The Unreasonable Ecological Cost of #CryptoArt (Part 3)

11 min readJan 25, 2021

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This is Part 3 of a N-part series, accompanying the website http://cryptoart.wtf

In Part 1, I present my motivations, findings, and my conclusions as a result of these findings.

In Part 2, I present the underlying data and methodology that gave rise to these findings, along with more statistics. It’s more aimed at those who wish to dig deeper into the numbers, and/or technically interrogate my claims.

In Part 3 (this article), I unpack some of the myths behind the NFT market.

NFTs are a scam

NFTs are a scam in that blockchain as a technology does not provide the benefits regarding digital rare collectibles that it is often sold as providing — in particular, as a technology it does not solve the issues plaguing ‘real world’ markets, which it is touted as solving:
- It does not provide scarcity or authenticity for assets linked to NFTs
- It does not guarantee secondary sales royalties
- Using a decentralized, distributed database does not decentralize power, or lead to more evenly distributed wealth.

In other words, many problems that plague more traditional ‘real world’ markets, still plague NFT markets. Except, a transaction on a PoW based blockchain is literally hundreds of thousands of times worse for the environment than a non-crypto transaction.

**The blockchain does not provide scarcity or authenticity for NFT related content**

An NFT is simply a a long hexadecimal (base16) number (tokenId), such as: 0x41A322b28D0fF354040e2CbC676F0320d8c8850d/XXXXX

This is what you own when you buy an NFT. What is permanently etched into the records of the blockchain, is that you own this number. And it is true that the blockchain guarantees uniqueness of this number, and the history of the records of who owns, and has previously owned — i.e. the provenance of — this number cannot be tampered with (currently).

Also written on the blockchain is an association between this tokenId and some metadata which further links to a URL which contains the ‘original’ file.

However, this association is non-exclusive.

Not only is there nothing within the blockchain as a technology which can stop anybody from downloading this artwork, and re-selling it as their own. But the blockchain as a technology does not even prevent anybody (whether it’s the artist themselves, or somebody else) from creating new tokens that link straight to the exact same URL¹. There is nothing within the blockchain as a technology that provides exclusive access to the contents or URL of a work.

In other words, (a crypto-analogy if you will) I could sell someone the Brooklyn Bridge, and guarantee its authenticity by giving them a one of a kind, unique certificate. While it is true that there is indeed only one of that particular certificate (token) in the world, which they hold in their hands, I can still go and create other certificates (tokens) that link to the exact same object — the Brooklyn Bridge — and sell them on to others.

Of course to do this would be immoral, if not illegal. But that does not prevent it from happening in the ‘Real’ Art Market, and it won’t prevent it from happening in the CryptoArt / NFT Market¹.

The blockchain does not even provide artificial scarcity within the rules of its own imaginary game. It simply does not provide any scarcity or authenticity for NFT related content at all.

All that you really ‘own’ when you buy an NFT, is the hexadecimal tokenId.

The blockchain does not guarantee secondary market income

It is not uncommon for artists to request royalties from future sales of their work. There are established mechanisms in the worlds of music, film and literature which try to ensure that artists receive royalties (these are of course plagued with issues of their own). But in the fine-art world, no such established mechanisms exist (and this topic was brilliantly tackled by Caleb Larson in his 2009 piece “A Tool to Deceive and Slaughter” [19]).

It was proposed that the blockchain could address this and automate secondary sales royalties. However this is not the case. By switching platforms, collectors can resell NFTs without triggering the functionalities implemented in the original smart-contract — which is typically bound to the platform. The collector can then choose not to respect the original Terms & Conditions, and avoid paying the ‘spoiled artists’ [20].

https://twitter.com/satman78704554/status/1339912522514780163

Of course to do so would be immoral, if not illegal. But again my point is, this happens in the ‘Real’ Art Market, and it happens in the CryptoArt / NFT Market. The blockchain as a technology does not prevent this from happening⁵.

The myths of decentralization

When people speak about the blockchain and NFTs, at some point they will inevitably speak about the wonders of decentralization, as an ‘alternative’ to The Old Centralized Ways of The Past, and an antidote to the horrors that this beget.

The blockchain is essentially a database, a list of records. And it is true that instead of this list of records being stored in one single place (or a few key places, all owned by the same entity), the database is instead duplicated — potentially in its entirety — to anybody who wishes to become part of the network. No one body can control the data, or the flow of data. No one body has the power to alter the records to their own favor. Anybody can download the entire history of the database — or alternatively, they may simply download enough of the data to verify each and every transaction or block. It is true that this is one of the greatest affordances that the blockchain offers.

And in principle, this does sound wonderful. What the ingeniously idiotic¹ ² approach of the PoW blockchain has managed to do (apart from exploit humanity’s greed and gluttonous craving for games of value and ownership, at the expense of the planet), is to provide a statistically and game-theoretically [23] sound solution to the problem of distributing a database among non-trusting agents.

And while a decentralized database does have its merits, it is important to remember that decentralizing the database, does not decentralize power.

While the underlying Technology concerning the blockchain might indeed appear to be decentralized, when we consider The Real World of Technology [10] — which takes into account the social, cultural and political context, structures and values in which Technology is designed, developed and deployed — it is impossible not to notice a trend towards re-centralization. Who would have thought ¯\_(ツ)_/¯

‘Mining’ and adding new blocks to the blockchain has reached stages where it requires ludicrous amounts of compute power. So around the world, enormous data-center-like mining-farms (not to be confused with mining-pools) are popping up, containing thousands of computers [11, 12, 13], dedicated to sitting around doing nothing but generating random numbers all day to mine blocks for the blockchain, and reap the rewards for their owners².

This is further exacerbated by the fact that dedicated, improved hardware is continuously being developed specifically to mine for blocks. These ASICs as they are called, are so much more efficient at mining, that as new ASICs are released, from a competitive standpoint it becomes non-profitable to mine without them [14, 15]. Furthermore, the production and distribution of this hardware is very much centralized. (In fact 52% of ASICs produced stay in China [41], which is perhaps one of the reasons why 65% of Bitcoin is mined in China [24]. The second reason being the cheap cost of electricity).

In other words, the protocol of the blockchain might be decentralized, but the hardware required to mine it is most definitely not.

Furthermore, Crypto is often put forward as an anarcho-cypherpunk decentralized elixir to The Old Centralized Ways of The Past.

There seems to be this delusion that cryptocurrencies will replace banks, and everything will be great.

The Financial Systems of The Old, like Banks, do not accumulate power because they centralize records. They accumulate power because they centralize assets. When we complain about The Banks and the Financial Systems of The Old, we don’t complain that they deviously and maliciously manipulate the records that they hold. That is not the problem that needs addressing. We complain that too much wealth is concentrated within too few bodies, and such concentration of wealth, brings an immense concentration and imbalance of power.

One of the largest NFT websites NiftyGateway is owned by The Winklevoss Bros (of Facebook fame), now crypto-billionaires [16]. Aside from the NFT platform, The Bros also own Gemini, one of the leading cryptocurrency exchanges. The Bros also claim to own 1% of all Bitcoin in existence [17].

Furthermore, many exchanges such as Coinbase, Binance, Kraken, Poloniex, Gemini — and even NiftyGateway — don’t even record the activities on the blockchain. They’re custodial exchanges. You give them your assets, and all activity then takes place on their centralized servers. This comes with the advantage of much faster performance and cheaper transactions, but without the security, transparency, immutability and provenance offered by the blockchain (this is not an accusation to say that they are not secure or transparent etc. But if they are, it’s not because of the blockchain, but their own technologies). They are literally banks.

In case anybody was still clinging onto this crypto-anarcho-punk dream:

Even if crypto does replace banks, it’s not going to replace bankers.
Decentralizing the database does not decentralize the ownership of assets, or mitigate the centralization of power.

Crypto — like gold, money or art (and unlike water, food, medicine and fuel) — has no implicit value due to its usefulness. Its value comes instead purely from speculation and hyped-up demand. As a result, whenever its value is threatened, stakeholders — those with large lots, with a lot to lose if it is devalued — will inevitably do anything they can to ensure that the value of their lot is not threatened. This includes making up all kinds of myths. Of course crypto-billionaire Mr Winklevoss himself plays into this narrative, identifying as a ‘cryptopunk’, while selling dreams of money and art in space.

https://twitter.com/cameron/status/1350141884795129858

Crypto is selling an ideology, but delivering the opposite. In the Real World of Technology [10], the crypto-space is exactly replicating the power-dynamics of the non-crypto-space (except it’s frying the planet orders of magnitude faster in the process).

The Dream

Some might point to folks who are winning really big.

This is how the beguiling seduction of the American Dream works. A select few folks win, and they win big — real big. They become the poster child for success — the symbol that demonstrates that it does indeed work, the dream is real. We see an example of it working, and we know that that could be us. It could be me. It could be you.

To those who do win — who previously were not winning under the Old System — the New System indeed does feel like a Democratization Of Success.

But success is still not evenly distributed.

Crypto-Artist total income distribution

(including both primary sales and 10% of secondary sales,
more income analytics in Part 2)

Of the 633 artists on SuperRare:

The top 0.1% of artists earned 8% of total income ($1.5M of $19M)
The top 1% earned 21% of total income ($4M of $19M)
The top 10% earned 57% of total income ($11M of $19M)
The top 20% earned 75% of total income ($14.5M of $19M)
The bottom 40% earned 2% of total income ($390K of 19M)
The bottom 20% earned 0.2% of total income ($40K of 19M)

https://docs.google.com/spreadsheets/d/1WsQYjFObDToCUeIe2QFvk-Xg4m3dhrNJt4zoMWRIJDo/edit?usp=sharing

Though it wasn’t designed to apply at this scale, we can try looking at a metric of income inequality such as The Palma Ratio (PR) — a ratio of the top 10%’s share of income, compared to the bottom 40% [25]. (lower PR implies more equally distributed income, higher PR implies more inequality)

The US’s PR is relatively high within the ‘Western’ world at 1.85. Japan and Denmark are more egalitarian at around 0.9. Countries like South Africa are amongst the worst with a PR of 7. The entire world’s PR — i.e. the income gap between the richest people in the world, compared to the poorest people in the world is 32.

SuperRare has a Palma Ratio of 29. (And SuperRare is a very tightly curated platform. If we were to measure across all NFT artists on open platforms as well, the ratio would undoubtedly be even higher).

Using a distributed database does not help distribute success.

Don’t get me wrong, I’m incredibly appreciative for any kinds of sales at all — even if it is ‘just’ 225 USD per NFT (the median) — since digital works typically are very difficult sell.

But why does this have to involve contributing to frying the planet in the process?

In conclusion, all of the problems that plague non-blockchain based markets still plague NFT markets. The blockchain as a technology does nothing to remedy any of this, and replicates the issues exactly — except it contributes to the global warming of the planet by many orders of magnitude higher when compared to other payment transaction technologies. In fact, it wouldn’t bother me so much that the NFT market is based on these myths, if the current underlying technology was not so idiotically (and deliberately²) wasteful.

Footnotes

Technically, one could attempt to store the data itself on-chain so-to-speak, by breaking it into chunks. However, ETH was not designed for such storage and this is a terrible idea for many reasons. With digital assets being many MBs in size it would probably take hours — if not days — to ‘mine’, costing tens — if not hundreds — of thousands of dollars in transaction fees. And since the blockchain history is immutable by design, it would quickly inflate to unmanageable proportions (imagine having to download all of YouTube just to be able to watch one video). For this reason, large data (anything beyond a few KB) is stored off-chain — usually linked to via the hash of the data. One could implement some kind of mechanism to ensure that off-chain NFT content is not being linked to by multiple tokens, or even checking if the same content is not being re-uploaded with visually imperceptible changes to bypass such automated security measures. However, this then becomes a property not of the blockchain, but some other tools which could equally be deployed on other, non-blockchain networks as long as there is some open-standard agreed on by all platforms involved. And if this open-standard were to be developed, it does not need to be deployed on a PoW blockchain. In other words, the blockchain itself does not provide scarcity or authenticity for NFT related content.
Similar to the above note, mechanisms could be developed to ensure cross-platform guarantees of secondary sales. However, again this would require the cooperation of all platforms involved to develop a cross-platform open-standard, and this then becomes not a property of the blockchain, but the agreement between the platforms, which does not require the blockchain to function.