The art world needs a revolution! A revolution fueled by randomness. Forget predictable brush strokes and perfect technique. Let’s just throw some words into the grinder, add the element of danger and see what happens. Why not? It’s Friday, it’s been a long week, and I needed a laugh, so I give you this gem.
Since the olden days, I’ve got a chuckle from doing something like catting /etc/shadow and piping it to your sound driver. It’s not like it makes beautiful music. It’s, well, kinda stupid. I wanted my own stupid thing. Well, it only took a couple of decades, the invention of cryptocurrency, and advancements in generative AI, but I finally have it. Welcome to the world of Crypto Wallet Pneumonic Generated Art. It’s cultured, refined, and, don’t forget, incredibly stupid. Yes, now you can risk it all to generate art from your wallet seed phrase. Behold! The beauty!
The image was generated with the following seed phrase.
This is all fun and games, but what if you did it with a real wallet? Hmm, let’s do that.
Here are 5 images generated from the 12-word seed phrase of a real Phantom wallet. How much SOL is in there??? Hmmm. You’ll have to recover the seed phrase and find out. At the time of this writing, the crypto market is crashing, so far less value then you’d hope.
Two of the Twelve words should be painfully obvious. Interestingly enough, from a few of the experiments I did, it seems to latch on to just one or two of the words that it’s most familiar with and discards most of the others on every subsequent run. It also seems to make some relations between words that explain how the model is constructing the image. I may run some further experiments using DALL-E as well and compare them to Stable Diffusion, but I’ll leave that for another day.
Time To Make Millions $$$
Now, for the business plan. What if NFTs were created based on pneumonic phrases from cryptocurrency wallets with balances in them? I mean, because why not? Since NFTs aren’t actually about art, this could be a way of superficially pumping their value. Will this be the next art revolution? Will people walk around galleries sipping wine and marveling at these masterpieces? Just asking questions 🤣
Try it yourself! Throw caution to the wind and join the artistic revolution.
Disclaimer: Not responsible for loss of funds due to complete stupidity!
As I return from Las Vegas, I’ve been reflecting on some spirited debates I had around the topic of regulation and sanctions related to the Web3 space. This is a highly contentious topic, especially around decentralized finance. So, I thought I’d jot down a quick note of my thoughts on the subject.
I delivered a talk on Web3 security at Black Hat USA. A couple of days earlier, the US government imposed sanctions against Tornado Cash. Tornado Cash is a cryptocurrency mixer on the Ethereum blockchain that anonymizes transactions to avoid tracking. It’s become a favorite among criminals to launder ill-gotten gains, including nation-states like the DPRK. It’s been estimated that at least $1.54 billion resulting from crimes such as thefts and hacks have been laundered through Tornado Cash. Being relevant, I briefly mentioned it in my talk since one of the first things you must do before attacking a project is to plan your exit strategy. After all, money laundering 101 is to move fast to confuse tracking attempts.
Privacy
To people not involved in the space, it may be confusing why anyone needs to be private or anonymous while sending or receiving cryptocurrency. The reality is that people are acting as their own bank. If you identify a specific individual and you know that person has a certain number of assets, then you can just show up at their house and force them to hand over their money. It’s a legitimate concern.
Also, with the public nature of these technologies, it could make it far easier to analyze purchase histories and patterns to learn deeper insights about individuals. The same kind of privacy violations we are concerned about today outside of the Web3 space. This becomes much worse for people living under oppressive regimes.
Most of all, it’s just not anyone’s business what people spend their money on. Certainly not so they can create algorithms to learn more about our spending habits and try to convince us to buy things we don’t need.
I mean, it’s not like traditional organizations have a great track record of protecting people’s privacy. There are countless breaches and disclosures that prove otherwise. So, that leaves us with a bit of a conundrum.
Typically, when this topic is brought up, two major talking points bubble to the surface. Let me do a bit of debunking about why these two points don’t mean that we shouldn’t do anything about illicit activities.
Cash
One of the arguments I hear is that cash is anonymous. This may be true in theory, but there are some significant challenges. Probably the biggest point is that cash isn’t frictionless. If you don’t believe me, try to move 100 million dollars across an international border or trade one currency for another. In small amounts, sure, but when you are trying to launder large amounts of money, it isn’t.
There are other choke points as well, where you have an opportunity to catch someone who’s stolen a large amount of money. Video cameras at establishments, border checks, scanners at airports, and on and on. Not to mention there’s also the time factor. It takes a lot more time to move physical cash than it does an electronic transaction creating more opportunities for detection.
In reality, cash is only anonymous in small amounts and under the right conditions.
Decentralization
There’s been a surprising lack of effort on behalf of the community to address issues like money laundering and theft. In fact, the attitude of the community has been pretty much the opposite. Many proponents say that this is the purpose of decentralization in the first place. To resist efforts to regulate and sanction.
Decentralization means a lack of ownership. Unfortunately, this lack of ownership also extends to the issues created by decentralization as well. Whenever issues of money laundering arise, the resounding response is, “that’s just how the system works.” Just because something is decentralized doesn’t mean there is nothing that can be done.
Another comment I hear is that illicit transactions make up a small amount of the total transactions, so why is anyone concerned about it? It’s true that money laundering and illicit transactions make up a small number of the total number of transactions per year, but we are still talking about billions of dollars. Not to mention, some of these networks have become the primary vehicle for criminals. This is also not an excuse to do nothing about it.
More Regulation and Sanctions
If there’s one thing that’s for sure, it’s that we’ll see more regulation and sanctions coming soon. Tornado Cash isn’t the only game in town. More regulations and sanctions are coming because the community is completely unwilling to address these concerns in any meaningful way.
Sanctions and regulations often create more friction than directly addressing an issue. This is because they are rarely implanted well and are part of a knee-jerk reaction. For example, someone sent Crypto Influencers small amounts of ETH from sanctioned Tornado Cash wallets, getting them banned from using Defi projects, which is kind of funny. Ironically, it’s the same lack of friction that these influencers tout that allows this to happen.
Another side effect of the sanctions is that legitimate users doing nothing wrong may have had their assets frozen.
Given all of this trouble, you’d think that the community would be looking for ways to avoid these situations in the future, but mostly what’s happening is complaining about how things aren’t “decentralized” enough.
If you are in full schadenfreude around what’s happening, you should take a pause. Even if you don’t care about Defi and web3, that doesn’t mean you shouldn’t care about what’s happening. There’s the potential here for blowback onto other privacy controls outside of the web3 space. The more of these sanctions we see, the more comfortable the government gets with creeping into other areas, such as weakening the encryption we use on a daily basis and take for granted. There are also issues concerning code and free speech in the blast radius of these sanctions.
Prevention is the Best Cure
The best way around sanctions and regulations is not to incur them in the first place. So, what could the community do? Projects could band together and create something like a Defi Standards body. This group could define standards that address security and privacy as well as curtailing illicit transactions. The adoption of these standards would mean that projects that don’t follow them have a low reputation and legitimate Defi projects can refuse to work with them. Certainly not perfect, but it would have a positive impact.
Unfortunately, using controls to curtail illicit transactions requires the introduction of friction. Controls such as delays, additional verification, transaction limiting, and many others are considered unpalatable and anti-freedom.
So, don’t hold your breath that something like this will happen without being forced. Creating standards is something that traditional organizations do and it doesn’t apply. Rules are for squares man!!! You’d think an attempt to stop the movement of funds stolen from other Defi projects would at least be a start and directly applicable to the space, but there aren’t any real efforts here.
There’s too many chains, too many projects, making too many problems, and not enough love to go around. (Sorry for the music reference, once I saw it, I couldn’t unsee it. Bravo if you know the song.)
Conclusion
As long as the Web3 space continues to do nothing to curtail harm, we’ll see more regulation and sanctions. The community seems to think these are a result of some sort of threat to traditional institutions. As long as this mindset persists, instead of the fact that ill-gotten gains are helping fund nation-state nuclear ambitions, we won’t see meaningful solutions from the Web3 side. The community seems content to duke it out with various countries around the world instead of addressing the issues.
What if I told you there was an investment opportunity where you were almost guaranteed to lose money? What if I told you that this technology allows for someone to airdrop you unsolicited d**k picks, and instead of burning them or being upset, you end up hanging on to them in the hopes that someday they are worth money? (Yes, this actually happens) Welcome to the wonderful world of Non-Fungible Tokens (NFTs).
Amara’s Law: We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
Even though I have a bit of fun in this post, it would be foolish to underestimate the effect of NFTs in the long run. Misconceptions, hype, and complete denial of reality are stifling something which could be a cool technology experiment. That’s what gets lost; NFTs are just a technology experiment. Whenever money is involved, people tend to forget that things are an experiment.
Start
By now, you’ve probably heard of NFTs but aren’t quite sure what you get when you buy one. Don’t worry, you aren’t alone. Many people buying them don’t know what they’ve bought either. There’s plenty of information out there on what they are, so I won’t go into that here, but I would like to talk about is their value because that is a hotly debated topic.
NFTs have become the slow news day punchline for many, some for a good reason. Not a day goes by where there isn’t some NFT scam. Fakes, frauds, and scammers are all cashing in on the craze. The victims aren’t gullible rubes either; some are large corporations like Kia.
Even though I take a few of my own jabs for entertainment purposes, this isn’t a post beating up on NFTs. Just a look at where the technology is today, from the perspective of novelty and individual ownership.
What You Get
For many, it seems silly to spend money for a receipt because that’s essentially what you get when you buy an NFT today. You don’t get the copyright. You can’t reproduce the image and create new NFTs from it. The receipt is verifiable to someone curious enough to check the specific blockchain on which the NFT is minted. This is summed up in the following cartoon from the New Yorker.
Non-Fungible Tolkien
Side note: Props to whoever came up with the “Non-Fungible Tolkien” joke.
If the copyright holder wants to mint another identical NFT on a different chain, they can do that. If they want to print posters of the image you bought and sell them, they can do that too; you can’t. As a matter of fact, if you wanted a poster to hang on your wall, you’d have to pay for the image again.
In non-technical terms, from the buyer’s perspective, what You’ve bought is bragging rights. Bragging rights are what people find valuable about them.
The Value of an NFT
NFTs aren’t about the artwork or artists, no matter how much someone tries to tell you otherwise. The current value of NFTs is about signaling to others that you are part of a group. There’s a hierarchy, so the “cooler” the NFT project, the “cooler” group you belong to. NFT ownership is like being in a fraternity, only in this case, the hazing comes from outsiders.
NFT ownership is like being in a fraternity, only in this case, the hazing comes from outsiders.
Determining which projects will be popular can be tricky since NFTs have a closer relationship to memes than art. You aren’t always sure why one takes off, and the other fails.
The market is fueled by two things, FOMO and sunken cost fallacy. This is accelerated through artificially built-up hype created through traditional social media platforms.
Pumping and Artificial Hype
Let’s look at a simple example NFT launch. An “artist” creates an NFT collection. Now they have 10,000 images that nobody will buy because nobody knows about them or cares. They need to create a buzz, so they make an announcement on a platform like Reddit or Discord offering to airdrop free NFTs to users, but there’s a catch.
To get free NFTs, you have to take a series of steps that involve amplifying the announcement and spreading the word on various social media channels. To others, it looks like “everyone” is talking about this NFT collection, and they buy an NFT when the project launches because they don’t want to miss out. FOMO hits both the person getting the free NFT and the buyer. Neither care about the artwork but don’t want to miss out on an investment.
Of course, the previous scenario is only if everything goes as planned. If it’s a scam, you just helped a thief steal people’s money, and of course, these scams happen all the time.
There are also PR stunts to try and draw more attention to NFTs, like the guy who took out a loan for half a billion dollars to buy an NFT from himself.
Look at the example below of a fake sale from Twitter.
These stunts are a daily occurrence and actually hurt the community instead of help.
Almost all NFTs and NFT projects lose value after the initial hype dies down. Anyone who paid an astronomically high price for an NFT will feel pretty stupid or just has so much money they won’t miss it anyway. Of course, there’s always the scenario where you may just love collecting NFT farts.
Now, that said, some people have made money on NFTs, but they typically sell them shortly after buying or receiving them. To take this a step further, a recent study published in Nature found that the top 10% of traders account for 85% of the transactions and trade at least once 97% of all assets. This is a shell game, not a vibrant community of collectors.
Scams and Illegal Activities
Criminals find the NFT craze lucrative, and not a day goes by where someone isn’t ripped off. The current market is full of scams and illegal activities. Wash trading, rug pulls, money laundering and many scams are a daily occurrence and will continue into the foreseeable future.
Not About Artists
Everyone likes to say NFTs are about art and artists, but this evidence doesn’t line up. You create a couple of templates and then let some code create 10,000 permutations. People then buy them with the hopes of flipping them. I’m not saying that an 8bit image or even a computer-generated image can’t be art, but what I am saying is there isn’t any appreciation for art or the artist in the current ecosystem. Refer back to the previous Nature article about the ecosystem.
People buying NFTs think of themselves as investors, not collectors or people who appreciate art. Investors are showing off that they bought something, not showing off the artwork.
Not About Art
On the flip side, most people consuming art, buy it for a purpose. They want to show it on their wall and don’t want to be their own art dealer.
New Promises, Same Problems
In the old days, artists hated the gatekeepers. The gatekeepers were the obstacle holding them back from the masses and success. Today, the gatekeepers have mostly disappeared, and musicians can freely publish their music on platforms such as Apple Music, Spotify, YouTube, and a whole host of others alongside famous artists. The same platforms exist for other types of artists as well. The barriers between artists and consumers have all but disappeared. Success still hasn’t come, now comes the promise of NFTs. New platform, same problems.
The unspoken reality is the vast majority of user-generated content, both creative and non-creative falls in the range from not good to pure garbage. This is an astronomical uphill battle if you are a diamond in the rough. The fact that the content is poor won’t stop people from giving you a platform and making money from it. Dreams rarely turn a profit, but selling people on their dreams has always been profitable. The chain and marketplace always make money, the artist, not so much. Artists still have a lot of heavy lifting to do.
Dreams rarely turn a profit, but selling people on their dreams has always been profitable.
NFTs don’t solve the most significant challenge for most artists. If you are a well-known artist with a following, getting a larger share of proceeds from streams and sales is attractive, but you’ve already passed the most significant hurdle. Most artists would rather have exposure than money. In the case of musicians, they freely give away their music in the hopes that people will listen. These artists are in the “trying to build a following” stage, not the “maximize profits” stage.
Reality Denial
As an outside observer, one of the biggest things irking people about NFTs is the complete denial of reality in the ecosystem. Fanatical collectors are willing to lose family members or even wish another pandemic upon the world, all so that their NFTs will rise in value.
Reality Denial
Reality Denial
It would be foolish to dismiss NFTs completely
It would be foolish to dismiss NFTs completely. NFTs are a technology experiment, and like most technology experiments, the initial iteration often doesn’t resemble the end result. I think this is what frustrates me about the current state of NFTs. It’s all hype, but the technology actually has some pretty cool use cases.
If you look at what NFTs are, it’s not hard to see how they could be a utility with additional value. So, NFTs will morph into a value add vs. a thing of value.
Companies are already experimenting with these concepts. A couple of unique examples are Nike with their CryptoKicks or something like TechStyles for the resell market. We’ll see more of this experimentation from companies in the future.
New Revenue Streams
Even though NFTs aren’t about art, NFTs do create new potential revenue streams. Companies who want to launch NFTs may commission people to create NFTs for product launches and other promotional activities. This type of work will increase, and today you can even find people on Fiver who’ll create these NFT collections for you.
If Kia wants to launch an NFT to go along with a new vehicle, they’ll need someone to help them with that, either on staff or as a contractor. Just don’t rip them off this time 🙂
Conclusion
Whether you are all in on NFTs or all against, it’s good to keep Amara’s Law in mind. The next couple of years will be interesting to see where NFTs head. We’ll see a transformation of the original concept into more value-added technology, so please, don’t talk your parents into converting their retirement savings into a pixelated image.
Shout out to the @CoinersTakingLs Twitter account for some of the example tweets used in this post.
