You might have heard about nonfungible tokens (NFTs). You might also have heard that NFT technology was used to “sell” a digital artwork at auction for more than $69 million—a record for a digital artwork and the third-highest price ever paid for a work by a living artist. What is this technology, and is it of any value to book publishers or authors?
NFTs are an application of blockchain technology. A simple way to think of a blockchain is as a spreadsheet that many people have copies of, yet no single entity owns. When anyone adds a row to the spreadsheet, everyone’s copy is updated automatically—and it’s only possible to add rows to the spreadsheet, not to change or delete them. The most common blockchain applications involve cryptocurrencies like bitcoin, in which case the blockchain represents all of the transactions that have taken place in that currency.
Instead of representing units of currency, as bitcoin does, each NFT represents a unique object. The hype around NFTs relates to their use as indications of “ownership” of digital objects. If you buy an NFT, an entry is created on a blockchain that represents your “ownership.” You can resell the NFT, in which case a new entry goes on the blockchain indicating the user who bought the NFT from you. The record of NFT purchases and transfers is publicly viewable.
NFTs have gotten a lot of attention in the art world because artworks are unique—or nearly unique, as is the case with signed and numbered photographs or lithographs. Thus it makes sense to “own” them—unlike books, articles, songs, or TV shows, which we don’t think of as “unique.”
Notice that own and ownership are in quotes above. That’s because it’s not really possible to own a digital object. NFTs are a way of simulating some properties of ownership in the digital world. If you buy an NFT for a digital image, then that doesn’t restrict anyone else from viewing or making copies of that image. Indeed, the buyer of the $69 million NFT last month didn’t buy exclusive access to the artwork; anyone can view it in exactly the same way as the buyer can, with the same resolution and image quality.
In essence, the NFT gives the buyer bragging rights. A closer analogy would be to a plaque at a museum that identifies the owner of a painting or sculpture who loaned it to the museum, even though museumgoers can view it and others may be able to view photos of it on the museum’s website or buy posters of it. In contrast, if you own a physical copyrighted work—such as a book—then you have certain rights to that book, such as the right to alienate (sell, give, lend, rent) it, but not the right to make copies of it or create derivative works (e.g., translations) of it.
There is currently a financial bubble around NFTs: hundreds of millions of dollars are being spent on them, and NFT sales platforms like Cargo, OpenSea, and Nifty Gateway are flourishing. But much of the current NFT buying activity is either done out of curiosity or to gin up publicity for NFTs in general. For example, the person who paid $69 million for that digital image manages an NFT investment fund and got a deluge of “free” publicity out of the purchase.
It’s possible that authors and publishers will find viable applications for NFTs, but it’s too early to tell, and early experiments are likely to lead to dead ends. One area that has already been explored without success is e-books: publishing e-books and selling NFTs to denote ownership of them. One unsuccessful startup that tried this did not limit the number of copies of each e-book that it would make available, and it used DRM to restrict access to each copy to only the buyer.
Various benefits for this type of e-book scheme have been claimed: tokens can be resold, making it possible for copies to go up (or down) in value, buyers can recoup some of their costs by reselling, authors or publishers can get royalties with each resale. Yet none of these make much sense. It’s hard to imagine the value of copies going up if more copies can be produced at almost no cost at any time, and even in the print book market, easy online access to used copies has caused the average price of used books to go down. Giving publishers or authors a slice of each resale transaction is good for them but creates further disincentives to resell.
Another claim is that these systems give indie authors alternatives to the retail platforms that dominate the market. Yet this is true for any independent self-publishing platform, such as Smashwords or Lulu. A related claim is that NFTs eliminate intermediaries and bring authors into closer relationships with their fans. But this has been asserted about several internet technologies over the past 20 years, and it has become true only in a tiny minority of cases. The NFT platforms are likely to try to become intermediaries themselves, if for no other reason than that’s how they can generate revenue.
In addition, some of these applications for NFTs have already been tried without blockchains, and also without success. For example, in a lawsuit against a digital music resale startup called ReDigi, a court ruled in 2013 that resale of a digital object can’t be done without the copyright owner’s permission. Therefore any such market must include resale royalties to authors in order to incentivize them to give permission. Yet no such market has emerged. (Notably, many countries—though not the United States—require resale royalties to be paid on individual artworks sold at auction.) Of course, markets for e-book “lending” already exist through platforms such as Over-Drive, and these are feasible only with rights holders’ permissions.
One idea that has come up recently is to set a number of NFTs that are available for a given title. A bestselling author could publish a “first edition” of her next novel with a small number of “copies” that each have NFTs. A new author who becomes successful later on could produce “limited edition” versions of her titles with personalized bonus content. Some have even suggested producing different “levels” of NFTs (like gold, silver, and bronze) at different price points, each of which has different bonus content attached. Again, this can be done without a blockchain. It’s analogous to special limited edition packages of classic albums—the box set, the deluxe box set, the special limited edition box set with bonus DVDs, etc. Record labels have already tried this with digital albums, with no success—though, once again, they have never tried limiting the number of digital copies.
Finally, there are many cases in which NFTs can be fraudulent or suspect. Leave aside the fact that DRM-free digital objects associated with NFTs can be copied perfectly at will. I could, for example, obtain an NFT for an object that I claim is mine but actually isn’t, an object that already has an NFT, or an object that’s out of copyright or licensed under Creative Commons. This has already started happening. As the NFT market continues to explode, it will be necessary to curb such abuses, and the mechanisms to do so will start to resemble the highly complex infrastructure currently used to police copyright abuses on sites like Scribd, Soundcloud, and YouTube. If this type of abuse isn’t kept in check, trust in NFTs’ value and uniqueness will deteriorate.
Ultimately, NFTs are about artificially imposing scarcity on an internet world that strenuously resists it at every turn. The success of NFTs is predicated on consumers adopting a mindset that what they are buying is actually unique or nearly so. Digital ownership without uniqueness hasn’t been much of a success, given that e-book sales generally have been flat and digital music download sales (such as from iTunes) have been plummeting. The blockchain’s public forum for bragging rights is also something that does not exist in traditional content markets.
Otherwise, NFTs have value based solely on users’ perceptions that they have value. That perception has to be tended to extremely carefully by everyone involved, and for the long haul instead of just until an NFT can be sold at a profit or an NFT startup can be taken public—otherwise the NFT bubble is bound to deflate.
This article was first published by Publishers Weekly on April 16, 2021