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WTH are NFTs? Here is the token, there is the Beeple....

76.23kWh per-transaction footprint... WTF, people?

In the art world this spring, there's just one phrase on everyone's facemasks: the non-fungible token (NFT). When artist Mike Winkelman sold a JPG embedded into a cryptocurrency token for $69m in Ether (he pocketed $53m of it) jaws hit floors. But what is an NFT, exactly, and should you care, or just roll your eyes and go about your business?

Three letters and a lot of theory

An NFT is a form of cryptocurrency token that has a unique identity. Bitcoins, litecoins, doge, ether, and most of the other hundreds of cryptocurrency tokens out there are fungible, like digital sausage meat. It doesn't matter which piece of a bitcoin lands in your wallet. The value lies in the general price of the asset at the time. In that way, it's a little like cash. Whether someone gives you this dollar bill or that one doesn't really matter.

Now, imagine that Sylvia Plath had written a poem on the dollar bill in your wallet, and you could prove its authenticity. The dollar would be worth much more, even if the poem itself could be reproduced elsewhere. It would gain unique value.

To replicate that in cryptocurrency, you need to make tokens unique. In 2018, the Ethereum cryptocurrency community did that with a standard called ERC-721. Now, people could digitally scrawl whatever they wanted to inside an Ethereum token. Winkelman (aka Beeple) embedded his 443,902,761 pixels in one, earning him just shy of 12 cents per pixel.

Beeple's is far from the first NFT. They date back to Cryptokitties and beyond, and there are platforms like OpenSea and Nifty Gateway (which sells Beeple's work) making money from them. But $69m for a JPG has a way of capturing the media's attention.

So NFTs are just another way of signing digital prints, then, and all this is just a bubble? Well, no and yes. Winkelman himself has said that NFT-based art collectibles are a massive bubble. But it hasn't stopped people trying to do more interesting things with them.

Matt Stephenson is one such person. Last month, the Columbia PHD and behavioural economist sold his own digital asset as an NFT: a polynomial smoothing graph. It was the result of his early research into a two decades-old piece of pseudoscience: the Shangri-La Diet. Professor Seth Roberts wrote the book on this diet after arguing that ingesting flavourless calories (such as extra-light olive oil) in between meals would program the brain to lower the 'set point' at which the body maintains weight.

It was pseudoscience because Roberts experimented on himself and didn't conduct peer-reviewed research. That doesn't mean the idea wasn't plausible. It gained traction, but never got the research it needed to prove or disprove it, explains Stephenson.

The problem is that the incentives just aren't there, he says, which is why so many ideas that might have some grounds for further research are ignored by academia. "It didn't get absorbed into a research stream of basic science that would preserve it," he tells us. "It also wasn't patentable. So nobody wanted to run the study."

He ran a rudimentary scientific study with crowdsourced respondents in 2018 to see if a more detailed study was worthwhile. "It looks promising enough based on the results of the study," he says. So he auctioned off a hash of the graphed study results as an NFT via OpenSea. It sold for $24,000, which is around a quarter of the amount he needs to run the more detailed replication study.

Ideally, Stephenson would like to see NFTs become an alternative incentive to fund scientific research into plausible ideas that fall through the cracks.

NFTs that compute

Some people envisage NFTs going beyond simply containing or pointing to collectibles. ERC-721 NFTs aren't just tokens. They're smart contracts. Rather than just representing a digital asset, they can run code, making them distributed blockchain-based programs. That enables people to encode rules around how a digital asset is used.

"You can control the access rights, earn rewards, or get paid by letting other people use your NFT to train or test their ML/AI algorithms," says Dragan Boscovic, a research professor at Arizona State University who founded its blockchain research lab.

"The only limit is your imagination," says Boscovic.

Joseph Lubin, co-founder of Ethereum and blockchain software technology company ConsenSys, says he sees almost limitless opportunity in the kinds of things you can embed in an NFT.

Rather than storing a pre-made asset in an NFT or storing a pointer to it on an external storage system, a Consensys-based project called EulerBeats encodes the instructions to generate the art as a smart contract. The contract can create art and music from its own code directly on the Ethereum blockchain.

The project sold its second batch of 25 NFTs for at least 45 Ether (around $85,000) each at the end of March, with some fetching far more. Owners can then mint limited copies of each one and earn royalties from them.

Energy consumption

The blemish on this utopian landscape is energy usage. Ethereum still uses proof of work for its consensus mechanism, leading to what data scientist Alex De Vries' Digiconomist site says is a 76.23kWh per-transaction footprint.

"Ethereum's energy issues, which are non-trivial but not terrible, will disappear in nine to 12 months," asserts Lubin. That's because Ethereum 2.0 will use the more energy-efficient proof of stake mechanism. There are also existing PoS-based blockchains such as Charles Hoskinson's Cardano, which has native tokens in its ledger rules, so some have begun to use it for minting NFTs or making transfers. It appears to be working on an NFT standard.

For his part, Lubin is working on Palm, an NFT platform that will launch with a Damien Hirst NFT sale. Co-founded with others including David Heyman, who produced the Harry Potter movies, Palm will eventually use a small number of verifiers to slash energy usage to insignificant levels.

The Palm network, which will bridge to Ethereum, will also link to the Protocol Labs' Filecoin, which Lubin says will help to provide permanent decentralized storage for digital work on the Palm system.

The flurry of attention paid to NFTs will likely subside in time, and it remains to be seen how much of this will trickle down to those of us without wallets full of Ether. Tech luminaries like Jack Dorsey can flog tweets for millions, and you can pick up a certified unique picture of an anthropomorphised hotdog for 55 bucks on OpenSea. But we're looking for something we could actually use.

Here's a neat idea. Stephenson is plotting another use of smart contract-based NFTs called the Splitstream, to programatically split funds from an academic NFT sale among the authors of any works that it cited. And it would be recursive. "An NFT sale's proceeds is partially split toward the works that the NFT depended on, like a citation. Those "citations" can then further split and cite," he explains.

With so many interesting ideas in play, NFTs have the potential to be far more than an art and collectibles fad. But as with many nascent technologies, someone has to make the use cases work in practice. ®

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