I’ve been getting a lot of people asking me questions about NFTs, Blockchain, and Bitcoin. I generally give the unhelpful advice:
Never invest in a business you cannot understand — Warren Buffett
It’s great advice, but, in technology, I think it’s becoming less useful over time. In 2022, it is difficult to fully understand a lot of what is out there. I mean, I am very interested in quantum computing and machine learning, but I wouldn’t say I fully understand it - and I’ve already invested quite a bit of my time in those subjects.
However, we are here about Blockchain Technology™. I’ve decided to put this up as a place to point family members when they ask me about these things. Hopefully others might find this helpful, but please know that this contains a lot of my own opinions, and it is written for an audience who are not super nerdy. I’ll be using analogies that are rough, should be taken with a grain of salt, and should only be used as a gateway to your own understanding.
The Blockchain is Quickbooks
There is some neat underlying technology used by the Blockchain, but you don’t really need to understand those things for our first litmus test. Most of the time people start talking about proof of work or distributed architecture to either muddy the water or to sound cool.
The basic first pass you should do in your head when someone tells you about something using the Blockchain, think Quickbooks (or if, you’re more accounting savvy, think a double entry accounting database).
So when someone says “I have a funding opportunity for a startup - it’s a new social network built on the Blockchain!"… think to yourself, “Why would you run Twitter on Quickbooks?". In fact, the idea is mostly nonsense.
I am not saying slam the door and walk away, there could be something to the idea. It’s almost always cool to listen to new ideas, but you should generally start out with the position it’s nonsense and try to understand why an accounting workflow is useful in context X.
Anyone can see the transactions!
If you get to step 2, and the idea does make sense using a double entry type of workflow, ask who cares if it’s public?
Most of the time, most companies do not want payment transactions public. That’s why big auditing firms exist. If you invest in companies, maybe you can get access to the financial information, but does this being public feature help in any way shape or form? Would Disney want Disney dollar transactions public? Almost always, the answer here is no.
To counter any perceived negativity you may be getting from this post, here are some ideas where a publicly visible ledger might be useful:
- An online Credit Union; where the members own the bank
- A school board voting system
- Some kind of home owners association collaboration system
- A lot of things with a government
Even those, however, are tenuous at best. Some of those you would only want members to have access to the data not the general public.
If it doesn’t need to be public, there is very little use for a blockchain style transaction log - they could just use a normal relational database.
You can transfer money with no fees
I am just throwing this in here, because this just isn’t true at all. I hear this often as “the great use case”. In reality if you wanted to transfer money, you’d have to:
In the country of origin you’ll need a broker (an exchange). You’ll have to change real money for some crypto currency. This will have a transaction fee(s). The exchange will also (depending on the country) report large transactions by law (which may have tax implications).
(optional) depending on what you are doing, you may also have to pay a gas fee (more about this in the NFT section)
When you pull the money back out, you will again have to go through an exchange and, likely, again, pay another fee to turn the crypto back into real money. Additionally, you may have to pay taxes on the money.
| fee | ~gas | fee / tax €€ -> [exchange] -> [wallet] -> [contract] -> [wallet] -> [exhange] -> $$
Now, there may or may not be ways around some of that. However that is more or less the process. I am only including this section because one of the talking points of crypto is you can move money around without fees. For normal people, that is just simply not true.
I have been inundated with questions about NFTs. The marketing campaign behind these things has been second to none. Hat’s off to whomever is running this marketing campaign.
Since you now know that the Blockchain is just Quickbooks, you can think of “an NFT” as the memo field on one of those transactions.
The important thing to understand here, is the only thing you are paying for is to have an entry in the ledger that points to a URL - that is all. There is no data stored in the ledger, there is only a link to where data was - at one point.
You’re not buying the rights to that file (unless indicated somewhere), you are not buying the actual bits of the file, you are often not even buying an md5 hash of the original file - you are buying a text field with a URL in it.
You might ask, well what happens if the server hosting that link goes away, or someone just changes what that link is pointing to - and you would be right to ask those questions.
I don’t want to sound too pessimistic here, because I think the underlying idea of an artist being able to mint something and sell it online is a great idea. Personally, though, I don’t think this 2022 version is quite there yet.
NFT game assets and The 🎇 Metaverse 🚀
This makes me sad. I am a firm believer in AR/VR, and I think an actual Snow Crash style metaverse would be amazing. I think it would be an utterly fantastic tool for teaching. Can you imagine:
Being immersed in a foreign language learning game where you are literally transported to another country (try Google Earth in VR it’s mind blowing)
History lessons where you are in the history lesson
Exploring Mars with interactive drones that are physically on the planet or going into outer space with a 360 satellite to see what it’s like in actual outer space
Learning chemistry or physics inside a simulator
Physically playing with 4d objects
Doing math equations that come alive before your eyes a la 3brown1blue
Sadly, the metaverse has been co-opted by this NFT craze. I am not sure how, but the two things are vastly different. Where people are trying to intersect them is by saying: “you can own digital video game assets that exist in the metaverse”.
This doesn’t make sense, because nothing like the metaverse exists.
Let’s use one example. Let say you bought an
NFT digital sword. You might
expect that you could now use that sword in, what people are selling as, the
How powerful is the sword? When you use it against a deer in Valhiem how much damage does it do? How about when you use it in Call of Duty - what does it do there?
What format is the sword in? Obj? gltf? How does it get loaded? Where is it hosted? Is there a parental rating on it?
The problem is, there is no protocol, not way to share assets, nothing. Would everything run in Unreal Engine, or Unity, or WebGL? Or all of them? Would it share some kind of protocol? How would you jump from the Apple Metaverse to the Highschool Metaverse?
I don’t think anyone, anywhere is working on this (there may be some Web Working group I don’t know about), but I can say, from what I can tell, the people that selling digital land are not trying to solve this - they just want you to buy an asset in their video game.
I think NFTs are going to hurt conversations around the idea of a “metaverse”. Have a look at the history of VRML or GohperVR to see how long people have been trying to work on this. Many, many unsung people have spent their lives trying to build a 3D web, and it makes me sad to see it getting lumped in with cryptocurrency.
2022 seems to be like right before the dotcom bubble burst. Where pets.com and webvan.com were the darling companies. They had huge investments, but very weak business models and seemingly no idea how they were going to turn a profit. There was a lot of smoke and mirrors.
However, out of that crazy time, there were some real companies that did some real things. Amazon, PayPal, Google, etc all come out of that time. And some of the ideas that were bunk - like webvan.com - are now things that exist.
I can’t deny there are people making lots of money off of cryptocurrency. I personally know people who have become wealthy off it. However, aside from a way of just taking money from people, I don’t see any technical benefit from it… yet.