‘The Problem With NFTs’: A Crypto Expert Responds to a Viral Takedown

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A version of this article was published in TIME’s newsletter Into the Metaverse. Subscribe for a weekly guide to the future of the Internet. You can find past issues of the newsletter here.

Are you bearish or bullish on NFTs? No matter which side of the fence you’re on, there’s been plenty of information over the last month to validate your worldview. In terms of sheer numbers on OpenSea, NFT sales and active traders have never been higher. On the other hand, a vicious video critique of the medium—that runs nearly the length of Spider-Man: No Way Home—has gone viral over the last couple weeks, with crypto detractors gleefully highlighting its most lacerating arguments on social media.

The video, “Line Goes Up – The Problem With NFTs,” was created over a period of 10 months by the video essayist Dan Olson, who offers media and cultural analysis on his YouTube channel Folding Ideas. It has been viewed more than 4 million times since going live on Jan. 22. In the video, Olson discusses what he perceives to be the blockchain’s security gaps, the hollow hype of NFTs, and the limited capability of DAOs.

While “The Problem With NFTs” was met with an approving roar from other crypto detractors, it was largely ignored on Web 3 Twitter. When I started asking around crypto circles about the video, some didn’t even know it existed. The dual reception was another prime example of how polarized this space is: Many people who don’t know much about Web 3 hate it, while those invested in it, financially and emotionally, are often not even aware of the discourse happening outside the space.

In an attempt to somewhat bridge the divide, I asked Tascha Che—a widely followed macro-economist and Web 3 investor who offers crypto education via essays and videos to her 121,000 Twitter followers—to respond directly to some of Olson’s specific critiques. I then went back to Olson to ask him to respond to some of Che’s rebuttals.

Che actually agreed with many of Olson’s assessments of the current landscape. But while Olson views the technology has hopelessly broken from the start, Che sees a work in progress with vast potential. “If it’s actually a revolutionary technology, which I believe Web 3 is, it’s not going to stay stupid forever,” she says.

Below is a condensed version of these separate conversations. Have any responses to Olson’s critiques or Che’s defenses? Feel free to write in to time@metaverse.com. If we receive enough persuasive submissions, we may spin them into a mailbag newsletter.

Dan Olson’s critique: Cryptocurrency is a “Greater Fool” scam, in which members who buy in must convince someone else to invest in order to make their money back.

Tascha Che: It’s true that Bitcoin is disproportionately benefiting the earliest adopters. That’s why I think some of the projects in this space are unsustainable, because you cannot reward early adopters at the expense of new entrants.

There is a very uneven distribution, and a small number of whales controlling most of the value in the system. But from my point of view, this system is so young and we are only seeing the beginning of it. The Bitcoin market cap is now 40% of the total crypto market cap, and it’s been going down consistently. In the last year, you’ve seen the rise of so many new alternative layer ones, or second generation blockchains that use proof of stake. Crypto adoption is growing at an astonishing rate worldwide: The recent surveys done by [the research firm] GWI show that 10% of internet users in the world own crypto assets, doubling from their survey 3 years ago.

So I totally agree with you: a system that benefits early adopters at the expense of newcomers isn’t going to do great in the long term. But I don’t see the crypto space as a whole to be such a system, because you have new innovations happening every day. You will have these different adoption waves and different stages of technology adoption. As Bitcoin’s market share goes down, who is going to capture the value added of the tremendous growth in the industry? Newcomers.

Olson’s critique: One of the main selling points of this technology is that it’s particularly secure and resilient to “man-in-the-middle attacks,” in which a hacker intercepts information en route from one party to another. But those types of attacks are pretty rare. The vast majority of fraud comes from scammers inputting bad information from the start, by getting someone’s password. When you are tricked into doing something on the blockchain, all of the mechanics that follow are legitimate, according to the rules of the system. This has opened the door for every type of scam imaginable.

TC: I think the question is framed as if the benefit of blockchain is primarily security, which is entirely not true. It’s not more secure than centralized databases.

Right now, the blockchain technology is not very robust. There are many inefficiencies and shortcomings. Are there frauds and scams? Of course, lots, because you have a new system of distributing value. When there’s money, there are always frauds and scams around.

But the people focusing on those things, I think they’re missing the forest for the trees. The point of the system is a revolution in how we distribute value. The point is not inventing a system that is more secure than the centralized system.

Olson’s Critique: While NFTs are supposed to be completely decentralized, in most cases there’s no cryptographic relationship between the image that an NFT points to and its token. The image could be easily altered or replaced if people with the access to servers changed the file names.

TC: Yeah. You don’t even need to change file names. In your NFT metadata, there’s a URL pointing to the file. You can just swap out what’s being hosted at the end point of that URL. But again, this is a technical thing that, to me, is not a dealbreaker and can be easily fixed. There’s already Arweave, a decentralized file storage project that’s getting a lot of traction.

Andrew R. Chow: You don’t find it ironic that this whole year through the NFT boom, people have been so excited about these assets on the blockchain that are still routed through a centralized server?

TC: A JPEG associated with an NFT is not any kind of technology breakthrough at all. The image, whether a Bored Ape or Cryptopunk, is just a visual representation so that the human mind can weave a story around it. But what you’re owning is the hash token onchain, and that in itself has all the benefits that blockchain offers: It’s immutable, decentralized, hard to destroy.

So the way people have been associating these hash tokens with JPEGs, it’s not the greatest design. That’s for sure. I’m sure people will come up with something better, and they should.

Olson’s Critique: In the cryptocurrency world, the end goal is the financialization of everything. Everything becomes a stock market.

TC: I do believe eventually there will be hyper-tokenization, and everything of value will find some kind of on-chain denomination. Because blockchain introduced these ideas of value exchange from person-to-person without going through centralized authorities. Throughout human history, financial assets are almost like a mysterious, sacred thing: You have to be some kind of authority in order to issue an asset, and there’s a huge entry barrier.

Now, just like the internet, which democratized the spread of information, the blockchain is allowing everybody to create assets of value. This is seriously groundbreaking.

Olson’s critique: Just like Web 2 coalesced around centralized platforms, so has Web 3, with platforms like OpenSea, ConsenSys and Animoca Brands dominating. It is just a recreation of existing power structures within the new environment.

TC: That’s already not true. There are decentralized alternatives, newer ones, trying to compete with OpenSea, like LooksRare, that has a co-op ownership model.

But from a more macro level, a lot of times when you have a new wave of technology, the use cases tend to imitate the previous way people used to do things. When the internet first started, you had online chat rooms trying to imitate coffee shops. But over time, the internet was no longer a replication of the physical economy: It came up with social media and various ways to disseminate information.

The same thing is happening in the blockchain space: the early projects in the space are trying to imitate the Web 2 applications that people are very used to. I think this is really just a phase. There will be new experiments and explorations.

Olson’s critique: DAO’s aren’t that useful. Most organizations are too complex to properly express in code. There are too many contingencies and unforeseen consequences. So instead, the DAO only handles code-appropriate tasks: bookkeeping, digital signature verification, on-chain asset management. But that’s just a productivity tool. It’s a slow, inflexible tool for executing straw polls.

TC: Yeah. Right now, DAOs cannot really do much. Anybody saying they are going to replace centralized organizations in the short term, that is entirely hype.

But because the blockchain opens up new possibilities of governance, there are so many experiments going on. I see these as research and development costs of a new field, not the end-all-be-all of how Web 3 organizations are going to be structured. A lot of them will fail. But something new will come out of it.

We’re suspicious about new things in general if it disrupts our world view. There’s an underlying fear of how it will become a disaster. You see this pattern happen repeatedly throughout history: with the industrial revolution and the digital revolution. When Netflix, Amazon, Facebook first came out as really crappy products, a lot of incumbents didn’t pay much attention. But if it’s actually a revolutionary technology, which I believe Web 3 is, it’s not going to stay stupid forever.

Final words from Olson and Che

To wrap things up, I asked both Olson and Che to respond to each other’s criticisms on a more macro level. Olson argued that there are central concerns about Web 3’s basic purposes, while Che focused on how crypto levels the playing field for investors. Here are their closing statements.

Olson: Netflix, Amazon and Facebook took off like wildfire out of the gate. Amazon’s first landing page looks tacky now, but it was functional: it was an online bookstore that tells you if they have a book, and you can buy it and they ship it to you. The adoption rate was very large immediately.

The questions around Web 3 are very much centered around base functionality. This stuff doesn’t do what people say it does and it overwhelmingly exposes people to unnecessarily high risk and the burden of risk.

Che: Crypto has one of the fastest technology adoptions in history. [Over 114 million Bitcoin accounts have been created, compared to 3 million seven years ago.] With tokenization in crypto, everyone can invest in crypto startups—not just venture capital firms or high net-worth individuals —and these markets have liquidity like the stock market from day one. If you don’t like the volatility of startup investment, then don’t do it.

Regulations need to stop treating people like children and think they somehow need to be “protected” from a wider set of opportunities. Focus on education and risk disclosure, instead of having stupid bans that end up exacerbating social inequality.

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