What Mainstream Discourse on NFTs is Missing

2 812

Read in Chinese

Mainstream talk of NFTs has blown up since the Facebook/Meta announcement. Everyone’s talking about it, everyone has an opinion – especially those unfamiliar with crypto. This causes a lot of misguided information circling around and becoming the common discourse.

Once such opinion is that NFTs are solely a money laundering scheme. Not too dissimilar how people used to think that crypto is only for illicit dark web transactions or how video games will turn children into murderers. Something new exists and people who don’t quite understand it jump to conclusions on why it has to be bad. 

In this article we will look at how legitimate this assumption is and whether all NFTs are made only to launder money (tl;dr – no) as well as look at the phenomenon of NFTs in general and briefly touch the etiquette of owning one. 

Why would anyone want to buy an NFT?

Let’s be real, many people don’t get NFTs. First of all, there’s the consensus that NFTs are only pictures, forgetting that and NFT can be anything such as a website, audio, a podcast episode (hey Permacast!), a video file, etc. But for the sake of this argument I will use the image NFTs such as profile pictures. (A side note – my own Arweave News profile picture is an NFT and full disclosure – no money laundering was involved in the purchase of it.)

So one of the arguments people have is that no one would even want an NFT. They are just basic little pictures that cost enormous amounts of money. This ignores the whole concept of collecting, though. People have always spent money on collectibles and unless you’re passionate about it no one would relate to paying great sums of money for, let’s say a hockey card

Buying images with status or meaning are not a new concept that has come with NFTs. In fact collectibles are not just sports or playing cards, it’s also sports and music memorabilia, signed t-shirts and pieces of art by, say Da Vinci and Rembrandt. The range from Magic: The Gathering cards to a cassette to a painting of Jesus tells us that the variety of collectibles are as far as the mind reaches. So why is it so difficult to imagine wanting to own an NFT for anything else than money laundering purposes?

False sense of ownership?

Another aspect of NFTs is that it is not a physical thing. You can buy a painting or a card, the transaction happens and at the end you receive the physical goods. You own it because you can touch it. An NFT belongs to you in a digital format making the ownership of it less realistic as we know it in the material world. 

A recent Harvard Business Review article wrote about NFTs and put the word “ownership” in quotation marks stirring a mockery by people who believe the ownership of an NFT is imaginary. 

This, however, is a philosophical debate that goes way beyond NFTs. Like anything new, it’s hard to accept that it’s legitimate but when it comes to NFTs, the debate asks – is anything older legitimate too? Is owning a house a meaningful or an imaginary concept? Without paying the property tax or mortgage your house can be repossessed at any moment. A contract signed between some people has as much meaning as we give it ourselves and is no more real than a digital contract.

Just because something is done with a pen and paper rather than in digital form doesn’t make it more real. In fact, digital contract signing has long existed in the form of, say, HelloSign. So it’s not surprising that an even more technically advanced form of ownership contract can exist. 

And in the case of buying an eventual 404 page, the real life comparison would be buying a house that is destroyed in the floods. The solution for the house would be getting insurance – insurance for the NFT would be storing the assets and metadata on the Arweave permaweb.

So all in all, the ownership, based on a contract, is as real or as imaginary as anything in the outside world. We could still argue whether the art belongs to the purchaser or is it always the true property of it’s creator but that’s a debate with similarly philosophical arguments which in essence comes back to the fact that while there is a contract – it belongs to the person purchasing it, just like any goods.

Besides, unlike in cases of other forms of art like music, videos and books, you own the original, not the copy of a story. In fact, there’s even ways to check that the NFT piece you’re purchasing is authentic

How would NFTs work as a medium for money laundering?

Knowing that NFTs are legitimate forms of collectibles with real (or equally as imaginary) ownership as anything else in the world makes it easier to understand the market itself. But some people, potentially by not understanding the appeal or the concept at all have claimed that NFTs are a money laundering scheme. 

The theory (again based on not getting the culture) is that there has to be something behind the art piece as no one would pay nearly 2 million for a pixel. Here again we would need to talk about the prestige and whole philosophy behind this piece but let’s just see it from the standpoint of people not understanding it. 

So the way it would work is if someone would want to buy some illegal goods and the seller would want to make this money legal they would additionally sell an NFT, register the deal and use the money legitimately. Even more so, since crypto is anonymous and payments can be made without the KYC process, someone could simply own two wallets and “sell an NFT” to themselves legitimizing the money they have. Since blockchain technology is relatively new, it’s harder to track these transactions (but not impossible as we will see later).

One inconsistency is that if NFTs were only a money laundering scheme we wouldn’t see so many pixellated profile pictures pop up. People want to be associated with the seller, be a part of a community and own these pieces for status. 

This is not to say that some people don’t exploit NFTs for exactly that. But this isn’t an NFT specific thing. People have done this with paintings since paintings have existed. When there is a system to exploit there will always be people exploiting it. But we can’t write off a whole niche just because it’s not magically immune to all human corruption. 

How to keep NFTs safe from exploitation?

On January 2, 2021 a new Anti-Money Laundering Act (AMLA 2020) made it so that people selling antiquities and art have to comply with the same regulatory framework as financial institutions under the Bank Secrecy Act. This means that art and antiquity dealers now need to identify the beneficial owners they are working with. They also need to adopt the appropriate compliance policies, keep records and audit their record keeping and compliance. 

Currently NFTs are not subject to this, however, as digital marketplaces become more popular, this same law could apply to selling NFTs in the future. The debate here is whether NFT marketplaces can be classed as dealers. And while it’s clear that cryptocurrency is “value that substitutes for currency,” the NFTs are not defined as such yet. 

However, the debate is moving forward and definitions for digital goods are in the process. Asking these questions and moving along with the acceptance of NFTs as tradeable goods and currency is the righ​​t step towards it becoming less able to be exploited. 

Another recent discovery proved that wallets can be known and traceable so it’s not as simple to scam wallet to wallet transactions. There is also the KYC process for withdrawals and Anti Money Laundering software that are constantly updated to catch out shady transactions. 

The etiquette of owning NFTs

NFTs come with a set etiquette. You can’t just screenshot an artist’s work and claim ownership of it. It’s the same as owning a poster of Mona Lisa and claiming it’s the same value as the original painting. 

NFTs are also the contract of ownership and a simple screenshot can not serve as that. There is more to it than just the image, it’s a whole philosophy which surrounds owning an NFT. The prestige of owning a piece, for some, is even more than the collection of pixels itself.

  1. Felix says

    How are wallet to wallet transactions traceable?
    I mean seriously, if somebody splits up let’s say 1 btc in over a hundred fractions and sends it over dozens of wallets to dozens of other wallets and so forth – you get the picture – and caches out over some of those, maybe even on multiple accounts or even multiple exchanges?

    1. kate says

      One of the things is that for withdrawing the money there’s a KYC process. However, the general debate of – could anyone use this wrongfully – that’s a long and interesting debate that definitely is worth exploring more. As I mention in my article, any field or monetary exchange can by exploited so having things in place to make it more difficult whilst not taking away the freedoms is a very important aspect, that we might explore in a separate article. Any thoughts on this? Happy to have a chat here or over DMs 🙂

Leave A Reply

Your email address will not be published.