Trendspotting: NFTs (Very Late and Finally)

While most NFT activity today can be found in the arts, sports, and gaming communities, authors too are getting drawn in by market speculation and launching their own ventures

I’ve ignored NFTs for about as long as I can, given the events last week in the YA community (which I’ll explain if you reach the end of this piece). But before I dive in, I have to be honest: One reason I have not devoted much time in Hot Sheet to NFTs is that, despite reading numerous articles on the subject, I have a hard time grasping their appeal for the average person who’s not in the crypto community already—only .009 percent of Internet users own an NFT.

Nonetheless, I will try my best to convey here, without judgment on my part, what NFTs are, what’s happening, and how much you might want to care about them. There are people in the publishing community—innovators I respect—who think NFTs are meaningful or even revolutionary for writers and indeed the world. Whatever the case, everyone acknowledges: we are early in the game, and much remains unknown. Dealing with NFTs right now means dealing with uncertainty.

NFTs are a small component of a larger movement that predicts an upcoming shift from what is called web2 to web3. Web2 is the world we all live in now and partly hate: it’s controlled by mega-platforms like Google, Apple, Amazon, Facebook, etc. You get advertising, sales of personal data, and regular security breaches. Web3 puts an end to all that—or so its proponents hope. Digital innovator, consultant, and entrepreneur Sebastian Posth wrote in a private publishing listserv, “The value of [web2] is captured by only a few organisations that charge a ridiculously huge cut of the value, which is created by the community, for their services that increase their own wealth and furthermore cement their positions (and instate their business practices). Web3 promises to change this situation so that the value of the community will be distributed among the community and beneficial for the creators and rightsholders.” In colloquial terms, envision a world where you don’t have to tolerate Apple’s 30 percent cut of all in-app purchases, frustration with Amazon’s lack of transparency, or Facebook inexplicably shutting down your ad account.

Unlike Google or Facebook, web3 applications run on blockchain networks where control is decentralized. This is where most people get lost and tune out, so I won’t explain the intricacies here. But suffice to say, this technology theoretically offers an escape hatch from the dystopia of Big Tech. In a web3 world that’s decentralized, no one can censor your social media posts, and services don’t go down—there is no central source of power or singular on-switch. Control and power is distributed; users have privacy and sovereignty they do not have on web2. And cryptocurrency plays a big role in web3 because it supports easy, anonymous, and secure payments and transactions—without giving a cut of the action to payment processors like Stripe, PayPal, etc. All transactions are transparent and, if you trust the algorithms, can’t be tampered with.

For book publishing specifically, one of the most immediate use cases of web3 could be a decentralized registry and distribution service for royalties, rights, and licensing, where rights holders are paid efficiently and transparently based on a set of rules and agreements. Rather than having to trust that an agent or publisher will (eventually) send proceeds from a sale, an author could feel confident they will get the correct share of the proceeds the moment a transaction is logged. However, critics like to say that web3 and blockchain technologies are like shiny new toys that aren’t in fact needed to solve today’s problems; what we need instead is the will to solve them. Moreover, some find this technology ethically objectionable, as blockchains can increase the use of fossil fuels.

So, what role do NFTs play in all this? The most simplistic and common explanation of NFTs is that they offer bragging rights of ownership in regard to digital or physical goods. Whether you own copyright with your NFT purchase is subject to the terms of sale or platform. As Posth says, “If you buy a limited edition $1,000 sneaker, you would not claim any rights to the design or other IP. Only that no one else is walking in the exact same shoes.” Similarly, the owner of a NFT now has a digital token that no one else has; this token can fluctuate in value and also be re-sold in the marketplace. The value of this unique, one-of-a-kind token is determined by the market and can indicate social status, gaining the holders of the token entry into specific communities or experiences. Inventor and entrepreneur Ron Martinez has described it as “a right to claim ownership of a set of fulfillment rights,” which includes the right of resale and the right to join the party.

An example of this in the publishing community is Dirt, an entertainment newsletter that funds itself with NFTs that act as souvenirs and gain the owner access to private Discord channels and in-person events. In the future, Dirt plans to set up a DAO, a decentralized autonomous organization, where people may be able own a stake in the project and vote with their NFTs on what the newsletter should publish.

Critics of web3/NFTs say that it replicates what creators already do as part of web2: release exclusives or allow fans to buy digital products that have some kind of scarcity or higher community value attached to them. One might ask: Does one really need crypto or blockchain to sell exclusive or limited digital products and experiences? Does it needlessly complicate matters? (And what’s to stop web3 from being co-opted by powerful entities?)

While it’s true that web2 can do everything that web3 can, web3 allows power structures to be set up in a different way. For now, though, the NFT space is not well understood even by those launching NFT-based ventures, so you’re going to see a lot of naive use of them that’s not about changing power structures but about making money or jumping on a hot new trend.

In Posth’s comments on the publishing listserv, I found a more sophisticated understanding of NFT potential: “It does not make sense to offer an NFT for a song or a news article, content which is specifically addressing a mass market. It does, however, make a lot of sense to tokenize a license for a song or news article. An NFT could be associated with specific copyrights, translation rights, or other IP rights that can be invested in—and that could be transferred to a decentralised autonomous organisation or DAO.” (To explore this further, read more at Posth’s site.)

This brings us to another use case for publishing in particular: creators could pre-sell tokens to fund the creation of a new work. This is essentially a form of fundraising or crowdfunding where the supporters get a cut of sales in the future, as an investor would in a startup. You can see this play out in the university community already, where those holding NFTs have full legal IP rights and data access control of research.

So, finally: What happened in the YA community last week? A group of YA authors including Marie Lu, Tahereh Mafi, Ransom Riggs, Adam Silvera, David Yoon, and Nicola Yoon, in collaboration with a team of engineers and designers, announced a web3 storytelling world called Realms of Ruin. The announcement said, “Realm of Ruins starts with an origin story, five realms, 42 characters, and 12 initial stories. Anyone can write a story in this universe and ‘mint’ it into an NFT they own. The initial set of authors will promote and reward the best stories. A collectible NFT character set will be sold at launch to fund the project.”

It’s tough to scrutinize this project’s setup because it’s now offline, but public perception was that copyright would be held by the original YA authors behind Realms of Ruin, not the writers minting the NFTs. Very quickly writers raised questions and objections on the project’s Discord server (and social media) relating to copyright and who would hold it, the potential fees involved to participate, and the targeting of minors.

Unless one really grasps the idealistic vision of web3—and trusts the person(s) launching such an NFT project—it is hard to explain or convey why the holy grail of copyright ownership might not matter to earnings in this scenario. If readership in Realms of Ruin grew, and its social status reached Harry Potter levels, presumably so would the value of participating authors’ tokens. The value and earnings would be distributed across the community. But most of us only tenuously grasp NFT/web3 models in the first place, much less use them, and once you layer the ethical concerns on top, good luck.

In response to criticism, Lu said, “While I have answers, it doesn’t really matter at this point—what matters more are the feelings this project has elicited from you all.” The entire project was dissolved in a matter of hours—social posts and announcements were deleted, and the Discord server disappeared.

Bottom line: Like any new technology, NFTs are subject to hype and dreams, scams and abuse; the market is not supervised, and the issues are complex. Skeptics often compare NFTs to pyramid schemes. But those who genuinely understand and believe in the technology see NFTs as part of a future that’s decentralized by design and can’t be co-opted by the rich and powerful or by the state.

Martinez, who is a pioneer in this area and a developer/creator of NFTs and NFT platforms, commented in the private listserv, “The NFT tribe and web3 weirdos (haha) are interested in pushing knowledge, culture, power, and economic rewards for one’s online engagement back out to the edges, back into the hands of everyday people, and away from mindlessly avaricious big platforms, surveillance capitalism, filter bubbles, misinformation, tagging and tracking people like wildebeests, too often dehumanizing us in the service of equipping Ozymandian billionaires with spaceships to alpha-dog each other with on the edge of space.”

On Twitter, someone commented, “I think recognizing the spiritual hunger that sits at the core of these movements (and remember how many in the space are young people!) is an important step to understanding them. Crypto culture is a mirror world that feeds off of the unexamined failures of the real world.”

I am grateful to both Posth and Martinez for helping me better understand NFTs and ensuring that what you just read about web3/NFTs is accurate (fingers crossed). If you’d like to explore the issue in greater detail, check out this reading list that includes varied perspectives.