NFTs: the drip tray of fictitious capital

James Meechan takes a deep dive into the world of cryptocurrency, and it's latest subordinate, NFTs
James Meechan takes a deep dive into the world of cryptocurrency, and it's latest subordinate, NFTs
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You’ll no doubt by now have heard about NFTs and cryptocurrency. Our social media feeds have been saturated with stories about cartoon monkeys, 8-bit sprites, or yawning lions being sold for ludicrous sums of cryptocurrency. Simply investigating this topic for this article has trowelled a heap of targeted advertising on my browser, from cryptocurrency exchanges and ‘social investing’ platforms. It’s tempting to dismiss the whole NFT phenomenon as the latest bourgeois hobby, a digitised form of art/antique/stamp collecting. This lazy comparison, however, belies the utterly psychotic prospect of NFTs.

What even is crypto? Why are NFTs, things we never heard of until last year, suddenly worth a fortune? Is this the future of art collection? Does the growth of blockchain transactions represent a ‘revolution’, as some claim? How does this technology even work? Let’s start with some context. Let’s go over some notes on speculative finance.

We know the bourgeoisie is compelled to seek greater and greater capital. It isn’t enough to just extract the surplus labour from a workforce and accumulate capital à la cycle of commodity production. Wealth can’t act as capital if it lies stagnant in a vault; to act as capital, money must recirculate, it must again employ labour-power.

So, capitalists instead employ the service of banks. By investing money in them, capitalists essentially get claims to capital (their bank balance), but the bank can now also act as a ‘provider’ of capital. If every unit of capital issued by a bank as loans, bonds, securities etc. was backed to a ‘real’ unit of capital deposited in capitalists’ accounts, banks would stagnate, finding an equilibrium as mediators of the greater bourgeoisie. But we know that their role in the capitalist system is far more significant.

Marx was first to describe what happens next (and you can even read about it here). Here’s the short version: as the mass of capital in a society grows, so too does the sub-class of bankers and financiers, conducting a profitable trade of monetary products that promise growth of capital invested in them. The financial products they sell (stocks, bonds, securities) work on a shared premise: they are claims on capital, with changing market values. Their value comes from speculation on the future dividends to be claimed by the owners. Everyone playing the stock market game makes bets on whether a particular financial product will rise or fall in price. It is alchemy for the bourgeoisie: transmuting a fortune into a greater fortune.

This speculation is clearly a delusion. The capital that is claimed by these products, represent multiple simultaneous stakes to the exact same real capital that was ‘cashed-in’. In other words, the ‘actual’ value of surplus labour extracted by capitalists and left in the care of banks, ends up having several times its own value of capital ‘claimed’ against it. This tenuous deception is what Marx described as fictitious capital, and when the rate of profit begins to decline, when the real capital begins to stagnate, an economic collapse occurs and the fictitious capital is wiped out, allowing the process to restart, with the by-product of staggering immiseration for the working class.

The fictitious capital in these financial products is orders of magnitude greater than any of the real capital the products are connected to. This cultivates an irrational situation whereby the banks are incentivised to sell as many shares and bonds etc. as possible, to the detriment of real capital.

As an example, the 2008 financial crash occurred when banks selling bonds backed to their mortgage loans being repaid, began issuing as many loans as possible to sell more bonds. Since bond sales offered more profitability than 30-year mortgage repayments, the banks approved loans they knew could never be repaid. When it became clear the banks wouldn’t be able to collect their debts, when the real capital of the mortgage repayments was unequivocally doomed, the fictitious bubble burst spectacularly. The value of bonds crumbled, the global financial system was crutched with public funds, and thousands of people ended up having their homes repossessed.

If all that sounded reckless and nonsensical, then you understand the blithering stupidity at the crux of speculation. That will be a running theme in this article, actually: if something sounds like a terrible idea, that’s because it is.

Speculators have done a fantastic job of creating an impenetrably jargonistic sophistry around this bombastic gambling habit, clearing positions of valued expertise for themselves. Even cryptocurrency has its own technologist brand of charlatans that have grown an entire ideology around a couple of computerised pyramid schemes- hysterically esoteric when you consider how simply the core concept can be explained.

When we normies use debit cards to pay for stuff, the bank makes a check that we have sufficient funds in our account and withdraws however much into the retailer’s account. The bank checks the balance by keeping a ledger of every transaction with an account, and when you pay a new entry is made in the record to debit X amount, or on payday a record is made to credit X amount into your account.

Cryptocurrencies like Bitcoin and Ether are ‘decentralised means-of-exchange’. When a particular crypto is traded there’s no personal ledger entry made by a bank. Rather, there is one global, public history containing every transaction, tirelessly maintained by a peer-to-peer network of ‘mining’ computers. Instead of names and traceable bank accounts, they record trades between digital wallets with anonymous owners.

This is what a blockchain is: an omniscient append-only spreadsheet of every single exchange made with a particular cryptocurrency, administered by similar computer teamwork that you would utilise to torrent a movie.

The blockchain is run by consensus: computers maintaining the blockchain must agree for a transaction to be approved. If one dishonest computer in the network tries to amend entries on, say, Ethereum (Ether blockchain) to claim Alan paid Bob X ETH (and therefore alter the amount of Ether in Alan and Bob’s digital wallets by X), the thousands of peer computers immediately check the record of the dishonest computer against theirs, and reject that fraudulent version of the blockchain. This trustless system makes any kind of scam by a middleman impossible, a matter-of-fact lauded by crypto fundamentalists.

Those same advocates will-of course- overlook the massive potential for unpunishable fraud that the anonymous and completely unregulated world of cryptocurrency creates. There is some irresistible schadenfreude when we hear about greedy morons being gulled via Discord pump-and-dump groups (wherein the ‘dump’ mistakenly think they are the ‘pump’) or glaringly obvious scam cryptocurrencies based on cultural fads that con millions in investment. But this absolute gift to criminals is increasingly being turned on oblivious workers or public services with computers vulnerable to malware (NHS ransomware attack in 2017) instead of just idiots chasing crypto riches.

That consensus is more of a measure of computational power, rather than some anarcho squat commune. The basis for a consensus, and therefore the basis for any entry to the blockchain, is Proof-of-Work: basically, a computer mining a blockchain must demonstrate it has spent a high amount of processing effort to solve a mathematical equation that is generated from the new block being added. These mathematical problems demand proportionally large amounts of computing power for miners to solve but require a comparatively tiny amount of power to verify. 

Now add the fact that being the first to produce a PoW results in dibs on transaction fees for the new block plus a lump sum of freshly minted crypto, and you end up spawning a demonic industry where competing tech parasites fill warehouses with industrial amounts of hardware running non-stop in a repeating race to be the first to complete the next PoW for each block.

Capitalism excels in creating inefficiency. An economic arrangement that pits dozens of workforces against each other to make identical ‘cola’, ‘strawberry jam’ or ‘baked beans’ products is not an optimal use of human labour. The crypto mining economy dials that inefficiency to 11: it is literally designed to waste energy thanks to the PoW and the winner-takes-all nature of mining.

A single bitcoin transaction consumes 1,173 kWh of electricity. That’s roughly the amount of energy the average British household consumes over three months. Cryptocurrency mining is estimated to take about 0.5% of global energy. As a comparison, the Haber-Bosch process that produces ammonia, a critical feedstock in the fertiliser industry, and therefore vital for agricultural yields that can support a global population of 8 billion people- takes 1% of energy.

Make no mistake: cryptocurrency simply cannot exist in a society that has any commitment to preventing climate disaster. Western governments, who made last year’s COP26 climate conference into a farcical anti-Chinese tirade, have welcomed crypto miners leaving the PRC as the country begins to ban cryptocurrency to meet its carbon-neutrality commitments. Fawning sentiments from liberal media outlets about potential for ‘green’ crypto, completely miss the point, as expected. The payment systems used by billions of people consume several orders of magnitude less electricity than even the ‘green’ crypto, because they are not built upon a requirement to waste energy to function.

I cannot stress this enough: our planet is being destroyed- in part- for a billion-dollar market in made-up internet coins.

Defining what these coins even are is a challenge. ‘Something to trade on a blockchain’ isn’t substantive enough, but it is difficult to find anything else to say beyond that. The comparison to actual currency that the namesake implies is deliberately misleading. As described by Marx, money- whether bullion or bank cards- is a special kind of commodity, whose utility is to stand-in for value, and pay for goods or services that meet human desires and needs.

There is no real case of cryptocurrency being used as an alternative means-of-exchange, outside of libertarian vanity projects or illegal drug trafficking. Google any form of cryptocurrency and you will see an erratic zig-zag, oscillating by thousands of dollars over weeks, days even hours. The inherent volatility, which attracts speculation in the first place, makes crypto completely unreliable for setting prices in the real world. In an intergalactically stupid experiment, the self-described “Emperor of El Salvador”, Nayib Bukele, has pissed away about $600 million of the country’s wealth on Bitcoin, making it the first state to recognise it as legal tender. 

The Salvadoran working-class and peasantry- most of whom don’t even have smartphones with which to access their wages paid into Bitcoin wallets!- have received the change overwhelmingly negatively. Why wouldn’t they?! Wages and life savings that fluctuate in purchasing power by ±10% hourly and could be rendered totally worthless at any moment, is a recipe for complete economic disaster. Add it to the fact that simply buying a Kit-Kat with bitcoin not only takes a much greater length of time to process, but consumes about $208 of electricity (1,173 kWh × US$0.178 per kWh electricity cost for businesses in El Salvador), and you realise the apocalyptic insanity of cryptocurrency.

Even the captains of neoliberalism, who are certainly positive about speculative finance, are never going to promote crypto from glorified casino chips to an integral currency of global trade. Can you imagine the apoplectic horror of the IMF if they granted a loan for a developing country in Dogecoins- priced to take decades to repay- only for its value to collapse a thousandfold just before repayment began, due to a tweet by Elon Musk? 

Perhaps we should liken cryptocurrency to commodities instead. After all you can buy £100 worth of iron, or flour, or linen or indeed crypto. The problem with this comparison is that commodities have use-value: they either meet a human desire/need or can be utilised by labour to produce another commodity which does. You can make steel with iron, bread from flour, a coat with linen. You can’t do anything with crypto (This is just focusing on what you can legally do with crypto. Sites like Silk Road are unfeasible nowadays and insignificant to normal people.) besides buying NFTs (which are also not commodities, see further) or sell it for- you hope- more than what you paid for it, to someone else who has that same hope of meeting a ‘greater fool’. 

No new money is ‘created’ by crypto. The price of a given coin is based on what people can sell it for. So, it is only really possible to ‘make a profit’ from it if more money is being spent into the cryptocurrency compared to when you bought it. Crypto’s utility is to be mise-en-scène for completely unregulated, hype-fuelled, speculative bubbles, which are effectively just moving money around.

Even comparing crypto to the old style of speculation is a bit dishonest. Without sounding defensive of them, traditional financial products are at least based on claims to actual capital that was extracted from workers; future dividends rendered unto the owners are what allow them to be speculated on. Crypto offers none of this. Simply holding on to your crypto, a reasonable thing to do in the case of stocks and securities, will reward you with nothing. Crypto represents something that I would submit is even more irrational than traditional speculation.  There’s no ‘business’ issuing the cryptocurrency for investment, there isn’t the slightest connection to real capital bolstering the fictitious. It is an ouroboros of fictitious capital: a perpetually fickle ecosystem of buying and selling, soaring and plummeting, totally divorced from labour and commodity production.

So, if we have dispensed with all those possible categorisations for cryptocurrency, what can we define it as? Well, the most succinct definition would be ‘ideological smoke for a con’. As alluded to previously, early investors buy low, drive up the price by doing so, observe a conveyor belt of people convinced they will also win big and ‘ride the wave’, further inflating the price, and then sell their older crypto to new investors. By doing that, money moves up from later to earlier investors, just like a classic pyramid scheme.

Now, it is generally reprehensible to market such a blatant scam to people, and not enough people are that gullible to keep crypto going for long. It is safer to convince people that they are not, in fact, perpetuating a functioning pyramid scheme, but embracing an alternative economic system.

So instead, the early crypto establishment, broadly libertarian members of what could be referred to as the ‘TechBro’ faction of the bourgeoisie- the kind of guys who became millionaires from inventing pop-up advertising- confected a saccharine narrative about ‘the crypto revolution’, how blockchains will magically solve all social ills. With enough fawning coverage from tech journalists, their ideas became legitimised. Incel-adjacent hermits hustling with bitcoin became ‘counter-culture’, to the point where even sections of the moribund Western anarchist movement are embracing this glaringly hyper-capitalist concept.

Maybe there is something revolutionary about cryptocurrency. After all, it’s about taking control of money away from the banks and distributing it democratically among the currency users themselves. Yes, it replicates current models of conventional currency and is in fact ‘highly centralised’ with respect to the actual wealth distribution- 1% of Bitcoin holders control 27% of the supply, for instance- but that can be overlooked when you consider how the technology liberates us from the tyranny of banks!

However, the crypto economy has already accepted private companies such as Tether Ltd to fulfil the roles of central banks. These ‘not central banks’ issue ‘stablecoins’ pegged to actual currency like the US Dollar in exchange for real money (So 1 Tether = $1). Stablecoins can be accepted on blockchains to trade for more volatile crypto and initiate gambling. The private company issuing Tether claims to back every unit of the cryptocurrency with real capital.

There is now 69 billion Tether in circulation, giving Tether Ltd. an equivalent market cap of $69 billion, which would rank it somewhere among the 50 largest banks in America. Predictably, the Hong-Kong company registered in the Virgin Islands has kept schtum under growing media scrutiny as to how the start-up could possibly possess such a gargantuan sum of real capital to back all the tokens up.

Tether Ltd. even buys up crypto to limit the volume in circulation and therefore ‘pumps’ crypto prices during downturns, mirroring how central banks will limit currencies to increase value. The irony that this ticking fictitious capital timebomb is almost identical to the banking practices that cause financial crashes, is a taboo for crypto fundamentalists.

Appeals to libertarian sympathies around decentralised currency can only give you so many rubes willing to pour their savings into the crypto maw. You need more growth; you need to stoke up yet more consumer hype.

Enter NFTs.

A group of men

Description automatically generated with low confidence
A meetup of Bored Ape NFT fans in New York City. Appropriately, the revellers appear to be AI-generated ‘unique’ versions of the same bloke.

Blockchains can record more than just transactions. Arbitrary chunks of data, such as links to static images, entire applications, documents, can be written into the blockchain. Crypto fundamentalists hail this as an immutable, omniscient public history of all information, ‘tokenising’ everything on the internet as a financial asset. 

When you buy a house, you will have records from the estate agent, the bank, etc. that you could refer to if you were asked to prove you own that house. Same thing if you bought a Van Gogh or Lowry painting at auction, you’ve got the records to prove you bought the expensive thing. Now, NFTs are basically this but you’re paying for a unique blockchain entry as the record of ownership. The acronym stands for ‘non-fungible token’, in other words a one-of-a-kind piece of computer data.

They are not just the jpegs of monkeys. That’s a misconception that even the people spending thousands of dollars on this shite perpetuate.  When you see a report of CryptoPunk 9998 selling for the equivalent of half a billion dollars, they have purchased the corresponding NFT of that particular picture, the unique piece of data that gives them ‘ownership’ of the- technically unique- digital image. 

Let’s be clear: no one is buying NFTs for their innate artistic value. They are another greater fool seeking asset, as crypto is. That’s not to say the assets tied to NFTs are ‘not art’ (I’m inclined to agree with more qualified people on this topic, anything that can be sold on aesthetic merit can be called art). It’s true that many digital artists warmed to the initial pitch of selling their work as NFTs: passive revenue generated from secondary sales, transparency on the blockchain that would acknowledge the original artist.

Trouble is, few involved even understood how the NFT model for art sale is meant to work. The NFT for a piece of art isn’t the jpeg file of the art, that’s too much data to fit in a blockchain entry, but rather a URL link to a load of metadata, that contains another URL link to the page with the image of the art. The page housing your priceless artwork will be hosted for as long as the inauspicious start-up hosting it doesn’t forget to renew the domain and avoid bankruptcy. Still, at least the original artists can keep a cut of the purchase value, assuming it is the original artist who mints the NFT of their work.

There is absolutely no requirement for the original artist to consent to tokenising their work. This has already created a gold rush for online prospectors to start ripping off art, minting an NFT for it, and sell it on without the artist even being made aware in the first place. The unethical profiteering of original art grew so widespread, DeviantArt even implemented bots to scan NFT markets and notify users of the site to unauthorised tokens of their work being sold, sending over 80,000 alerts for NFT infringement over 4 months.

As we know, the blockchain is a public record but it is completely rife with fraud because it allows for total secrecy of identity and ‘sockpuppeting’ accounts belonging to the same individual. The result is an even more sophisticated technique for ripping-off artists, who have zero recourse for protecting their work from being transformed into speculative tokens.

After financialising the work of human artists, next came automation: vacuous computer-generated art became the new source of tokens. Bored Apes, Lazy Lions, Rockin Tuna and indeed CryptoPunks sold the virtual equivalent of funko pops as tragic status symbols. But this speculative bubble wasn’t restricted to images.

Land that is presumably publicly or privately owned in real life is being sliced up into square kilometre pieces and sold as NFTs to new ‘virtual’ owners who own the ‘virtual’ representation of that land. Video game items in MMOs are being traded or even rented as NFTs. Culturally ‘significant’ digital assets like Jack Dorsey’s first ever tweet, some footage of basketball games, photographs of Afghans finding some recreation in the midst of American invasion, are being bought and sold as lucrative NFTs. Any and every justification to make something a token can and will be used: in the irrational drive to keep the speculative bubbles growing, everything is fair game to be financialised and bet on.

Capitalism is characterised by rates of profit tending to fall with time. One way to offset this can be the enclosure i.e., privatisation of what was previously publicly owned, not simply to bring resources into bourgeois control, but to offer more avenues for investment and speculation. Introducing more land or oil onto the market gives more things to be bought and sold, and therefore more profit to be made. But this is 2022, capital has had 200 years to do this and is beginning to scrape the bottom of that barrel. NFTs are the latest, particularly putrid scraping. Why settle on just having one form of ownership, when you can have a second, digital and ‘decentralised’ form of ownership? It has the potential to make anything a speculative asset! Horrifying? Absolutely! An indictment of capitalist insanity? Absolutely!

Imagine a world in which your CV, qualifications, wage slips, birth certificate, every document about you that is kept somewhere online can not only be found in a blockchain, but are tokenised, to be gambled on. Now imagine someone explaining to you how this is not a nightmarish dystopia in which your very existence fuels a dissolute orgy of corpulence, but- he pauses to vape- it represents a ‘revolution’ because, in contrast to the status quo in which tech monopolies like Google or Facebook commodify our personal data, any cretin on his phone could wager on your dental records.

There’s a reason we hear so much about NFTs and crypto today than we did just five years ago. There’s a reason celebrities and influencers take to social media to brag about their investment portfolio. There’s a reason why millions of pounds are invested in advertising crypto exchange services to the public. This speculative bubble needs to force itself onto the cultural mainstream, convince more and more people that they can hit the jackpot and make money from money. This is a thunderous avalanche of digital pump-and-dump schemes, hurtling down the mountain, gathering greater mass as it goes, unevenly distributed across the wave, but united in trajectory: downwards, crushing everyone in its path.

Of course, NFTs represent nothing of actual value! Do you think any sound-of-mind adult is buying ‘Floydies’- George Floyd inspired NFTs- out of a deep sense of need or desire, instead of cynical investment for its own sake? For most of its existence, crypto has been a ‘solution’ to a problem almost nobody thought they had. A better society for the masses will not be brought about from technology on its own, and certainly not from technology that innovates gambling and trading wholesale LSD. Plainly, mass proliferation of NFTs is the expedient to mainstream adoption of cryptocurrency and the ultimate payday for the early investors, the minority who control most of the cryptocurrency supplies.

In a socialist society, the technology behind blockchains would be a subject for study to understand how it could benefit society as a whole. Currently, it is helping our planet burn a little faster. To even remain vaguely functional, the cryptocurrency industry almost perfectly mimics the practices of ‘centralised’ banks, whilst introducing completely new problems.

With stocks and shares, I won’t object to workers, even other communists, having a flutter with it. Why not have a go gaming the system? Why not put a hundred into GameStop to troll the Wall Street Chads? But I put my foot down with crypto and NFTs. There’s no ‘take the Devil’s money, do the Lord’s work’: the money is the Devil. The electricity cost for what amounts to trading simple bits of data around is comically despicable. Even if you weren’t guaranteed to lose a huge amount of money on this, you cannot justify using the same amount of electricity as a housing estate for a cheerless gambling habit.

Time to get real. There’s a gulf of difference between trying to reach realistic goals, trying to improve your life and then the borderline psychosis that digital magic beans will make you a millionaire. The NFT community uses the acronym WAGMI as a signifier and sign-off in social media posts. It stands for ‘we are gonna make it’ and is emblematic of the idealistic disconnect from the external world that is required to sincerely believe NFTs are a rational investment. It engenders cultish attitudes- every flagrant scam is a chance to ‘make it’, every naysayer is just a bitter troll who ‘isn’t gonna make it’. 

Here is the blunt truth: there is no ‘hustle’, no ‘NFT strategy’, no hot tips in a crypto subreddit that are going to raise you to bourgeois apotheosis; the mansions, the Bugattis, the private islands. Instead, all that awaits if you try to climb the greased ladder to heaven is crippling debt and a swamp of despair. Since the ruling-class’ rules work against us, we formulate our own tactics to fight for our class-interests, not play rigged games.

As communists, we know there is no individualistic strategy to a better life for ourselves and our class. Marxism-Leninism offers the theoretical foundation and the advancing working-class has the strength to bring about a society that serves working people.  I guarantee you; militant trade unionism offers better payoffs than the latest pump-and-dump shitcoins. What are you waiting for?! Up your grindset.

James Meechan, is a member of the YCL’s Glasgow branch

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