Turn --- NFTs are worse for infringement --- fails and causes rent seeking.

IT’S BEEN IMPOSSIBLE to avoid hearing about NFTs in recent months. Hype for the tokens—pitched as proof of ownership of a digital item—has reached a fever pitch, while billions of dollars have poured into the market for them. To some, these non-fungible tokens are the hottest new collectible hobby, to others a powerful investment tool, and still more, they’re the future of the internet.

The reality is, as always, more complex. In their current state, NFTs aren’t actually capable of doing much of what they’re often claimed to do. The extremely technical nature of how NFTs, blockchains, and cryptocurrencies work means that it’s easy to simplify the explanation of the tech to the point of being misleading.

Explaining the problems with NFTs is complicated, but we’re going to try to break down the issues as succinctly as we can. We have to tackle this with the understanding that no explanation, no matter how in-depth, can ever be totally comprehensive. With that in mind, there are some misconceptions about NFTs that are worth clearing up.

NFTs Aren’t Authoritative Tokens of Ownership

The most persistent misleading claim about NFTs is also the one that’s closest to being true. Enthusiasts frequently claim that since NFTs are fundamentally unique and live on a trustless blockchain, this constitutes proof that you “own” a digital asset. There’s only one token like this one, and you have it in your crypto wallet, so the thing it signifies must be yours.

This framing is misleading for a number of reasons. For starters, NFTs can only convey ownership (or rather, possession, but we’ll come back to that) of the token itself. As software engineer Molly White explained to WIRED, “With NFTs, the thing you've bought does not tend to give you ownership of the underlying item (image, game asset, etc.) in any way you would normally transfer physical or digital art.”

Instead, NFTs typically contain links to an asset hosted elsewhere. The NFT doesn’t convey ownership of the copyright, storage, or usage rights to the asset itself. As White explained, when someone buys an NFT, “They've paid to have their wallet address etched into a database alongside a pointer to something. I wouldn't say they really ‘own’ anything at all.”

Additionally, as mentioned above, the Ethereum blockchain (currently the most common blockchain for minting NFTs) doesn’t have a mechanism for distinguishing between possessing a token and owning it. If someone steals your bicycle, it’s generally understood that the bike is still yours. With an NFT, the “owner” is whoever has the token in their wallet. So, if someone’s ape NFT gets stolen via a phishing scam, the blockchain treats the thief as the new owner.

Centralized marketplaces like OpenSea have occasionally stepped in to freeze sales of stolen assets (on their own platform, anyway), but this puts the power to determine “real” ownership not in the NFT itself but in the hands of the marketplaces that trade them.

An NFT is also only unique in the context of the blockchain it was created on. NFT marketplace Rarible, for example, offers the choice of three different blockchains when minting a token, but what happens when two different people mint the same digital item on different blockchains? An artist could decide to mint their art on multiple blockchains and thus have an “original” on each, but deciding which of these blockchains is the “authoritative” or “real” one is still a social and platform problem.

As an example, Twitter recently started supporting NFT profile pictures, which are displayed in a unique hexagonal frame, but it currently accepts tokens only from the Ethereum blockchain. Having an NFT on the Flow or Tezos blockchains—both of which Rarible supports, and which are often cheaper to mint on right now—won’t get you that hexagon. Twitter could change this in the future, and other platforms could choose to support the other blockchains, or possibly even create their own, but once again this puts the power in the hands of centralized platforms to decide which chains are the “real” one.

Moreover, there’s very little to prevent someone from making multiple NFTs of an image on the same blockchain. Twitter user @NFTTheft has documented numerous cases of users on the OpenSea marketplace stealing artists’ work, creating duplicate NFTs, and selling them right next to the original (or selling NFTs of artworks that the original artist never intended to make into an NFT).

Since the blockchain doesn’t verify that a person minting an NFT has the rights to the asset they’re minting, it’s up to platforms to solve that problem (or not, as it were). “Verifying ownership of an asset at the point at which it is minted into an NFT is more of a social problem than a technical one,” White explained. “It's hard to do through code alone.”

According to OpenSea’s analysis of its own marketplace, over 80 percent of the NFTs listed on the marketplace were plagiarized art, fake collections, or spam. The company attempted to limit this problem by imposing a cap on how many free listings users could create, but reversed the decision after pushback from users. Meanwhile, DeviantArt has tried to help protect its artists with automated tools to scan for theft, which sent over 80,000 alerts of infringement to artists in five months, but this tool obviously only works for DeviantArt users.

OpenSea has also started verifying accounts and collections to try to combat this problem, but verification is solely up to OpenSea’s discretion. The result is that any given NFT is no more authoritative proof of ownership of the digital item it’s referencing than, say, a Twitter handle is. Every Twitter username may be unique, and if you claim yours first, then it might suggest that you’re the real person behind that username. But the 45th president of the United States still had “real” in his username because a parody account claimed @DonaldTrump first. Similar to OpenSea, Twitter’s manual verification process is the only authoritative way to know which account belongs to the real person. It’s hardly a foolproof system.

To make matters more complicated, marketplaces are only one method of interacting with the blockchain, but anyone can do it. So even if every major NFT marketplace put tools in place to block stolen artwork from being minted, and verified all its creators—a very big and complicated task already—there’s no way to prevent someone from minting stolen art on a blockchain like Ethereum with relative ease.

In the best cases, NFTs can only ever be proof of ownership of themselves. Third-party systems still need to verify the external data—artwork, digital items, etc.—that NFTs refer to.