Nonfungible tokens explained -- by a converted doubter

Speaker 1: NFTs, non fungible tokens. Even the words don't make a lot of sense to most of us. And if you struggled at all with things like blockchain and cryptocurrency, this one's really gonna throw you for a loop. Now, what I've got a guy who's gonna explain it well, and who put at one of the most provocative, and I think sensible headlines about this area, this technological innovation recently NFTs don't make sense, but [00:00:30] that won't stop them. Such are the words of CNET news editor, Daniel van boom. Who's based out of our Australia operation in Sydney, Mr. Van boom. Tell me if you possibly can, what is an NFT? Speaker 2: An NFT is a non fungible token. Pretty much every one of those words causes confusion. But, uh, part of the confusion is that token is, is a token in the, it sense, not a token like a picture or, you know, a, a small trinket. Uh, the token is essentially a certificate [00:01:00] of authenticity. If I buy an NFT for, let's say a tweet, uh, the token is in reference not to the tweet it's in reference to the certificate, which authenticates me as the owner of that tweet, uh, and where non fungible comes into it is a fungible asset is one that can be exchanged interchangeably. So say a $50. Bill is the, a worth the same as every $50 bill. Whereas a non fungible asset say a house. You can have two houses that look the same, the same square [00:01:30] foot, um, but they can solve for different prices depending on all number of factors, cars, collectibles, they're all non fungible tokens. So it's all, it's all confusing. You're not meant to get it, Brian. You're not meant Speaker 1: To get it. Okay. Well thank you. I feel better. So, um, the NFT means I have a authenticity certificate and there's only one of them for a given digital thing. Is that about right? Yes. Speaker 2: That is about right. Uh, and that digital thing can be pretty much anything, which is why they've gotten so many, uh, [00:02:00] headlines, uh, a nice man in Brooklyn recently sold a 50 minute collection of his thoughts for $420. Uh, okay. I thought Speaker 1: It was bad enough. I thought it was bad enough when you said you can get an, you can get an NFT for a tweet, which is, which is as ridiculous as I could imagine. Now you've taken the bar even further to someone's thoughts. Speaker 2: No, sorry, fats. That's my, that's my, uh, that's my accent F a R T S fights. He recorded his, he recorded his, he recorded his fight once during lockdown [00:02:30] COVID lockdown and, um, put it in a master file of S Speaker 1: I give up. Speaker 2: And so not a bad way to earn hundred. You Speaker 1: Can, you know, one more matter of explanation now, just so we make sure we've got it right. Just because you have the NFT for a piece of digital art, whether it's music or an image that does not stop that thing from having many copies out in the wild, does Speaker 2: It? No. No. So let me give you the argument that someone who is a, a proponent OFTs would [00:03:00] say, so the whole point of an NST is that it's minted on a blockchain. So if, if those of us who remember or are in the cryptocurrency craze, um, will remember that a blockchain is an unchangeable ledger, uh, that everyone has access to. So if we, we all look up and address all of us in the chat, we we'll all see the same ledger and it can't be changed while the, the thing that an NFT is attached to can proliferate in at infinitum on the internet. And while multiple people can [00:03:30] mint an NFT for the same thing, cuz scams are everywhere in crypto. Uh, the blockchain will record who the first it's a matter. It will essentially be a matter of public record who the first person to buy an entity for that thing is however that won't stop. You know, there'll be scams are ubiquitous from crypto and there will be ubiquitous in NFTs as well. So I can pretend to be a digital artist and say, Hey, here's an NT for this. I created. And you know, it can be two months later that the actual artist says, Hey, wait a minute. Some guy in Australia with a weird list just, uh, stole my [00:04:00] aunt and sold it as an NFT. All Speaker 1: Right. So two things are going on here that I think puzzle people when they, when they hear about this and they'll say, okay, I, I kind of had it right now. I've heard Daniel, explain it better. Now, I'm, I'm a little more clear. What is the value of owning the authentic version of something of which there are many perfect digital copies, like an MP three or a move file or a JPEG. I, I guess that's where I'm lost, like Speaker 2: Art, the entirety of the value is based on how much someone else is willing to pay for it. Right? So in this sense, [00:04:30] in, in some senses NFTs in a very limited, uh, set of scenarios, NFTs, aren't actually the craziest thing. So, uh, for instance, the whole point of an NFT is that they create scarcity, right? Nan cat is a good example. That was a YouTube video, got like hundreds of millions of views. Uh, and now it's a popular gift. Uh, and the NFT essentially creates scarcity where only one person, the, the authentic O creator of that gift, uh, sold it. And it's scarce in the sense that [00:05:00] only one person own that NFT. Right now, there are some preposterous examples of that. Like the guy selling his fats or, uh, people sell, I mean, people selling their memes, you know, the bad luck, Brian from 2012, the Reddit guy, he sold, uh, a picture of his meme for $40,000. I think something like that. But then when you look at beat Paul, who is the, the guy who sold, uh, NFT at Christie's for 69 million, I mean, that's, that's an example. [00:05:30] This guy had worked for apple. He'd done work for apple. He'd done work for Lewis Forton. He had an online following already. So now it's just kind of minting away, uh, for him to make money. It Speaker 1: Sounds like it sits a little bit of the intersection of two things that bubble up one is old school. And that is if you buy a signed something, autographed something, yes. By Paul McCartney or whatever, you know, it's not too hard to fake someone's signature. And none of us really know an authentic from another because we only a handwriting expert would know, and even they can be fooled. However, there's a certificate of authenticity [00:06:00] that goes supposedly with the ones that are authentic. And as long as you believe that certificate is valid, then suddenly the signature has value. And without it, it's just somebody with a Sharpie. Right? The other thing that reminds me of is, you know, in the earliest days of the iPhone, when apps were just starting to proliferate, there was an app. And I forget the name of it. I'm sure some of our viewers are screaming at, to the screen right now that had just, um, a Ruby or a diamond on it or something. And all it did [00:06:30] was show a picture of an animated gem. It didn't do anything except prove that you had enough to waste to spend on an app that did nothing. There's some circular stuff going on here. That's kind of echoing around these NFTs. Speaker 2: I, I mentioned before that they create scarcity, right? That's not so different from Kanye west releasing 200 ye of a, a special brand of usey. That's why, you know, they go for $10,000. You and I might say, Hey, I bought a pair of shoes for 120 bucks the other day. Why would I spend [00:07:00] 10,000? But you know, to collectors that they want that scarcity. The second thing is that this is a bubble that's being pumped up, uh, by people who are already heavily vested in crypto. So for instance, the guy who bought the people NFT for 69 million, he is a professional crypto investor. From that regard, he's essentially pumping up the assets he already has. The other thing is that, you know, when people, people are trying to sell N NFTs as a real world [00:07:30] use case for, uh, blockchain, which obviously if that's true, that makes, that gives crypto a certain level of validity. So people who have a lot of holding and crypto holdings in crypto will naturally want to buy a headline grabbing, you know, they'll drop $1 million. If you, Speaker 1: I guess, what I get hung up on an FTS. And I got that impression, you know, from your article, uh, that you, that you seem to share is that in the past owning something with great scarcity, like an NFT, but in the old sense of a traditional, not the Stephen today, [00:08:00] you have the one there's utility to having the one painting on your wall to having the one car that was made by Bugatti in this color. There's a certain physical, tangible, I guess, utilities, maybe not the right word, but the tangibility is really different compared to the utter perfect duplicability of digital at assets. I just, I just find the whole thing to be a big joke. Speaker 2: It's a cousin to cryptocurrency. And what we know from cryptocurrency is that it doesn't make sense. And, [00:08:30] uh, yet Bitcoin alone is worth over a trillion dollars. Uh, so cryptocurrency is kind of confusing. So you have your Bitcoins and your Ethereums, and then you have a whole market of things for alt coins, which essentially penny stocks. And if you, if you follow that market, it's, I've seen coins, you know, jump hundreds of times of value in two or three days, and they don't do anything. They don't, they have no real world application. The, the main thing they do is make some couple of people really rich. So there [00:09:00] is a precedent for something not really making sense, not really having that much of a utility, and yet as having the very real world consequence of having, you know, a couple thousand people get very, very wealthy. Now, the downside to that is obviously there are gonna be a lot of people who get scammed. There are gonna be of people who make fortunes lose fortunes. There are gonna be a lot of people who, you know, see these headlines and think, Hey, I should buy an NFT of, I don't know, a P a Pikachu trading card and for $500,000. And to Speaker 1: Be clear here, when you talk about these prices, these prices were paid with real money. These [00:09:30] weren't, this isn't so funny money. So this, so that's where this whole thing gets anchored in reality is you may think NFTs are some make believe world, but people are spending actual, real government backed currency dollars or whatever their local currency is to buy these. And that's what makes it so profound. If it was all, some kind of metaverse, it's like, okay, you're spending metaverse dollars to buy metaverse tokens and nobody cares, but this has this deep anchor in huge amounts of real money. I guess what's so interesting to me is that this is [00:10:00] the ultimate distillation of what frankly happens on a stock market, which is a piece of stock or an NFT it's worth, whatever someone else thinks it's worth. Uh, Speaker 2: Stocks are even, even as you described, uh, their lack of tangibility there, they do have the tangible, uh, the tangible function of having their price tied to some real world occurrence. So for instance, you know, apple makes, uh, sells 200 billion iPhones. Their stock price goes up. The thing with cryptocurrency [00:10:30] is that there there's no, there's less real world things just kind of go up and down based on community sentiment, which is informed by far less than the stock market. And then NFTs are one step further away from that where it's, it's purely speculative. It's it's essentially, I will buy this. Now, the, the guy who bought the 69 billion, uh, sorry, 69 million. We're not there yet. $69 million CRI Christie's NFT said, you know, this is gonna be a billion dollar NFT [00:11:00] someday. So it's all I'm not saying he's right. I'm saying that people, yeah, people aren't buying this because they have utility. People are buying them because they hope they can sell them in two years for double the Speaker 1: Price they're buying them because they think somebody else will buy them. I mean, that's, that's really all there is to it because it lacks utility. It lacks true uniqueness because unlike a Picasso, which you also have to say, well, I think someone will buy it for more one day, but at least there's only one, uh, you know, with NFTs, you're buying something of which there's no barrier to there being millions of them, [00:11:30] because they're just digital file based assets. That's what takes it to a new level of distillation. Uh, but it sounds like you think this part of a much, a much broader trend where a lot of this sort of perceptual market is going to be the new thing. Firstly, I, I, Speaker 2: I just wanna say in fairness to the community, not everyone are, you know, scammers or just like trying to make a quick buck. There's like a small percentage of people who actually believe that this is, this is a brilliant use case of blockchain technology, and this is the future. So that's the first way, right? I don't want [00:12:00] to take the whole community with, with a scammers. I'm not seeing Speaker 1: Scam here as much as I'm seeing a fascinating new Speaker 2: Faith. Yeah. I definitely think that this is going to be a fixture in the future. Now that's not to say that it's just a, the skyrockets in here. I think probably what you'll see is similar to the Bitcoin bubble in 2017, where Bitcoin hit $15,000 and then three months later it was $1,000. But you know, now, uh, four years later, it's up to $50,000. I can see, you know, this is what I'm seeing [00:12:30] now reminds me a lot of 2017 where there's this part fascination with Bitcoin. Um, and then, you know, this, the price is in slate because of that. But then, you know, the bubble will burst, but just because the bubble burst doesn't mean it's not gonna come back. Yeah. And I really do think that this, this is kind of gonna be part of the internet culture for a while. Now, we're coming to a new kind of like era on the internet where there's like a com a new community like active and community sentiment. It, it kind of creates a micro sentiment onto its own. And we're really at the point where things [00:13:00] don't have to be as tangible as they used to, to make people a lot of money. And I think the main function, as I said before of NFTs, like, uh, cryptocurrency is to make a few people very, very wealthy. Speaker 1: So in that respect, there's nothing new about NFTs. We've been talking to Daniel, boom, seen that news editor out of our Australia division based in Sydney.