NFTs are Bribes. Bitcoin Tech Talk #229

Non-fungible tokens (NFTs) have been around a long time. From Rare Pepes to Crypto-Kitties, they’ve been the subject of silliness in more ways than one. The latest hype around NFTs promises that artists will somehow make lots of money by selling tokens that represent some digital artwork.

The attractiveness of NFTs to artists, particularly the starving type, is that they can finally get paid. After years of being rejected by gatekeepers of various types, abusive relationships with companies that capture most of the value and loads of competition in industries that have way more supply than demand, NFTs seem like a meritocratic alternative, which gives bigger cuts to the talent than the current system.

I can sympathize with their hopes. We all have that talented artist friend that can’t seem to catch a break, or has been shunned because of their integrity while their less talented but more obsequious peers get fame, fortune and more. But does the promise live up to the hype? Is the NFT market the artists’ salvation?

To examine this question, we need to look at what NFTs are. They are tokens on the some blockchain (usually ETH) that purports to represent a piece of art. This could be a video, picture, song or anything else. The idea is that these mp4, jpg, mp3 or txt file can be made scarce by associating it with a token. Nothing associates the two except by convention. The token has no ability to unlock anything, it’s a representation, only because the artist declares that it does.

If this sounds familiar, it should. This is very similar to ICOs which only had value because the company behind it declared that it does. Fiat literally means “let it be done” and both NFTs and ICOs share this property that they make abstract claims that are backed by nothing more than promises. They are both fiat assets in the literal sense.

What’s more, much like how ICO buyers weren’t the people that intended to use them for future utility, but on the speculative potential, NFTs have the same dynamic. NFTs may have some potential future utility (hey, I own this token from this famous artist!) but are traded on speculative potential.

Finally, both vehicles essentially marry the issuer to the token’s ecosystem, usually Ethereum, in an irreversible way. This is a large part of the attraction as the buyers of these tokens contain the people who have benefited hugely from the token itself. That is, they are the Cantillon Effect winners (aka Cantillionaires) of these altcoin systems. Though the NFT sale can generate a lot of money, the artists become defenders of the altcoin system.

In a sense, the issuers have been bought by the NFT sale to work on behalf of the altcoin. In other words, these NFTs are bribes. This is obvious in the way that NFTs are being talked about on Twitter, Clubhouse and elsewhere. There’s a vehemence to the defense of NFTs that only a person whose salary depends on the argument can really muster. It is the very definition of selling out.

It’s for this reason that I’m against NFTs. Getting paid is nice for the artist, but it comes at the cost of the artist having to embrace an entire scammy ecosystem, especially all the people who printed their own money. The illusion is that there’s a new market for the art that they create. What most of them don’t realize is that their art is secondary to the people who buy it. Their primary motive for buying the NFT is legitimatizing the altcoin, as they are big holders. Artists are being exploited to give credence to the platform, in much the same way that startups were with ICOs and I expect the same sad results.

Bitcoin

Michael Folkson lays out the facts regarding the Lockin-on-Timeout default in Core. There are a lot of developers that want to set LOT to True and some that also want to set it to False. There’s controversy about what to default the Bitcoin Core software to and it looks like it won’t be a user-configurable option. As such, there’s now a fork whose only difference with Bitcoin core is that LOT is set to True. This feels a lot like much strife for nothing as I don’t expect miners to not signal for Taproot, which would be the only case in which this matters.

Bitcoin Dev Kit has a nice tutorial for working with wallet descriptors using their library. Wallet descriptors are a great standard that wallets should incorporate, but is not yet very popular. For multisig, especially, wallets which support import and signing of wallet descriptors based on PSBT are what would make interoperability easy enough to make good UIs. If you’re a wallet developer, this tutorial is well worth reading.

Krystal Bull is software to be a DLC Oracle. The DLC space is pretty nascent, but if you’re adventurous, this may be a way to start a new business being the referee for some bets. As the Oracle need not be aware of any actual bets based on the results, the adjudication can be more objective. I would love to see more bets or threats of bets, even if it’s just to silence the pumpers and scammers that so proliferate Twitter. A good overview of DLCs is here.

Blockstream Green now is using end-to-end encryption to store all personal data. They’ve taken to encrypting the data and putting the payload in a blob on their end to make this possible. For any sort of 2-factor, this seems like a good idea and worth exploring for other phone wallets, most of which have the double the attack surface with all the pains of self-custody and all the vulnerabilities of depending on a central service.

DG Labs has completed a proof-of-concept of issuing a corporate bond on the Liquid sidechain. The details are in the post and the potential for this is interesting as there’s a public audit log that naturally comes with the chain. They’re looking at a similar product for securities token offerings as well.

Congrats to Michal Ford who’s now being sponsored by Independent Reserve!

Lightning

grubles has published a tool for benchmarking c-lightning performance on various hardware. Apparently, single-core performance was the best predictor of speed. Given that routing nodes on the lightning network will need to handle a lot of throughput, this sort of tool will be a necessary part of optimizing as nodes compete to route payments.

Economics, Engineering, Etc.

Alex Gladstein looks at whether governments can stop Bitcoin. It’s a long-read about the political significance of Bitcoin and its ability to resist various government measures. He concludes the piece by saying that the only way to kill Bitcoin would be to make it so people didn’t need it. Given that governments are currently addicted to spending, this doesn’t seem likely, which is great for Bitcoin.

Related to the last story is Allen Farrington’s article on the concept of Fiat Privilege. Essentially, this is the privilege gained by those who benefit from the Cantillon Effect, from rent-seekers to companies producing sub-par goods. The article concludes that it’s impossible to stay neutral with respect to fiat money. If you are not actively fighting inflation, you are essentially participating in the system that is horribly unjust. The revolutionary tenor of the article was surprising and interesting to me and something I think we’ll see more of as inflation continues to devastate economies.

A popular paper wallet generator was found to have a backdoor. The article is a great bit of blockchain sleuthing and exposes what’s clearly a scam with hard evidence. Essentially, the site uses one of a small set of private keys kept in a javascript variable. As this requires no network transmission, the site owner simply sweeps any funds that come into any of these addresses on a regular basis. This is both despicable and clever.

Susan Su has a long-read on the costs of maintaining the petrodollar. The article is meant as an antidote to the Bitcoin-wastes-energy arguments, but the article is eye-opening for how it summarizes how the petrodollar is kept as the global standard. Essentially, the entire US military industrial complex and the global banking system is used to force any country wanting oil to transact in the dollar.

Coinbase has filed their S-1 with the SEC. The surprising part to me was how much BTC they held in their treasuries, which is a paltry $130M as of 12/31/20, given their $100B valuation. This seems to indicate that investors are pricing them like any normal security in the market with insane multiples as a pseudo-store-of-value. I suspect Kraken has a lot more yet Kraken is raising at a measly $10B valuation.

Tether has settled with the NY Attorney General, admitting no wrongdoing but paying $18.5M.

Another week, another company buys Bitcoin.

Podcasts

I released the podcast with Plan B early, but it was scheduled for this week. It’s by far the most popular podcast I’ve done. Note we recorded this a couple weeks ago before Michael Saylor’s second convertible note, which Plan B correctly predicted. I have a new one coming up this week with Jeff Booth, so look for that one to drop soon.

Lastly, I talked to Rex Andrews as well as Toxic Happy Hour about the new book:

My other books are here.

Fiat delenda est.