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The Future of the Internet and Artificial Intelligence: Non-fungible Tokens (NFTs) and AI-Generated Art

Background

Non-fungible Tokens (NFTs) and Web3 Value Creation

In a quick take on The Sick, Refreshing Honesty of Web3 (an article by Ian Bogost at the Atlantic), OODA CEO Matt Devost wrote:

“This article jives with my take on non-fungible tokens (NFTs). The current NFT environment serves as a prelude to digitally tracked assets of the future. It is an early exploration of how property rights and ownership will work in digital economies and the metaverse with a layer of irrational enthusiasm, speculative gambling, and desire to be part of a community applied on top of the current iteration.  tldr; there is something real here that has yet to be fully realized and a lot of abstraction distraction today.”

From Bogost’s article:

“What the hell is an NFT anyway?

There are answers. Twitter calls NFTs “unique digital items, such as artwork, with proof of ownership that’s stored on a blockchain.” In marketing for the new feature, the company offered an even briefer take: “digital items that you own.” That promise, mated to a flood of interest and wealth in the cryptocurrency markets used to exchange them, has created an NFT gold rush over the past year. Last March, the artist known as Beeple sold an NFT at auction for $69.5 million. The digital sculptor Refik Anadol, one of the artists The Atlantic commissioned to imagine a COVID-19 memorial in 2020, has brought in millions selling editions of his studio’s work in NFT form. Jonathan Mann, who started writing a song every day when he couldn’t find a job after the 2008 financial collapse, began selling those songs as NFTs, converting a fun internet hobby into a viable living.

NFTs have become both memes and marketing, too. Taco Bell sold “iconic and original artwork inspired by our tacos.” Gap made NFT pictures of Gap-branded hoodies. The first edit to Wikipedia got the NFT treatment. NFT-native collections, such as the Bored Ape Yacht Club’s generated images of ugly primates, have become so popular that an individual ape might sell for millions of dollars.

But it’s not terribly helpful to conceive of NFTs as a new form of digital art or ownership or even technology. Owning an NFT doesn’t confer any rights in the intellectual property underlying the thing owned, which anybody can download for themselves. Those who purchase NFTs end up with nothing but a digital record—the deed for a thing that can be copied at zero cost, with zero repercussions.

Forget the hype around all things crypto. Set aside, for a moment, whether it makes sense to spend a fortune on an ape picture. Those matters are distractions. Let’s call things what they are: NFTs represent a first step in the securitization of digital assets. They turn digital data into speculative financial instruments. That shift has enormous implications because computers are in everything, and that makes anything a digital asset—your bank records, your Fitbit data, rings of your smart doorbell, sentiment analysis of your work email, you name it. First, the internet made it easy for people to conduct their lives online. Then it made it possible to monetize the attention generated by that online life. Now the digital exhaust of all that life online is poised to become an asset class for speculative investment, like stocks and commodities, and mortgages.

NFTs might burn out, the crypto-collectible equivalent of Beanie Babies. But the more likely scenario is weirder and scarier: a securities market for digital data. Financiers, who previously turned everything, whether loans or hurricanes or payroll data, into bets, will likely go to town on all this fodder. But ordinary people may also become fledgling financiers of their—or others’—computer records. It is, in a way, the most honest turn of the internet epoch. From the start, online businesses have presented themselves as making culture, even as they really aimed to build financial value.  Now, at last, the wealth-seeking is printed on the tin.”

Today, some technologists have included NFTs in their vision for a third age of the internet: Web3. It’s a hopeful moniker, a name-it-and-claim-it theology for the brave new world of crypto-driven applications—the securitized internet.”  (1)

AI-Generated Art NFTs

Ben Munster from Decrypt (in his recent article What Is a Generative Art NFT? Inside the Algorithmic Art Revolution) breaks it down for us:   “Generative art is a digital art style in which artists use algorithms as a tool. It’s been adopted by NFT artists on platforms like Art Blocks.   In brief:

  • Generative art makes use of machine learning and blockchain-native randomness to produce striking, unpredictable art.
  • At the height of the NFT boom over a billion dollars worth of generative art was sold.

Developed in 1965 by German philosopher Max Bense, generative art arises from algorithms programmed to specific parameters by engineer-artists. The artist defines the general process—what colors, or geometry, might be used, for instance—then feeds into the algorithm random quantities; whatever comes out is the generative artwork. Generative NFTs are much the same, and many include additional components of “randomness” related to the mechanics of the blockchain, smart contracts, and NFT “minting.”

Generative art was ideal for producing large NFT collections, going into the tens of thousands, or even millions, of unique works. Unlike profile picture (PFP) collections like Bored Ape Yacht Club, however, generative art is also better accepted by the art establishment; they are seen as a way to finally make use of the generative works dating back to the 60s, and many have been featured in meatspace galleries.

How do generative art NFTs work?:   Generative art NFT projects make use of Ethereum’s defining feature: The smart contract.

Smart contracts are pieces of code that self-execute when certain external conditions are met, making them perfect for the development of randomized, computer-driven art. Sending crypto to a smart contract—which exists as a kind of blockchain-based escrow position—activates it, running code that results in generative art that is then credited to the wallet of whoever activated it.

Take the example of Art Blocks, a wildly popular generative art NFT marketplace that netted just shy of $1 billion for artists in 2021. Art Blocks’s offering included works that made use of the random “hash” signature generated when an NFT is added to the blockchain (a hash is a unique alphanumeric code that serves, to put it simply, as a kind of online address for a given asset).

In one highly subscribed series, Fidenza, buyers wouldn’t know what their chosen work would look until the hash was generated at the very moment of purchase; the Fidenza smart contract would feed the string of digits and numbers into the Fidenza algorithm, producing something surprising and unique.

The first big generative art NFT project was Autoglyphs, a series developed by Larva Labs, the company behind another pioneering series called CryptoPunks. Autoglyphs are a collection of 512 strange, static-like black-and-white patterns developed on the Ethereum blockchain itself, and reached a total sales volume of $41 million.

An example of generative art which goes beyond smart contracts is the Solvency project, which used an AI mechanism called a “GAN”—generative adversarial network—to produce textured moving images based on photographs. GANs exemplify the generative process, pitting two artificial intelligences, the “generator” and the “discriminator,” against one another: the generator attempts to produce images that dupe the discriminator into verifying them as real, and the discriminator attempts to catch the generator out. The result is a learning process that produces ever-more uncanny renditions of real life.”  (2)

What Next?

The future of generative art NFTs

“Though 2022 saw the bottom fall out of the NFT market, NFTs have given generative artists a shopfront and an audience after over 50 years of being largely ignored.

Generative artists like kvix_studio continue to produce fascinating and often eerily beautiful works. Meanwhile, Ethereum competitor Tezos launched generative art platform Fxhash in 2021, expanding the market yet further.

Who’s working with generative art NFTs?

  • Autoglyphs – the first “on-chain” generative art on the Ethereum blockchain, produced by CryptoPunks creators Larva Labs.
  • Fidenza – a generative art series created by artist Tyler Hobbs; individual works in the series have sold for millions of dollars.
  • Art Blocks – a generative art marketplace that’s played host to the Fidenza, Ringers and Chromie Squiggle collections.” (2)

NFTs and Generative Art are not without their own regulatory, security and legal woes

SEC must clarify which NFTs will be regulated, says commissioner:  US regulators have kept digital art creators and investors in the dark about which non-fungible tokens (NFTs) could qualify as securities, according to SEC commissioner Hester Peirce.

Solana Phantom security update NFTs push password-stealing malware:  Hackers are airdropping NFTs to Solana cryptocurrency owners pretending to be alerted for a new Phantom security update that leads to the installation of password-stealing malware and the theft of cryptocurrency wallets.

NFT Artist Beeple Warns Discord Members of Wallet Drainer Exploit:  High-profile NFT artist Mike “Beeple” Winkelmann said today that links that point to his Discord server have been hacked and altered, instead of redirecting fans and followers towards a fake copycat server that could swipe the NFTs and tokens from users that interact with it.

NFT Theft: Here’s How the Dark Side of Web3 Gets Away With It:  How do NFT thieves get away with heists in the millions (or even billions) of dollars, in plain sight? Crypto transactions happen on the public ledger, so finding the culprit should be simple.

4 NFTs Stolen From Crypto Entrepreneur Jason Falovitch Worth $150k:  With hackers continuing to target prominent non-fungible token (NFT) owners, four NFTs estimated to be worth at least $150,000 were stolen from crypto entrepreneur Jason Falovitch, the co-founder of Leverage Game Media and business partner of billionaire Mark Cuban.

Navigating the Uncharted Legal Territory of NFTs:  Over the last two years, non-fungible tokens, commonly known as NFTs, have entered the mainstream as global brands, entertainment companies, sports leagues, and others have created (or “minted”) NFTs of a variety of digital works, in many cases attached to “real world” benefits. If your company is presented with an opportunity to take advantage of NFTs, you will need to understand in broad terms what NFTs are, the existing legal framework surrounding them, and the unresolved legal issues they pose.

Further Resources

This artist is dominating AI-generated art. And he’s not happy about it:  Greg Rutkowski is a more popular prompt than Picasso.  Those cool AI-generated images you’ve seen across the internet? There’s a good chance they are based on the works of Greg Rutkowski.  Rutkowski is a Polish digital artist who uses classical painting styles to create dreamy fantasy landscapes. He has made illustrations for games such as Sony’s Horizon Forbidden WestUbisoft’s AnnoDungeons & Dragons, and Magic: The Gathering. And he’s become a sudden hit in the new world of text-to-image AI generation.  His distinctive style is now one of the most commonly used prompts in the new open-source AI art generator Stable Diffusion, which was launched late last month. The tool, along with other popular image-generation AI models, allows anyone to create impressive images based on text prompts.

NFT site that sold @Jack’s first tweet suspends operations amidst excessive fraud:   The platform which sold an NFT of Jack Dorsey’s first tweet for $2.9 million has halted most transactions because people were selling tokens of content that did not belong to them, its founder said, calling this a “fundamental problem” in the fast-growing digital assets market.  Sales of NFTs, or non-fungible tokens, soared to around $25 billion in 2021, leaving many baffled as to why so much money is being spent on items that do not physically exist and that anyone can view online for free.

More Than 80% of NFTs Created for Free on OpenSea Are Fraud or Spam, Company Says: After reversing course on a limit to the amount of free NFTs a user can create, OpenSea said the decision was due to the amount of fraud and spam.  As the NFT market has exploded, so has the amount of theft and fraud associated with it. Artists are by now familiar with the experience of finding, like in a horror movie, their own art staring back at them in OpenSea’s digital gallery, being hawked by an anonymous stranger.  Now, OpenSea has revealed just how much of the NFT activity on its platform is defined by fakery and theft, and it’s a lot. In fact, according to the company, nearly all of the NFTs created for free on its platform are either spam or plagiarized.

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Daniel Pereira

Daniel Pereira

Daniel Pereira is research director at OODA. He is a foresight strategist, creative technologist, and an information communication technology (ICT) and digital media researcher with 20+ years of experience directing public/private partnerships and strategic innovation initiatives.