food products, snack companies produce popcorn in dozens of flavors, and bakeries make cupcakes with multiple types of nuts and cookies with and without gluten.
Tracking, reporting and recalling contaminated food needs to occur in real time and become more precise, and even predictive, based on a food producer’s track record. But the proliferation of food products makes efforts to track a contaminated nut back through the supply chain ever more challenging.
Siri, find my lunch
Already, food suppliers are using new digital tools to optimize the journey foods take from source to plate. Companies are embedding packaging with smart sensors that will measure how long individual shipments have been in transit, reducing the need for plastic packaging.
For example, as a shipping container of ham hocks moves from Liverpool to New York, a small sensor can send real-time internal temperature measurements to the buyer, documenting that the product has been kept cold throughout transit in conformance with established food safety requirements. GPS tags can track turkeys on poultry farms to monitor where they wander before entering the food supply chain.
Paradoxically, however, making the food system more transparent may make it more vulnerable to attacks. Food terrorism – deliberately contaminating food as it travels through the supply chain – could increase as bad actors locate sites where they can trigger food-borne disease outbreaks. On the other hand, new digital tools that can test for contamination are entering the market and will make it easier to identify such breaches.
Blockchain for mangoes
However, sharing data as food travels from farm to plate cuts against ingrained practices in the food industry. Many food processors and logistics companies guard their practices in much the same way that tech companies protect intellectual property.
For example, getting turkeys to market faster than the competition may give a poultry company its competitive edge. Moreover, I have seen firsthand that many food companies still maintain records on slips of paper, handwritten and kept on clipboards, reflecting how slow technological change can be.
Partnerships between companies will help to modernize the system. For example, IBM and Walmart are utilizing IBM’s blockchain system to track food through the delivery process, starting with mangoes. Origintrail, a supply chain management company, is working with sensor designer TagitSmart to track the movement of wine in southern Europe from vineyard to point of sale as a way of preventing adulteration or counterfeiting.
But making food more traceable will take time. Large-scale food manufacturers will need incentives to step out from behind the curtain. In my view, however, the goal should be to find and address supply chain breakdowns, like the current turkey meat crisis, in days, not years.
Skills like 'crap detection' can help kids meet cybersecurity challenges head onMatthew Riddle, University of Melbourne
How well are we preparing the typical primary school kid for life when they graduate in 2032?
Current attitudes to education around cybersecurity and online safety skew towards caution at all costs. We often focus on schools’ duty of care rather than fostering skills and frameworks of digital ethics which empower students.
There is a danger we are letting kids down with a fear-driven mentality instead of engaging their challenges head on. Both parents and teachers can help kids in this capacity: let’s take a look at how (tips below).
Fear can be a barrier
We educational technologists often have cybersecurity discussions with students, parents and teachers with digital fluency levels ranging from expert to little-to-no knowledge.
As parents and teachers we can understandably be fearful of the role of technology in kids’ lives, however this can sometimes be a barrier to student learning.
Around six years ago, Wooranna Park Primary School in Victoria, Australia introduced new technologies that had an immediate positive influence on student outcomes. Yet some drew negative feedback from parents, due mainly to misconceptions and fear of the unknown.
Communication is vital
Sandbox video game Minecraft is a powerful tool for collaborative learning. It provides an infinite 3D space where students collaboratively learn just about anything you can think of: from numeracy and literacy, to 3D printing, coding, science, financial literacy and art.
Many schools use Minecraft now. Yet it was met with a lot of trepidation from parents when first introduced as a learning tool at the school. One parent had specific fears about Minecraft (“isn’t it about murdering babies or something?”), taking these directly to the principal, who took the time to share the benefits and provide detailed information. This particular parent now plays Minecraft with their children.
Likewise when YouTube was first allowed within the school, some parents and even staff were worried about it. However as a video sharing service where people can watch, like, share, comment and upload videos, it is now a core technology supporting self-directed learning. Today the school would feel like it was coming to a standstill without it.
Read more: Curious Kids: what makes an echo?
The pedagogic context is the key here — and it wasn’t until learning engagement data was communicated to the school community that overall negative opinion changed to a positive one. Now students aren’t just consuming content from YouTube, they are uploading their own work and sharing it with their parents.
Personal responsibility, healthy conversations
Minecraft and YouTube are examples of Web 2.0 technologies. We are now transitioning into the age of Web 3.0 – the decentralised web, where personal responsibility is paramount.
We’re at the cusp of the widespread adoption of a whole range of disruptive technologies that work less like curated gardens and more like ecosystems. These are based on new core technologies like blockchain and the distributed web (also known as Interplanetary File System, or IPFS).
These approaches effectively eschew the “platform”, and allow users to connect directly with each other to communicate, create and transact. These will benefit students in the long term, but will inevitably draw alarm due to misunderstanding in the short term.
The way we can get ahead of this as a community is by introducing a culture of having healthy conversations at home and in school much more often.
Start them young
It is almost never too early to start teaching kids about cybersecurity.
The kids learn these topics within the context of active inquiry, giving them choices about the software and devices they use in order to empower them as technology-enhanced learners.
A recent study of 1:1 classroom projects by researcher Theresa Ashford found a strongly regulatory culture in education focused on “filtering and monitoring”. This failed to instil a critically important framework of digital ethics, with students quickly finding ways to navigate around barriers.
We can avoid this by not being fearful of technology use by children, but instead helping them navigate through the complexities.
Tips on how to talk to your children about cybersecurity
Terms to search and explore with your child
Security tools to explore with your child
This article was written with significant input from Kieran Nolan, a Melbourne-based educational technologist.
Could Blockchain Voting Fix Democracy? Today, It Gets a Test RunThere’s no shortage of debate about the role tech has played in politics. From misinformation being spread via WhatsApp in Brazil to Facebook becoming a tool for hate speech in Myanmar to the Cambridge Analytica scandal in the US, many would say tech has been a burden rather than a boon. Tech has certainly impacted the ease with which information—both true and false—is spread, and hence the way people perceive political candidates. But what about voting itself? Even as tech has affected how we decide who to vote for, the process of casting a ballot and tallying votes on election day has remained largely unchanged. ‘Modernizing’ voting by making it mobile and digital has been an ongoing conversation for years, but always comes back to the same conclusion: such a fundamental piece of democracy is too crucial to expose to cyber-risks. But long-time opponents of internet voting now have a new player to contend with, one that’s claiming to bring the security and immutability that’s been the missing link up until now: blockchain. The midterm elections today include a small blockchain voting experiment, which many are hoping will scale up in coming years.
An Experiment in Digital DemocracyFor this midterm election, overseas citizens and members of the military from twenty-four counties in West Virginia have the option to vote using an app called Voatz. The experiment is the result of collaboration between Tusk Montgomery Philanthropies and West Virginia’s secretary of state, Mac Warner. As a member of the military and the US State Department for 28 years, Warner was troubled by how difficult it was for overseas service members to participate in elections. Political strategist and venture capitalist Bradley Tusk is the founder of Tusk Montgomery, which aims to improve American democracy by making it easier to vote. “We’re completely polarized, and nothing gets done,” Tusk told The New Yorker. “I don’t see how democracy survives absent radically higher participation.” With funding from Tusk Montgomery, Voatz was piloted with overseas West Virginians in May. Participants’ votes are recorded on a private blockchain, and ballots are transmitted to multiple computers that verify the validity of votes before they’re counted. The app uses end-to-end encryption and biometric verification, such as through the fingerprint or eye-scan technology built into some smartphones.
Does Easier Voting = More Voting?As Tusk emphasized, a fundamental tenet of democracy is citizen participation and engagement. If no one’s voting—or just a select group of heavily partisan voters are—then elections aren’t serving the purpose the founding fathers intended. UCSB’s American Presidency Project shows voter turnout in US presidential elections consistently staying below 60 percent from 1968 to 2012, and below 55 percent in more than half those elections. A study by the Pew Research Center found that the US ranked 26th in voter turnout out of 32 developed democratic states. Many of the countries that outrank the US have compulsory voting laws—for example, Australians who don’t vote must pay a $20 fine. Voting isn’t all that hard; you register in advance, show up at a polling place on election day, and cast your ballot. You might have to wait in line, or be late to work, or face bad weather or traffic or any other number of minor annoyances—but it’s just one day every few years, and it’s a privilege millions around the world don’t have. Despite this, what if the minor annoyances of voting are actually barriers keeping people from voting at all? Would the convenience of voting straight from our phones make a measurable difference in participation? A study called the Cost of Voting Index found that factors like voter-registration deadlines, laws around early and absentee voting, voter ID requirements, and polling hours influenced voter participation in the 2016 presidential election, with a higher turnout in states where voting is easier.
Does Easier Voting = Better Voting?For every ardent supporter of blockchain voting, there’s an even more ardent detractor—or two. The staunchest criticism is, unsurprisingly, security. Blockchain is famed for its security and immutability. But, at least with the Voatz app, ballots don’t go straight from the voter to a blockchain, and there’s widespread concern about what could happen in the space between. Rather than a blockchain-based app, Voatz can more accurately be described as an app with a blockchain attached to it, according to Marian Schneider, president of elections NGO Verified Voting, an organization wholly opposed to any form of internet voting. A 2015 report by the U.S. Vote Foundation to assess the feasibility of end-to-end verifiable internet voting found that risks in voter authentication, client-side malware, network attacks, and DdoS (distributed denial of service) attacks were too high to outweigh the benefits of online voting, coming to the grim conclusion that “Unless and until those additional security problems are satisfactorily and simultaneously solved—and they may never be—we must not consider any Internet voting system for use in public elections.” A team of researchers from the Initiative for CryptoCurrencies and Contracts, firmly opposed to blockchain voting, raised many of the same concerns, including the threat of interference by malware and network attacks. They also believe voting on a blockchain could make vote buying easier, and point out that Voatz (along with other makers of voting machines and online voting systems), while assuring the public of the app’s security, has declined to provide public access to its cryptographic protocols.
A New and Nebulous Political EraBlockchain as a tool for internet voting is both imperfect in its current state and promising as a possibility. But proponents and opponents alike should keep in mind that it’s far from a mature technology. Five years into Facebook and other social media platforms, we didn’t imagine these sites would eventually be used to spread hate speech or targeted propaganda, and we didn’t realize they may have influenced our political choices until they’d already done so. Similarly, outside of the security hurdles blockchain must clear to become a viable voting tool, it may contain risks and challenges we’re not yet aware of. Tech has presented a slew of challenges to modern politics, and balancing the harm it can cause with the good it can do is no small task. It’s a problem that will be solved incrementally, and probably slowly at that. As for getting more people to vote, even Bradley Tusk acknowledges blockchain may not end up being the answer. “It’s not about voting on a blockchain,” he said. “If something emerges tomorrow that is better than blockchain voting, that’s totally fine with me.” The West Virginia experiment today will be, if nothing else, an indicator of where to go from here. Image Credit: Breaking The Walls / Shutterstock.com
How Blockchain Is Helping Democratize Access to CreditInclusive and sustainable economic growth is goal 8 on the UN’s list of 17 sustainable development goals to be accomplished by 2030. Goal 8’s description emphasizes job creation, but acknowledges the fact that there’s a lot more to escaping poverty than simply being employed. Lack of financial inclusiveness is a part of this—say you’re making just enough money to get by, but you’re not able to save much, accumulate interest, or get a loan. How will your quality of life improve? Access to credit is a major barrier for people in developing countries. As Ed Rodrigues, founder and CEO of Swapy Network put it, “Credit is a wonderful tool to unleash peoples’ potential. Be it to further one’s education, start a business, finance healthcare or a home improvement, credit is key for people at the bottom of the pyramid to have a better life.” Rodrigues’ motivation to create a business geared towards enabling universal access to credit stemmed from his experience as a student in Brazil. After completing his undergraduate work Rodrigues dreamed of doing an MBA in the US. His qualifications and enthusiasm weren’t lacking, but he found it impossible to get an affordable loan. “Ultimately, I couldn’t accomplish my dream because of the lack of access to credit,” he said. [caption id="attachment_120334" align="alignright" width="233"] Ed Rodrigues, CEO of Swapy Network[/caption] He decided to build a tool that would help prevent others from being held back by this same barrier. One look at the base interest rates of several of the world’s central banks makes it clear that interest rates vary considerably by country, and are influenced by many different factors. Currently, nations like Switzerland and Japan actually have negative interest rates, and the US, South Korea, and Australia hover around 1.5 percent. Meanwhile, borrowers in Indonesia, Brazil, and Mexico are paying over 6.5 percent in interest. These rates only get higher with each degree of separation from central bank rates. As the perceived risk of loans increases, lenders add interest to the central bank rate to compensate. By the time borrowing funnels down to people buying homes or starting businesses, loans in developing countries often aren’t affordable to average citizens, thus engendering a vicious cycle and perpetuating poverty. Rodrigues envisioned a way to overcome constraints like national borders; if a Brazilian citizen is as trustworthy as a Japanese citizen—and there’s a proven way to back up that claim—why shouldn’t, say, a student in Brazil be able to borrow money at a rate comparable to what a Japanese student pays? Enter blockchain, the technology Rodrigues believes can make this vision a reality. “Blockchain is changing both the technology and the power structure behind the credit industry,” Rodrigues said. “It’s shaking power structures that previously had to rely on banks, credit bureaus, and nation-states as middlemen.” Blockchain is increasingly being tested as a way to track that which was previously difficult to pin down, from securing virtual assets to giving refugees an immutable financial identity. Put simply, blockchain is a database of encrypted transactions stored across a network of computers. That network actively participates in the validation, upkeep, and accuracy of the database, and is paid for doing so in cryptocurrencies. Swapy Network will run on the Ethereum blockchain and issue its own cryptographic tokens, called Swapy Tokens, to be used to buy and sell various services across the company’s three products. Swapy Exchange: Connects lenders in countries with low interest rates to credit companies in countries with high interest rates. This allows credit companies to raise funds at lower rates and thus be able to lend at lower rates domestically. Swapy Financial ID: Lets users build a digital, globally-valid financial identity. Users can log financial information like bank statements or investments straight from their phones with a mobile app, and must designate an organization to validate all logged data. The app is open-source, and data is encrypted in decentralized storage (such as IPFS) and recorded in the Ethereum blockchain. Users can choose their preferred level of data privacy. Swapy DataMarket: Our personal data is valuable, and in many cases it’s constantly being collected, whether we want it to be or not. The Swapy Data Market gives users control over their financial data. Individuals can profit from making their data available, and companies can analyze data sets to more effectively grow their business. Importantly, this system means access to data isn’t limited to the biggest players in financial markets. Swapy Network’s software development started in July 2017, and after getting funding from well-known investors like Tim Draper and Don Tapscott, the team is currently in the final stages of preparing for its initial coin offering (ICO). ICOs are a fundraising method for new cryptocurrencies in which a portion of the currency—in this case, Swapy Tokens—is offered to early investors in exchange for legal tender or established cryptocurrencies like Bitcoin or Ether. The company hopes to raise the equivalent of $30 million in ethers (Ethereum cryptocurrency) to finance its protocol and app development over the next five years. Democratizing access to credit, giving people control of their data, and creating borderless, immutable financial identities are all worthwhile aims. If they’re ever achieved at scale, though, they’d not only have a huge impact on poverty alleviation, they’d also bring about a fundamental shift in the way the economy works, both at a national and international level. Whether blockchain, cryptocurrencies, and startups like Swapy will be able to upset lending in the same way that, say, ride-hailing apps upset transit or house-sharing apps upset hospitality remains to be seen. In the meantime, getting affordable loans to the people who need them most is a noble and important goal to work towards. Image Credit: terng99 / Shutterstock.com