Note from Jane: This article is adapted from a piece that I originally published in my paid newsletter, The Hot Sheet.
I’ve now spent months reading about NFTs (non-fungible tokens) and the millions of dollars being spent to acquire them, yet I struggle to understand the concept or appeal. Secretly I’ve been hoping they’ll just go away and never be heard from again, along with the pandemic.
However, like it or not, NFTs have entered the media and publishing world. Book distributors are getting into them (see Creatokia). TIME magazine sells them. The Economist sold one. Newsletter creators use them. Gary Vaynerchuk has a community built around them.
Is it a fad? A scam? How much should you care?
I don’t have definitive answers to share, but I hope by the end of this post you’ll grasp the concepts and why there is enthusiasm for NFTs.
First, here is a definition from Wikipedia.
A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a digital ledger. NFTs can be used to represent easily-reproducible items such as photos, videos, audio, and other types of digital files as unique items, and use blockchain technology to establish a verified and public proof of ownership.
Does that help you understand NFTs? Probably not, because you need to grasp several other concepts first, like blockchain.
So before I get any further, here is a quick and simplified shorthand, just so you can get your bearings and form a deeper understanding as we go:
If Bitcoin and other cryptocurrencies are the money of the future, NFTs are your unique possessions of the future that can be sold for money.
NFTs showcase your social status and what you care about, similar to a Rolex on your wrist, the Birkin bag on your arm, a Picasso on your wall, or a first edition of Thomas Pynchon’s Gravity’s Rainbow on your shelf.
Right now, only .009 percent of Internet users own an NFT, but 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, or Amazon’s lack of transparency, or Facebook inexplicably shutting down your ad account. Sounds like utopia, right? This utopia requires blockchain.
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.
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. In such a system, rights holders would be 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.
Back to NFTs: what role do they play in all this?
A 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.”
The owner of a NFT now has a digital token (a possession) 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.
Common NFTs sold right now: digital artwork, in-game items (like accessories for your gaming avatar), and historic firsts (like the first tweet).
A recent publishing industry example: Dirt is 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
It’s already possible to 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.
A web3/NFT project was launched in the YA community last month
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.
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, I highly recommend this accessible, insightful piece from an expert, Why it’s too early to get excited about Web3 by Tim O’Reilly.
Jane Friedman (@JaneFriedman) has nearly 25 years of experience in the media & publishing industry. She is the publisher of The Hot Sheet, the essential newsletter on the publishing industry for authors, and was named Publishing Commentator of the Year by Digital Book World in 2019.
In addition to being a professor with The Great Courses (How to Publish Your Book), she is the author of The Business of Being a Writer (University of Chicago Press), which received a starred review from Library Journal.
Jane speaks regularly at conferences and industry events such as Digital Book World and Frankfurt Book Fair, and has served on panels with the National Endowment for the Arts and the Creative Work Fund. Find out more.