Okay, I need to do something with all of this knowledge so here's a guide to NFTs.
1. Cryptocurrency/blockchain
So, to understand what NFTs are, you need to know what cryptocurrency is and why. Very basically, in 2008 an anonymous individual that goes by Satoshi Nakamoto invented "electronic cash" or "bitcoin". This was an anarcho-capitalist idea that if cash was made digital that eventually the need for banks would vanish.
The way bitcoin and most "proof of work" cryptocurrencies work is through a "blockchain". Basically, any computer in the world that holds a bitcoin "wallet" helps keep track of transactions. So if one computer fails, the whole system doesn't fail. Every time a transaction happens it is recorded in this network and grouped into a "hash" of other transactions. You can think of this as a digital piece of paper that has a bunch of receipts written down on it. So if Sarah sends 3 bitcoin to Lee and then Lee sends those 3 bitcoin to Alex, those transactions are recorded by all of their computers.
This system, by design, wastes a lot of power. Every time a transaction happens all of the computers involved have to solve some computations that get harder and harder to do the longer the blockchain is. So every time a transaction happens thousands of computers are wasting a ton of energy working to keep track of the coins. The reason it's like this makes sense if crypto is happening on a small scale. It makes it nearly impossible to hack, which eliminates the need for something like a central bank.
Once this scales up beyond just a few hundred anarcho-capitalist activists and hobbyists and becomes mainstream though, it causes a lot of problems. The most obvious one being electrical power consumption. Yes, a computer hooked up in, say, Iceland, where most if not all power comes from geothermal energy isn't making a huge impact, but the blockchain has to go through thousands of computers every time a transaction happens. And a lot of those Computers will be somewhere like certain areas of the US or India which still use a lot of coal.
And, if you have an older or less powerful computer, it might completely destroy your computer. Which financially hurts people and increases the demand for chips which increases the demand for lithium and silicone which puts strain on manufacturers and mining companies which makes the price of certain products go up which over time eventually makes crypto less accessible unless you want to use it through a third party company that makes money off of you, thus effectively creating a bank, which bitcoin was designed to skirt around.
Ethereum is another kind of blockchain different from bitcoin in a couple of ways. First, it wastes a bit less energy than bitcoin (but make no mistake, it still wastes a lot of energy) and, you can put stuff on the blockchain that isn't coins. Text. You can put a bit of text in the blockchain and keep it in your Ethereum wallet. This is an NFT. A Non-Fungible Token. A unique bit of text that the blockchain says belongs inside of one specific crypto wallet.
Those pictures that people post aren't the NFTs themselves. The code required to create a picture is too many characters to fit inside the character limit of these NFTs. So what people are actually selling isn't the picture. It's a link to the picture that you then put inside your digital wallet, and when you move that NFT between wallets, everyone on the Ethereum network keeps track of that.
You can also put links to other things inside these NFTs. Like, say, viruses. And almost anyone can put an NFT inside of your crypto wallet if they know which wallet is yours because all of that info is publicly available. So there have actually been a few instances where someone has put an NFT in someone else's wallet and when they got confused and opened the link to see what it was, they let a virus into their computer that stole thousands of dollars worth of cryptocurrency from them, or stole their other NFTs and held them for ransom.
And, if you look at transaction histories on popular NFT collection on OpenSea, you'll also notice that a lot of times the same person will sell the NFT to themself a few times and then sell it to someone else once they've artificially inflated the price. It's very difficult to make a lot of money off of the NFT system unless you already have a lot of cash to burn and most people that are just hanging onto their NFTs and not selling them are (likely) middle class people that can't afford to inflate the price and are afraid to sell their "investment" because they don't quite understand what they've gotten themselves into. They were just told that it's a good investment and they aren't extremely familiar with how financial markets work so they just trusted the people telling them it was good, and the people telling them that it's good are usually the same people artificially inflating the prices.
The thing about crypto is that almost nobody actually uses it as a currency anymore unless they're buying an NFT. There used to be a place you could buy illegal drugs with it, but that got shut down by the American government and the new marketplaces are much harder to find then that one. Instead, people use it the same way they might a stock. They hold onto it, hoping it'll go up in value so they can sell it at a later date.
Unlike stocks though, there's nothing really backing up the value of cryptocurrencies. If you bought some stock in Microsoft, you're likely doing it because you think it's a good company that will continue to do well and make more money. So you let Microsoft hold onto your money in the hopes that you'll get some more back later. With real currencies, they're backed up by the credibility of the government that mints them. If I have 5 British pounds, I trust that I can spend those pounds predictably because I have a certain level of trust in the British government's ability to monitor its currency.
Crypto is backed by nothing but imagined value. There's no government, no business model, no product. It's just a bunch of code moving between computers at a high electricity cost. So the equivalent of a once in a century stock market crash happens to the crypto market once every couple of years or even twice a year, which has happened since May of 2021. The crypto market crashed and halved in value in May and then it climbed up again and then crashed and halved in value again in November. It can be affected by sudden unexplained panic, Elon Musk making a tweet, Wikipedia no longer accepting crypto as payment. Anything. A whisper on the wind can make it jump up or down in price.
This, unsurprisingly, also affects NFTs. If you buy an NFT for 3 Ether when Ether is worth 2,000 USD you sold it for 6,000 USD. But if you sell it for 4 Ether after the currency crashes to 1,000 USD now you've sold it for 4,000 USD and have lost 2,000 bucks. So now what? You just don't sell the NFT I guess. And will Ether ever go up in value again? Probably? But there's always the real possibility with every crash that this time it won't go up in value again.
And nobody knows when the crypto markets will go down and stay down or if that will happen. Nobody knows. People try to predict but they're rarely correct. So whenever there's a crash, everyone who bought cryptocurrencies at their peak loses like half of their investments. Prices of NFTs go down. Everyone panics. A bunch of people call it the end of crypto. But then it goes up in price again, inevitably crashes again, rinse and repeat. It's gambling. It's unhealthy. It's built on tissue-paper-thin foundations.
For me the environmental impact of NFTs is only part of why I hate it. That's a big part of it. It's awful. Visa can process as many transactions in one hour as the bitcoin blockchain does in one day and at a much lower cost of power. Computers running on renewable energy sources offset this somewhat, but still most of them are running on coal or gas powered electrical grids.
But the biggest problem I have with NFTs and crypto as a whole is that it is just a game of luck and it's hurting vulnerable people. The only people that can safely go all-in with crypto already have money to burn. It's not regulated so scams that have been illegal in many countries for decades are coming back and people with little financial literacy, people who don't understand the system they're getting pulled into, people that are really young or really old, people who are vulnerable to developing a gambling addiction, and people who are operating in their second or third language are getting the rug pulled out from under them and having their money taken from them and it breaks my heart so much.
And a lot of these crypto or NFT communities have a very toxic high control mentality. They're not cults but if you need something to compare it to, they have a few things in common.
And not al of them are high control groups, not all of them are scams, not all of them run on fossil fuels and coal. But they're all a part of that toxic system. And the people who would benefit most from poor or middle class people buying into crypto and losing their money on it are the people who are controlling the mainstream info on crypto. Because they can afford to hire teams of people familiar with Search Engine Optimization and Public Relations experts who make sure that most of the info you find on the first page of Google is provided by them.
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