Posted on July 10, 2022
Reddit’s dumb new blockchain project: NFTs you don’t actually own and can’t sell for profit
Despite the low interest in NFTs and the massive crash in the cryptocurrency market, Reddit decided to launch a line of NFTs and an NFT marketplace. The fact that the term “NFT” didn’t appear anywhere on their announcement shows just how unpopular NFTs are at the moment, and Reddit knows it.
These “Collectible Avatars” were created by a few artists from various Reddit forums and have received massive backlash on the announcement thread. I hope these artists got paid up front. These NFTs can be bought through Reddit’s platform using any credit card and have been minted on Polygon’s blockchain. At least they didn’t use some terrible PoW chain like Ethereum.
Things really get interesting when you dig into the Terms Of Service of Reddit’s NFTs. Like section 1.5 of the TOS which states multiple times that you are not allowed to buy an NFT if you ever plan to sell it at a profit:
*You are acquiring the Verified Virtual Good solely for entertainment purposes and consumptive use in connection with the Services;Reddit NFT’s Terms of Service
*You are not acquiring the Verified Virtual Good as an investment and will not portray the Verified Virtual Good to others as an investment opportunity;
*You have no expectation of economic benefit or profit as a holder of the Verified Virtual Good and will not portray the Verified Virtual Good to others as an opportunity to obtain an economic benefit or profit;
Or this line that states that Reddit can take away your NFT’s if you fail to follow Reddit’s Terms of Service:
You also have a limited right to transfer your Licensed Rights solely in connection with the disposition or sale of your Collectible Avatar in accordance with these Previews Terms. You will lose this transfer right if you breach these Previews Terms or your Licensed Rights are otherwise terminated in accordance with these Previews Terms.Reddit NFT’s Terms of Service
So if you sell your NFT on one of the many marketplaces that doesn’t support Reddit’s smart contract, they could retract your ownership of the NFT. That isn’t ownership, it’s just a license.
I do have to give Reddit kudos for spelling out in their TOS that they aren’t promising your NFT will still be working after a few years. It’s likely that most NFTs will just be dead links in a few years, at least Reddit is up front about it.
Subject to limitations outside of Reddit’s control (such as changes to the blockchain or in law), for each Collectible Avatar, Reddit will host the Avatar Art associated with it on the InterPlanetary File System through a dedicated gateway or on an alternative service for two years from the date the Collectible Avatar was initially claimed or purchased from Reddit. This two-year period does not restart if the Collectible Avatar is subsequently transferred or purchased.Reddit NFT’s Terms of Service
Given that you don’t actually own these assets and can’t treat them as speculative investments, many folks asked why these needed to be on the blockchain at all. u/venkman01, the Reddit employee who posted the NFT announcement, had this to say:
If we didn’t make these blockchain-based, creators wouldn’t be able to earn additional revenue if Collectible Avatars were resold, and we wanted to make it easier for creators to earn money on both initial sales and secondary sales of Collectible Avatars, which isn’t easy to achieve without using a public blockchain.u/venkman01 on Reddit, July 6th 2022
This is, of course, not true. You don’t need the blockchain to do any of this. In fact, you could collect royalties much better if you just had your own market place where “Collectible Avatars” were sold and re-sold. NFTs can have smart contracts that can automatically send royalties to the original artist on secondary sales, but these smart contracts are not standardized. If a reseller wanted to pocket those royalties, they could use almost any different NFT marketplace. In fact if they wanted to make sure the artist got their cut, they’ll have to go out of their way to only use Reddit’s marketplace because it doesn’t appear these contracts are compatible with most of the marketplaces out there.
Let’s do a recap. Last week Reddit announced they are selling NFTs that:
- their average user hates
- might not be around in two years
- have zero value (as described in the Terms of Service)
- you do not actually own
- only gives the artist royalties if it is sold on the right marketplace
- are totally not called NFTs (but they are NFTs)
The overall idea of selling artist designed NFTs isn’t bad. If Reddit wanted to sell Collectible Avatars that support original artists, they absolutely could have built that without using a blockchain. In fact, given how useless smart contracts are and how terrible NFTs are for consumers, they arguably could have built a better marketplace WITHOUT the blockchain.
Given that Reddit never used the term “NFT” once in their entire announcement, they clearly know how unpopular this tech is. So if their users hate it and it could have been built better without the blockchain, you have to wonder which higher-up at Reddit forced this thing to happen. As Bruce Schneier said on a recent episode of the Rational Reminder podcast, “There is nothing an NFT does that a non-NFT can’t do, simpler and better.”