NFTs, Five Years On

In March 2021, right at the height of the boom, I wrote an explainer on NFTs. I compared them to art, whose value is hard to pin down or swap for something else (“non-fungible”), and was excited that digital artists could finally sell original work and earn royalties on resales. I also flagged the downsides: transaction fees that could be bigger than the price of the artwork, the energy cost of proof of work, and a flood of copies.

Five years later, I build real-time crypto trading interfaces at a fintech. Here’s how the post reads to me now.

What I got right

• The technology idea is real. A token on a blockchain gives you a public, tamper-evident record of who holds what. That’s a genuinely useful primitive for provenance and ownership records.
• Fees matter. I noticed that “gas” made small purchases absurd. That was a preview of a lesson that applies to every market: transaction costs shape behaviour. A trade that looks profitable before fees often isn’t after them.
• Energy was a real problem. I mentioned the shift from proof of work to proof of stake. Ethereum made that switch in 2022, which removed most of the energy argument for that chain.

What I’d change

• Ownership of a token isn’t ownership of the art. An NFT usually points to a file stored somewhere else, and the rights you get depend on the licence, not the chain. I glossed over that.
• Royalties weren’t guaranteed. Resale royalties depended on marketplaces choosing to honour them, and many stopped.
• Hype isn’t value. I wrote that buying a piece “early and cheap” could pay off after years of trading. Most collections from that era lost nearly all their value. Early enthusiasm is a poor signal on its own.

What working near markets taught me

Building trading interfaces has given me a much better vocabulary for the things my 2021 post was circling around:

• Liquidity. Something is only worth what someone will pay for it now. Thin markets have wide spreads and prices that move a long way on a single order.
• Price discovery. A last-traded price is not the same as a fair value. Order books, quotes and mid prices tell a richer story.
• Discipline. The trading books on my shelf all say the same thing: decide your rules before emotion gets a vote (Trading in the Zone, The Disciplined Trader).

The engineering lesson

Blockchains are, at heart, a distributed-systems problem: getting many parties who don’t trust each other to agree on a shared history. The consensus ideas underneath are the same family as the ones in The Consensus Problem and Raft, with an incentive layer on top. That part of my 2021 curiosity has aged best.

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Originally written in 2021 → What are NFTs?