Line Goes Up – The Problem With NFTs Folding Ideas・2 minutes read
NFTs sparked frenzy in 2021 with high-value digital art sales, but the market quickly collapsed due to rampant art theft and authenticity issues, benefiting cryptocurrency holders and driving Ether prices up. The future of cryptocurrency lies in either crashing due to losing investor appeal or becoming a daily-life staple, with challenges like digital scarcity and cross-chain compatibility posing reliability concerns for NFT integration.
Insights NFTs, like ape profile pics and meme sales, have been a significant topic in 2021, dominating digital artist discussions. The 2008 economic collapse was triggered by risky mortgage-backed securities, revealing a system rife with greed, fraud, and regulatory failures in the financial sector. Cryptocurrency, exemplified by Bitcoin and Ethereum, failed to revolutionize banking, instead becoming speculative financial vehicles attracting various players, including those involved in past financial crises. Proof-of-work and proof-of-stake mechanisms in cryptocurrencies like Bitcoin and Ethereum introduce complexities, incentivize wealth concentration, and raise concerns about power consumption and centralization. The NFT market, characterized by high-profile art sales, rampant art theft, and speculative values, primarily benefits cryptocurrency holders, driving Ether prices up and facing widespread criticism as a potentially fraudulent market. Get key ideas from YouTube videos. It’s free Summary 00:00
"NFTs, 2008 Crisis, and Cryptocurrency Evolution" NFTs have been a significant topic in 2021, with various examples like ape profile pics and meme sales dominating digital artist discussions. In 2008, the economy collapsed due to mortgage-backed securities, which were profitable but risky financial instruments based on bundled mortgages. Banks issued mortgages to create stable bonds, attracting other financial organizations like pension funds and hedge funds to invest in them. Real estate developers focused on building upper-middle-class houses to fit the banks' bond packaging criteria, leading to a housing bubble. Speculators bought houses, driving prices up artificially, creating synthetic demand and a bubble that eventually burst. The collapse of the bonds impacted various financial entities, revealing a system rife with greed, fraud, and regulatory failures. The aftermath of the 2008 crisis birthed anti-capitalist and hyper-capitalist movements, each blaming different aspects of the system for the collapse. Bitcoin emerged in 2009 as a decentralized currency, aiming to challenge traditional banking systems and centralized currencies. Cryptocurrency, like Bitcoin, promised flexibility, anonymity, and resistance to government-induced crises, but its practical applications diverged from its initial ideals. Cryptocurrency failed to revolutionize banking, instead becoming a speculative financial vehicle, attracting both old finance figures and new players, including those involved in past financial crises. 13:25
Bitcoin and Ethereum: Distributed Ledger Innovations Bitcoin introduced a distributed append-only ledger and proof-of-work verification. Proof-of-work involves solving cryptographic math problems to validate transactions. Miners compete to solve these math problems to add blocks to the ledger. The complexity of the math problem increases with the network's processing power. Critics argue that proof-of-work incentivizes wealth concentration and power consumption. Bitcoin's energy consumption rivals that of a small industrialized nation. Ethereum was created in 2014 to address Bitcoin's limitations, offering lower fees and faster transactions. Ethereum's ledger can track Ether coins and arbitrary blocks of data, functioning as a distributed virtual machine. Ethereum aims to revolutionize industries beyond finance, storing various data immutably on the blockchain. Ethereum's development was influenced by a fellowship grant from Peter Thiel, but the book "The Infinite Machine" fails to critically analyze this connection. 26:47
Challenges of Proof of Stake Cryptocurrencies Cryptocurrencies rely on consensus mechanisms like proof-of-stake, where validators post collateral in the form of the chain's currency to determine their chances of receiving validation rewards. Proof of stake aims to reduce power wastage compared to proof of work but is less resilient. It remains inefficient due to redundancy but is more manageable on a per-user basis. Popular proof of stake chains are centralized, with scalability claims lacking substantial backing. Proof of stake introduces complexity in determining validators, conducting audits, and addressing control issues, favoring the wealthy. Ethereum's proof-of-stake migration requires a significant buy-in, limiting meaningful participation to early adopters and the wealthy. Storing and validating blockchain data requirements are prohibitive, leading to centralization of power among a few wealthy operators. Blockchains are slow, prone to delays, de-syncs, and forks, which can be intentional and used to undo transactions. Blockchains lack consumer protections, making resolving forks challenging and creating alternate realities with disputes on the entire economy. Cryptocurrencies face high transaction fees, making them impractical for small transactions due to volatile values and high gas prices. Cryptocurrency investments are likened to a Bigger Fool scam, designed to benefit early adopters and reliant on continuous investment from later participants. 39:06
"NFTs: Unique digital tokens spark controversy" NFTs are non-fungible tokens acting as a database for digital exchanges, creating unique digital objects with physical attributes. Strict uniqueness ensures each item is distinct, even if copies exist, emphasizing scarcity and uniqueness. Non-fungible tokens are unique tokens with serial numbers, unable to be divided, containing smart contracts within Ethereum. Smart contracts are micro-programs within tokens, defining their functionality, from apps to simple links. NFTs gained mainstream attention in 2021 with high-priced sales of digital artworks, sparking a frenzy. The market quickly collapsed by June 2021, with a 90% decrease, leading to rampant art theft and questionable authenticity. NFTs failed to provide true digital scarcity, with tokens easily linked to images that could be altered or replaced. The market incentivized art theft and speculation, with little regulation or protection for artists. Royalties for artists were easily bypassed due to marketplace functions, leaving many artists with unsold works and losses. NFTs primarily benefited cryptocurrency holders, driving up Ether prices and providing liquidity for cashing out, leading to widespread criticism of the market as a scam. 51:48
"NFT Market: Speculative Value and Controversy" Vignesh Sundaresan, a crypto entrepreneur, bought a Beeple art piece for $69 million to boost his crypto investment scheme Metapurse and its token B.20. Beeple owns 2% of the total supply of B.20, which saw its value rise from 36¢ to $23 after the Christie's sale. The market's focus is on speculative value rather than the art itself, with a shift towards procedurally generated collections like CryptoPunks and Bored Ape Yacht Club. The market is characterized by irrational prices, detached from legitimate transactions, and a surge in character profiles from various collections. Twitter users rallied around NFTs, with some paying exorbitant amounts for profile pics, leading to an adversarial relationship with critics. Greg Isenberg highlighted that NFT skeptics often lack experience in the market, implying they are uninformed sore losers. The NFT market is criticized for being financially driven, with concerns about insincerity and potential conflicts of interest among promoters. A visit to the Cool Cats Discord revealed a focus on the monetary value of tokens and a culture of spam invites and shilling. The average NFT buyer is described as middle class, socially isolated, responsive to memes, and fixated on making money through technology. The market is rife with fraud, deception, and bad art, often lacking originality and resorting to pandering to cryptocurrency themes. 01:04:21
Investing in intangible projects: the allure and risks. In established projects, the focus is on ongoing projects rather than tangible products. Token purchases are akin to investing in a company, promising financial returns. Projects vary from creating unofficial hedge funds to owning a casino through token ownership. Some projects promise media creations like comics or movies to attract buyers. Video game promises lack specifics, often just stating "a video game" without details. Initial minting of token collections evolved to on-demand minting to reduce upfront costs. Projects operate as gambling schemes, with varying degrees of success and potential scams. Enthusiasts invest in intangible projects based on hype and future potential. Toxic positivity and resistance to skepticism create a high-control group dynamic. Community members enforce loyalty through rituals and language, dismissing doubts as FUD. 01:17:18
Challenges and Risks in Cryptocurrency Transactions Tokens are small boxes for data, difficult and expensive to update on the chain. Smart contracts in tokens need to be broken up and interconnected, with fees for transactions. Fixing bugs in smart contracts involves creating new copies and paying fees for each step. Wolf Game, an NFT-based gambling game, faced issues with glitchy tokens that needed replacement. Wallet managers like MetaMask simplify interactions with tokens and external systems. Scams in the cryptocurrency market range from Ponzi schemes to phishing, with pump and dumps being openly conducted. Blockchain is vulnerable to man-in-the-middle attacks due to the lack of repercussions for misbehavior. Smart contracts can contain malware, posing risks to users' wallets and assets. Scammers exploit the lack of recourse for victims in the cryptocurrency market, targeting those with poor judgment. Privacy concerns arise from the pseudonymous nature of blockchain transactions, making it easy to track users' activities and identities. 01:30:27
Challenges of Ethereum's Transition and Web3 Integration Authentic engagement with the system reveals extensive personal information and activities, while disingenuous engagement enables deception and fraud. Misunderstanding of central authority and data decentralization is a key issue in the rhetoric surrounding Ethereum. Ethereum operates as a central platform, with major changes requiring approval from a small group, symbolically representing a validation network between a consortium and cartel. Large platforms like Windows, Apple, and Google involve various stakeholders in determining their direction. Ethereum's transition from proof of work to proof of stake has faced challenges due to validators' reluctance to change. The system's complexity acts as a safeguard against minor breaches, favoring justice access for the wealthy. The proposed web3 future, driven by cryptocurrency, is criticized for its privacy implications, particularly exemplified by MetaMask. NFTs serve as access passes beyond speculation, creating a tracking system across web activities. Web3 projects are intertwined with blockchain technology, leading to increased costs and barriers to access. Axie Infinity, a play-to-earn game on Ethereum, involves costly onboarding, scholarship programs, and a broken energy system favoring middlemen. 01:43:17
"Challenges of Axie Infinity's Real-World Economy" The more players in a game, the more SLP and axies are generated, leading to an unsustainable economic model requiring a constant influx of new players to maintain price stability. Games often face economic challenges, but typically involving fictional currencies like gold or gems, unlike Axie Infinity's real-world implications. A stable economy in games isn't always desirable, as gentle inflation can benefit newer and casual players by reducing costs and enhancing participation. Games marketed for earning potential rather than enjoyment attract players seeking to profit, altering gameplay dynamics. Players optimizing playtime for financial gains rather than traditional rewards like fun or challenge can disrupt the gaming experience. Sky Mavens adjusted the economy in Axie Infinity to limit SLP earnings per hour, leading to the rise of pit bosses overseeing players grinding for rewards. The global system's injustice is highlighted by players in economically disadvantaged countries making a living through video games, a situation viewed as horrifying. NFT bros' dedication, financial power, and influence in mainstream culture make them significant players in promoting blockchain and web3 technologies. The future of cryptocurrency hinges on either losing investor appeal, leading to a market crash, or becoming an integral part of daily life, ensuring continuous investment flow. The integration of NFTs with cryptocurrency poses challenges, with issues like digital scarcity, ownership, and cross-chain compatibility raising concerns about the technology's practicality and reliability. 01:55:43
"DAOs: Power, Scams, and Limitations" NFT Trader platform was used by scammers to conduct a link swap scam, stealing multiple ape tokens in a short period. Users are delegating authority to platforms interacting with the blockchain to interpret its meaning, replicating existing power structures. DAOs, decentralized autonomous organizations, are promoted as a new way to organize people, governed by possession of relevant tokens on a blockchain. DAOs consist of people, smart contract-based digital machines, and tokens for interaction. Many organizations claiming to be DAOs lack the necessary machine functionality or tokens. DAOs enable formal organization creation at any scale, automating activities and results through program layers. The technical complexity and specialized programming expertise required for DAOs concentrate power in the hands of template builders. The technical cost and stakes involved in creating a DAO limit its functionality to managing on-chain assets. The first DAO, The DAO, was exploited in 2016, leading to a significant loss of funds and a subsequent fork in the Ethereum project. DAOs are limited to code-appropriate tasks like bookkeeping and asset management, lacking the ability to enforce decisions off-chain. 02:08:51
Transitioning DAO: Yield's Decentralized Cartel Operations The organization in question does not function as a union or a DAO but aims to transition into the latter, currently operating as a mildly decentralized cartel. The organization operates as a Discord server assisting play-to-earn players in finding sponsorships, switching between games, and venting about their jobs. The DAOs typically use governance tokens for administrative purposes, offering various voting power mechanisms. The organization Yield aims to function as a hedge fund, utilizing token exchange value to invest in play-to-earn games and granting members access to these resources. Yield's roadmap includes the potential implementation of holographic consensus, a futures market for gambling on proposal outcomes using governance tokens. The system within Yield incentivizes members with fewer tokens to align with highly staked members' interests, potentially leading to high-powered voting blocs or a functional monopoly. The organization's focus is on the price of its scrip rather than its actual functionality, rewarding high stakeholders with more power and access, rather than fostering equity and democracy among members.