May 20, 2021 Issue No. 3

7/12 8:43:42 UTC

Last week we launched our first NFT auction. As cryptocurrency novices eager to explore decentralized finance as a tool for leaning out, we gave it a shot. So far, we have gotten zero bids. The value of the Ethereum we purchased to list our NFT ($500) has swung up and down by 50%.

Such is life in the world of crypto and blockchain. The experience hasn’t converted us into boosters or cynics. But by immersing ourselves in these markets for a week and putting a little skin in the game, we came to a deeper understanding of both the profound and the profoundly ridiculous aspects of NFT’s.

Stefán Kjartansson in front of his Black Slabbath typeface.

The Good for Artists

We decided to auction an original work created for thEM by Stefán Kjartansson, a well-known typographer and one of the pioneers of digital design. Visual artists like Stefán traditionally only share in the initial sale of their work or a commission to make it. As a work of art increases in value and is bought and sold through galleries and auctions, the artist gets nothing. An artist only has the opportunity to benefit by making new work that may (or may not) reflect the elevated value in the market — ownership value accrues overwhelmingly to the collector.

By contrast, NFTs can be structured to compensate the author or artist every time the work changes hands. This is much fairer. The blockchain ledger provides transparency into transactions related to the work, unlike the traditional art market’s opaqueness. Huge scandals at the biggest auction houses and galleries in the world have shown that this lack of transparency often leads to price-fixing and other forms of corruption.

NFT’s also offer the artist the opportunity to sell direct and avoid paying commissions to galleries and managers. That said, the benefit of galleries has always been in finding buyers and managing the market. Many artists would still prefer to outsource sales and marketing to a gallery and focus on making the work. As we learned the hard way, you can’t just post an NFT and expect it to sell.

Volumes NFT by IAMSOUND. Released as part of their collaborative exhibition with ZORA.

Cultural Capital

It was pretty surreal watching the value of our coin fluctuate wildly based on what happened (and didn’t happen) on Saturday Night Live. Traditional investors obviously do not seek such volatility. But upon reflection, isn’t Janet Yellen’s testimony before Congress also a show? As a show primarily designed not to move markets, it’s less entertaining and, for many people, seems completely disconnected from their real life. In its own way, however, it’s just another live broadcast with a compelling host.

There is something captivating about having a market influenced by humor, memes, creativity, irony, etc. And is this so different from Wall Street? Study after study has shown that market behaviors are completely disconnected from business fundamentals like profit and product-market fit. Stock market behavior is based on what people think and feel — business culture, not business itself. Crypto is like the financial manifestation of cultural currency. It’s a market that rewards being up on internet culture more than it rewards being up on business culture. Maybe that’s the only real difference? Playing in such a market might be a disaster for your retirement plan, but maybe if you were just a bit cooler, it could work out great?

Welcome Back to the .001%

Despite its aura of decentralization and egalitarianism, we were disturbed to discover that Bitcoin is the most unequal market in the world. The top 2.8 percent of wallet addresses control 95 percent of the supply of Bitcoin. That’s five times more uneven than the distribution of wealth in the U.S. economy, where the top 10 percent of citizens hold more than 75 percent of all wealth. Conversations on Reddit getrealphilosophical when this issue comes up. While equality may not be the express point of Crypto, broad adoption must be accompanied by a social assessment and regulation just like everything else. Sorry bros.

Oh Yeah, Privacy

Blockchain may offer protections for expert users. For novices like us, however, using Coinbase or Robin Hood means forking over a ton of personal information— at least as much as you give to set up a bank account and in some ways more. Coinbase connects your driver’s license to your social media to your social security number to your bank account, and you personally confirm all of those connections. While stringing together all this personal data would not be terribly difficult for a hacker; it would be a highly manual one-by-one effort. An attack on Coinbase or Robin Hood would yield an exceptional trove of personal information, much worse than Visa or Mastercard.

New Currency, Same Old Fees

Part of the appeal of decentralized financial instruments like Crypto and NFT’s is their populist air of independence from exploitative institutions like banks. Yet, for novices like us, participating in the market requires using platforms like Coinbase and Foundation, which charge fees that would make Bank of America blush. Gas Fees are charged for any action you take: listing, editing, etc., and the Foundation takes a 15% cut of the sale price. Yikes. Let’s just say it’s much cheaper to sell something on Etsy or eBay than this supposedly egalitarian platform.

The Environmental Issues Suck

As Elon Musk recently realized, Bitcoin mining and transactions consume an immense amount of fossil fuels. (He conveniently realized this after Tesla netted over $100M in profit from Bitcoin transactions.) This kind of unintended consequence shouldn’t surprise us in something that has scaled so rapidly. Dogecoin co-creator Billy Markus recently remarked that he created the crypto in just two hours and that at the time, he gave no thought to environmental concerns whatsoever.

Crypto evangelists claim that the analysis of Bitcoin energy usage is unfair. They point out that Bitcoin energy consumption is relatively easy to measure because it is self-contained — the network is all there is. But what about a traditional bank transaction? There are so many institutions required for a single transaction: FDIC, the government, SWIFT, the banks, the network, and so on. They claim there is no way to accurately measure the consumption of energy in our existing financial system.

This may be true, but here’s the bottom line: there is no excuse for inventing something new that harms the environment. It’s just too low a bar to say, “It might not be worse than everything else.” Other cryptocurrencies consume a tiny fraction of the energy that Bitcoin mining does. For example, Ethereum co-founder Charles Hoskinson created Cardano expressly to consume negligible amounts of energy. It recently surpassed Dogecoin in valuation, becoming the 4th most valuable cryptocurrency. Anyone venturing into crypto should use their wallet to support environmentally responsible options.

Net Net Net . . . Net

Selling something online is a bit like making a PowerPoint. But selling an NFT is like playing a video game. Between the time we purchased our Ethereum and the time it was ready to transfer to our wallet, it had appreciated in value 25%. Awesome! By the time we had to pay our gas fees for listing our NFT, it was down 25%. Damn! In the course of one week, the value of the art we were selling was impacted by a Shiba Inu, Tesla, and a skit about Wario. Depending on your point of view, it’s either exciting or horrifying to be trading in a market governed by memes and Reddit boards instead of power brokers and backroom deals. But there’s no denying it’s way more fun than parsing the Fed chair.

thEM playlist #3

Other than love, money tops the charts as the subject of songwriting. Whether it’s bravado, regret, anger, glee, or indifference, it’s not every day that we get a chance to reflect on the wisdom of both Method Man and Lemmy.

From the archives: This piece originally appeared in the Early Majority Substack. Links and content may be outdated — become a member to access all new Tools for Leaning Out stories and content.