Continuing our coverage of crypto NFT problems, and other digital tools such as Etchings that potentially benefit artists and art collectors, we had a chance to speak with Protocol Labs‘ Head of Community, Wes Finley, about what they’re doing to solve one of the known technology shortcomings that crashed the NFT market of 2021.
In our article What Is an NFT Art Collection? we concluded that collecting NFTs isn’t collecting art at all, but that “Hopefully, there is a technologist somewhere coming up with a system that actually establishes ownership of a digital file.”
Read on to find out how Filecoin solves one of the fundamental flaws of Version 1 NFTs.
Wes, you’ve been involved with cryptocurrency for a number of years…could you describe your involvement?
I first got involved when I did research and wrote articles about Bitcoin for CNN.com/Tech. I ended up buying a small amount and mining, mostly as a hobby. I typically only earned ~$2/day.
Eventually, I started focusing on Ethereum because the smart contracts aspect enabled a lot of cool Web3 possibilities (even if most of those aren’t fully developed yet).
I also explored mining for other blockchains like Helium. And I am now working full-time with the R&D lab that launched and is developing Filecoin. Filecoin is a decentralized storage network that allows you to mine FIL by renting out your storage space, as opposed to other crypto, like Bitcoin, that is mined through proof-of-work. Distributing FIL provides the incentive layer for people to cooperate on a decentralized storage network that can compete with services like AWS.
Editor’s Note: AWS=Amazon Web Services, one of the largest server/hosting options globally.
When what we can perhaps call NFT Version 1’s came along in 2021, did you purchase any? Why or why not?
I wasn’t very bullish on NFTs initially. The jpegs didn’t seem to have any value to me. I probably wouldn’t have paid the gas needed to mint most of the NFT V1 stuff. Though, I could have made a lot of money if I did get in and sell at the right time.
I like NFTs more as representations of the real world or useful metaverse elements. For example, the system of deeds for physical property is expensive, slow, and prone to errors. NFTs would be a great way to show and pass ownership to property. You could also mint NFTs with digital attributes so they serve as things like rare weapons in a video game.
Basically, the value I see in an NFT is what I can achieve with it, not so much in just showing off my ownership of a digital photo or a tweet.
You recently joined a Web3 firm called Protocol Labs. For those that aren’t familiar with that term, what does Web3 mean?
Web3 is about decentralizing services in a trustless ecosystem. In Web2 you have storage providers like Amazon Web Services (AWS), payment providers like VISA, and an internet built on a central Domain Name System (DNS).
You have to trust each of these entities to behave as you expect. But there are plenty of examples of that trust being broken. Malicious legal organizations can force the DNS to delist a site with copyright claims when the content may not be infringing. VISA can freeze your accounts if they believe you are making illegal purchases – like marijuana or abortion care in some states. And AWS goes down every time a new Game of Thrones premieres because everyone is streaming from a central location.
With Web3 these services are decentralized and smart contracts are immutable. So you don’t have to trust any central 3rd party.
An area of emphasis is a new way of storing files. How does it work? What does it replace?
With the current HTTPS protocol that powers the browser-based internet, files are referenced by location or URL. The file in that URL can be changed by anyone with access to the server. Did you see this literal “rug pull” that happened because Opensea mints NFTs using traditional URLs? https://twitter.com/neitherconfirm/status/1369285946198396928
Filecoin is built on the IPFS protocol which uses a content ID instead of a URL to find and deliver content. This system allows the internet to be decentralized because when you need a file or web page you can use its content ID and anyone who is storing that file on their hard drive will return the data. You could even get parts of the file from multiple different hard drives nearby so you optimize delivery/download speed. This is a lot like the old BitTorrent p2p system.
A good real-world example is: with HTTPS you go into a library and ask for the 3rd book on the 4th shelf and hope you get the book you expect; with Filcoin/IPFS you ask for Harry Potter and every library in the world serves you pages as quickly as possible until you have the whole file/book.
Editor’s Note: HTTPS=Hypertext Transfer Protocol Secure, the code in which modern websites are written and browsers such as Chrome, Firefox, etc. display them. BitTorrent=An old system that came after the original Napster where people would share music or movies (typically without having purchased them).
You recently posted that your solution is a better option for the digital art that an NFT references because it eliminates the dependency on URLs (whose destinations can be changed). How are you guys solving this problem?
When you mint an NFT you don’t want to store more than a few lines of code on the blockchain. It’s too expensive. So you could never store your actual photo or data file in the blockchain.
Blockchains are already 100s of Gigabytes. Could you imagine how big they would be if every block stored thousands of files? The NFT has to reference this information somewhere else. Previously, URLs were used, but the content referenced by a URL can be changed. A content ID can be used within an NFT instead. The content is then stored on the decentralized Filecoin network, and the NFT owner doesn’t have to worry about that content changing.
Editor’s Note: The possibility that the content referenced by a Version 1 NFT would change is one of the fundamental flaws we covered in Problems with NFTs.
So it sounds like Filecoin is a potential solution for stabilizing what an NFT references. Does the Filecoin distributed file reference the NFT? Or does it address multiple NFTs referencing the same file?
The Filecoin content ID doesn’t actually address multiple NFTs referencing the same file. The file is available for anyone to reference, the NFT would serve as the ownership layer. Similar to in the real world how anyone could view or use a house, but only the person with the deed would have the proof of ownership.
The issues that Filecoin solves would be closer to if you had a deed to a property and someone switched the address of that property. Filecoin prevents this address switching.
In September 2022, do you believe that NFTs linked with your solution can be a good investment (buy low, sell high)?
I think that new NFTs that continue to use URLs, or those that already exist with URLs referencing their content, are a risk because that content could change or cease to exist. I have to believe that this fault will affect the value of these NFTs.
NFTs that use a content ID system should be a better investment, but ultimately, the content of the NFT is going to be what determines how much someone is going to pay.
What does an artist need to know before starting to mint NFTs?
Right now NFTs are primarily minted by developers. You can use services like Opensea to help mint your NFTs, but then you are largely tied to the Opensea ecosystem and services. It isn’t really a great experience for artists who just want to own the digital representation of their art.
There are a few services out there that help with minting NFTs. NFT.storage and OpenSea are a few options. I would make sure that the service you use doesn’t lock you into a single ecosystem and the NFT is minted in a way that it can be stored on any wallet, not just in the central system. This would allow you to move your NFTs to a hardware wallet like a Ledger for better security.
Editor’s Note: Be sure to read up on the additional challenges of working with these firms: https://www.nytimes.com/2022/06/06/technology/nft-opensea-theft-fraud.html
What does an art collector need to know before purchasing her/his first NFT?
I would look into how the NFT is referencing the artwork. Is it a digital file referenced by a URL or a content ID? Or is it a real-world item referenced by some sort of string or code within the NFT itself? The NFT is just identifying your artwork, not storing it. So you need to make sure it is identifying the artwork correctly.
Stay tuned for more coverage of crypto NFTs here on the ETChster blog. If you’re looking for an NFT-like solution for traditional fine art, be sure to claim your free ETChster profile including your first 100 Etchings.
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