Why should a Catholic care to know anything about non-fungible tokens (NFTs)? Aren’t NFTs just another iteration of the tried and true formula of taking a thing, putting it on blockchain, and making money? Capitalism in a highly regulated and politically stable country is an exceptional economic system for finding fair prices and putting money to work where it is most useful. Prices tend to reflect all risk, benefit, and opportunity as perceived by participants in that economy. But what a pure form of capitalism cannot do is guide the process of finding prices in any way. What is something “worth”? What does it mean for something to have “value”? These questions are left to participants in the global economy and particularly those that live in capitalistic societies. NFTs raise all of them.
Recently, a digital artist made $69 million on the sale of one of his pieces via an NFT. The outrageous prices paid for NFTs in the last few months are a clarion call to Catholics, urging them to enter into this space and provide perspectives rooted in the sociological dimension of economics. But NFTs are more than just a fad and are likely to grow in use in our increasingly online economy. You may even purchase one in the near future, perhaps without even realizing it is an NFT. For this reason, Catholics should understand NFTs enough to know about their potential dangers as well as consider their virtues and how they can be used in a truly inclusive economy.
NFTs are a ledger system to track ownership of digital assets—for example, art, music, video game baubles, etc.—and related transactions. What is unique about NFTs as opposed to a physical ledger, or even a ledger on a computer, is that they’re entirely web-based, relying on blockchain technology. While I am not going to discuss every aspect of blockchain here, the important thing to know is that blockchain technology is useful because it is transparent to everyone on the system and because the relevant information is recorded on the blockchain itself. That means there is never a question about piracy or stealing; faking a transaction on a well-constructed blockchain technology is pretty much impossible.
NFTs are useful because they solve a real-world problem of how to track ownership of things that are themselves completely digital and where “ownership” is inherently hard to prove or demonstrate. NFTs can not only show ownership but also its provenance—who sold what and to whom. However, NFTs are not limited to things that exist only in the digital realm. Indeed, they could be used for anything from car titles to event tickets. If there is a thing that exists, its ownership can be tracked via an NFT.
One common misunderstanding in the discussion of NFTs is the assumption that NFTs themselves have some intrinsic value. The popularity of cryptocurrencies contributes to this misunderstanding. While NFTs and cryptocurrency both use blockchain technology, they have separate purposes and are used differently. BitCoin and other cryptocurrencies are fungible and are intended to be stores of value, while the comparison of an NFT to a ledger system is apt. The ledger itself does not have any value; the real value is in what the ledger references. And this is the key point. For example, Bleeple sold an NFT for $69 million, but to be more technical about it, he sold a piece of digital art via an NFT. Each NFT can only point to a unique digital asset; it is not the asset itself.
If you’re asking why art sold via an NFT should fetch a higher price relative to physical art, you’re asking the right questions. The recent fad over NFTs led to some strange valuations. People wanted to buy an NFT perhaps more than they really cared for the thing the NFTs referenced. Someone paid $85 for a fart, and the buyer who forked over $69 million for an NFT is actually a long-term investor in crypto-technologies and supporter of NFTs broadly. One criticism of NFTs is that they’re just a mechanism for the rich to stay rich. This criticism is a bit too early, and as the craze subsides, we should expect the price of NFTs to fall. But what is clear is that NFTs are here to stay.
NFTs have a role to play in a legitimate economy, albeit one that is largely digitized. If someone makes something that is entirely digital—a piece of artwork, for example—and decides to sell that art online, what is the best way to track the provenance of that artwork? This is one of the problems NFTs are well-suited to address. A digital watermark or password-protected portal might suffice for one-time private use, but when digital assets exist entirely on the internet and are intended to exist on the internet, they are available to anyone and everyone with access to the web almost instantly. How does one know whether one has a legitimate copy or if one is using assets that are stolen or plagiarized? When everyone has access to the asset, how can “ownership” be determined?
Another example is music. While streaming services today might make music more accessible to all, artists (and their willingness to create original music) typically don’t fare well. Additionally, the private ownership of digital music is increasingly rare, due partially to antiquated rules, originally established to protect artists, regarding what songs can be shared, with whom, and how. NFTs can theoretically facilitate legitimate ownership and reselling of digital assets in a way that is more intuitive, supportive of emerging artists and their creativity, and comparable to physical assets.The potential uses of NFTs are limitless.
NFTs, however, are not all digital sunshine and rainbows, and there are a number of problems and concerns.
First, NFTs are as revolutionary as they are secure, but only once the NFTs are on the market. The creation of NFTs itself may be prone to exploitation. Surprisingly, in some cases the owner of the copyright may not be the seller of the NFT! While future standardization and normalization might bring with them better systems of checks and controls, the lesson is simple: buyer beware. Especially if the goal is to reward artists and creators of digital assets, buyers of NFTs will likely have to do some extra work to ensure the NFTs they want to buy are ethically sourced. More broadly, we should ask what it means to own something, as any ownership of a digital asset is tenuous at best. Many current buyers of NFTs actually have no control over the copyright, making “ownership” in this context a loose concept, equivalent to hanging a poster in your room and claiming you own the band featured on it.
On that note, it is important to understand what one is actually buying when purchasing an NFT. Just because one has purchased an NFT that references an asset, that does not necessarily mean that one has purchased the copyright or the ability to license, share, or distribute that asset. This is where buyers have to carefully read the fine print. Right now, anyone could sell an NFT of the Mona Lisa. But what would that mean? Could you take possession of the Mona Lisa? No. Could you copy the image and sell it? No. Could you at least go view the painting in the Louvre whenever you want? No. In this case, it would be equivalent to buying a fancy piece of paper with “Mona Lisa” printed on it. Unless the current copyright owner explicitly sells rights in the documentation of the NFT, the purchaser of the NFT has not acquired those rights. On the flip side, this “Wild West” of NFTs means that interesting and innovative structures can be built to make NFTs work even better for artists, digital platforms, or buyers. For better or worse, the fate of each NFT rests in the corresponding documents, if they even exist.
A final issue relating to NFTs is that NFTs can only point to the digital asset; digital assets tend to be large files and are certainly too large to be held on the blockchain itself. That being the case, NFTs still need to reliably reference the digital asset. To do this, the NFT blockchain might carry a URL for a website that hosts the asset or describes the digital asset in detail. But who hosts that website? And how can it be guaranteed that the website will be around when it comes time to resell the NFT? What’s to keep the website from changing in significant but imperceptible ways? What guarantees that the website won’t be hacked? These are technical problems to be sure, but point to questions as yet unanswered.
Perhaps most relevant for Catholic readers are moral concerns regarding ownership and responsible economic activity raised by NFTs. Equity is a major concern. Because this system of ownership exists entirely on the internet, typically accessed through expensive handheld devices, there are high barriers to entry. If NFTs become normalized and there exists an entire economy of digital assets that a large segment of the population cannot access, the digital divide becomes an economic one. Christians also may have broad concerns regarding the digitization of even more aspects of human life, which can isolate people from each other even as they are increasingly economically and socially connected. Francis has pointed out this paradox in several places in his writing (Evangelii Gaudium 88, Gaudete et Exsultate 115, Christus Vivit 86-90, Fratelli Tutti 42-50).
Another issue that cannot be ignored is the sustainability of crypto-technologies broadly. They depend on electricity, raising questions about their role in contributing to climate change. Cryptocurrencies, which require a large amount of computer power to function properly, are estimated to be responsible for 0.6% of total electricity consumption—equivalent to the power output of a small country—the vast majority of which is still fossil-fuel based. With broader adoption and increased demand for crypto-technologies, this figure can be expected to rise.
Finally, NFTs raise fundamental issues regarding property and its purpose. The internet is full of digital assets that are available for free at any time, from YouTube videos to your favorite .gif. It might be argued that NFTs are an attempt to privatize something that should not be privatized and that the internet should be kept “free” for everyone. However, it is very likely that many of these digital assets do not have clear provenance and may, in fact, have been acquired and used illegally or without permission. You may be surprised to know of at least several lawsuits that have been filed just over memes.
This relates to the Church’s social teaching as well. An illegitimate use of NFTs would be to control something that was never meant to be controlled, or to limit distribution or hoard digital assets to the detriment of others. But CST goes further in aiding our understanding of ownership and private property in ways that shed light on NFTs in what Francis referred to as the “technocratic paradigm.”
One particularly relevant aspect of Catholic Social Teaching is the “universal destination of goods.” As we have detailed on this site, Pope Francis’s teaching on private property and the universal destination of goods in Fratelli Tutti 120 was a clear restatement of the Church’s teaching, even though it raised a few eyebrows among those perennially critical of his papacy. As Francis summarizes, “The right to private property can only be considered a secondary natural right, derived from the principle of the universal destination of created goods.”
Property has a purpose that is not, first and foremost, entirely self-serving. People should be able to access the conditions necessary for human flourishing, including their own flourishing, and private property is a legitimate means to that end. But one’s own good can never be determined in isolation; rather, it must always be understood in relation to the good of others. Private property can never be used to secure one’s own good to the exclusion of the good of others in the community. An excessive claim to private property actually deprives others of what is their due.
This social dimension of property runs up against the capitalistic tendency to pursue our own good, for capitalism fosters the notion that our individualistic pursuits somehow make the economy work. But as Francis warns, it is wrong to assume that our selfishness and greed, through half-baked, “trickle-down” or “spillover” economic theories, actually advance the good of everyone in the community. Those excluded from our economic systems will not be included until the economy is structured to both benefit from and fairly reward their respective contributions. A truly inclusive capitalism serves the good of each person, each family, and the community as a whole.
The lie capitalism engenders is that ownership necessarily entails the exclusion of others, and that the primary purpose of anything we buy or invest in should be the utility it brings us and us alone. When ownership retains its social dimension, there is less of a concern that buyers and sellers of NFTs will fall prey to this moral trap. Legitimate private ownership of digital assets can be likened to legitimate ownership of physical assets; it serves the common good by ensuring that the owner is responsible for its care and proper distribution. In other words, NFTs can provide one solution to the fraud, plagiarism, and the “tragedy of the commons” rampant on the internet.
What then should the price of NFTs be? Either NFTs are just another outlet for some of our worst impulses—namely, our greed and selfishness—or NFTs have a role in an inclusive economy, one in which private ownership serves the common good, both in the “real world” and online. Catholics have the obligation to ensure that the prices paid for NFTs reflect their value, in the fullest sense of that word.