This month, a non-fungible token (NFT) digital art collage sold for an eye-popping $69 million. This is the third-highest auction price paid for work by a living artist. We have a feeling that crazy NFT sales are going to become commonplace.
Artists, designers, musicians, and other creatives are rejoicing. This means artists can showcase their unique digital talent and sell it directly to consumers and collectors on their terms—no middlemen. This is a very big deal.
What exactly is an NFT?
Why would someone pay millions for an NFT?
How are NFTs connected to decentralization?
Let’s talk about the future of blockchain!
This month, a non-fungible token (NFT) digital art collage sold for an eye-popping $69 million. This is the third-highest auction price paid for work by a living artist. We have a feeling that crazy NFT sales are going to become commonplace.
Artists, designers, musicians, and other creatives are rejoicing. This means artists can showcase their unique digital talent and sell it directly to consumers and collectors on their terms—no middlemen. This is a very big deal.
What exactly is an NFT?
Why would someone pay millions for an NFT?
How are NFTs connected to decentralization?
Let’s talk about the future of blockchain!
Henry: Hey everyone. It's Henry, Mike, and Chris of the decentralized. Now last week, a non-fungible token-based piece of artwork or NFT sold for a high popping $69 million. Now that's the third-highest auction price paid for a work by a living artist. So, we have a feeling this isn't the last we're going to hear about NFTs. Now in the digital realm, this is a big deal because until recently everything digital was assumed to be fungible. So, what is fungibility? Well, it's a commodity, something that is interchangeable with something similar or nearly identical. We're going to explain this a little bit more, but the point is artists, designers, musicians, and other creatives are rejoicing because this means their unique digital art could be worth a lot more money and consequently, they'll be compensated better for their works time to talk about NFTs gentlemen, Mike leads us off.
Mike: This is a very interesting topic. The idea of these NFTs now it's not a particularly, I want to say funky term fungible. It sounds something to do with mushrooms.
Henry: It's something going bad.
Mike: That's something going bad. Exactly. But in reality, it's actually the opposite. It's kind of something going good. So, back in the early days when we started this kind of quick audit quest into decentralization and things like this. One of the topics that came up multiple times when Chris and I were talking this over was this idea of using blockchain technology and distributed ledgers and all of that good’s stuff to help provide digital creatives with a way to better control and monetize what they create. So, that's kind of the overarching umbrella and what's come out of that idea, of a digital creative, an art, like an artist in the case of this recent artwork, right. A visual artist, a blogger, a poet, a musician.
Henry: Composer.
Mike: Anybody who creates something that is a digital format, right. So, it's a little file. You could carry it on a USB stick and it's worth $69 million, it's crazy. So, what does it truly mean? So, if you talk about this concept of fungibility, what fungibility basically is this idea that the value or the value of the thing you're talking about. So, let's say it's, $20 or a barrel of oil. Okay. 20 dollars or a barrel of oil are both have a value. So, it's clear that NFTs are associated with value, where they differ. Is that in a, if you look at something like a barrel of oil or $20? $20 is $20, right. If you lend me $20 Henry and in a $20 bill, I could pay you back with five worth four $5 bills and so it, it's still $20.
Right? And if, if, if I give you a barrel of oil and you give me back a barrel of, it's still a barrel of oil. So, it's basically the commodity. The thing that has value is basically kind of generic and it can easily be replaced by something else. So, Henry one of the ways to think about non-fungibility is to compare it to something that is real life and fungible. So, to further illustrate this idea of oil and $20 bills and things this, think of something like the Mona Lisa, okay. The Mona Lisa is a physical piece of art. So, there wasn't an internet back in the days of DaVinci, he probably would've invented it if he could but what do I mean? But there was no internet back in the day. So, there was no option for DaVinci to create, Heller wasn't even an option to take pictures.
That's why he painted the portrait, back in those days, if you were rich and you wanted to have something to remember yourself or your family by you got somebody like Leonard DaVinci, you paid him a bunch of money to paint a picture. So, what you ended up with was this, you have this Mona Lisa, this picture that has now become globally famous, and there are digital copies of it everywhere. There's you can go online, you can look at images, you can download images.
Henry: There's no copy. Right.
Mike: But they are not fungible. They are not a digital copy of the Mona Lisa that is not directly interchangeable with the Mona Lisa that's painted on a couple of pieces of wood. That's hanging in the loop. That's the difference between $20 and an oil drum, versus the Mona Lisa, they're all assets, they're all worth money, but $20 and a barrel of oil can be exchanged for any other $20 bill and any other barrel of oil, but nothing can be exchanged for the real Mona Lisa, where it changes in this idea of an NFT, a non-fungible token is that when you're talking now about the asset being something digital, normally without an NFT, a digital asset.
So, if I write a book in digital format on my computer and I have that file in order for me to monetize that file, I either have to somehow post it somewhere. Like a medium or some blog site.
Henry: Charge a paywall.
Mike: It has a paywall and then pays the fee and all this other stuff. This is what Spotify and all of these folks do Netflix and things like this or I take that file, that book that I wrote and I save it on a blockchain. So, I put the digital file itself in one of the cells of a blockchain, and basically, it has an encrypted address or a guaranteed spot. There's only one place where the original of that novel exists and it's in this cell on this particular blockchain. That blockchain has a serial number.
So, what happened in this arts artwork that the sale that happened last week is the artist took 5,000 unique digital prints that this artist had created on a day-to-day basis, just as part of his graphic design practice, put them all into a collage, one big digital file with 5,000 little pieces and sold the rights and that code to somebody 60, 69 million after they paid all the fees.
Henry: That's incredible.
Mike: That's basically what happened. So, in effect, by saving those 5,000 images as part of a collage on a blockchain, and then assigning the ownership of that blockchain address to another human being, that digital artist was able to make 60 million for selling the permanent ownership rights of digital content that he had created. That's the long-drawn-out simple explanation.
Henry: So, essentially, he's taken this digital piece of art and he has created a non-fungible asset. Give me another example of non-fungible?
Mike: Well, or there was a couple of weeks ago, Chris, you let us know about what the Kings of Leon. Have released an album. So, that's a different take on NFTs.
Chris: In that example, there's a lot more to it than just, having the token, because what the token itself does is allow people who purchase the token to claim, a vinyl album in the future. So, it is not just the fact that you get to hold something that is unique. It's the fact that this unique thing, can open up future value for you down the road.
Henry: So, that's a great, illustration of how you could take a digital asset and turn it into a physical one as well.
Chris: So, in this case, NFTs are not just about holding the tokens, holding the unique, something unique in your digital wallet. It's about a future, it’s about what you can get in the future with it.
Henry: Right? maybe a ticket to a show?
Chris: A ticket to a show. Yes. Maybe a discount, maybe a future collectible artwork, maybe if you're a super fan and you buy an extremely rare NFT, it will entitle you to maybe a VIP pass at a future show.
Mike: For sure.
Henry: Okay. Explain why NFTs are so important for online management.
Mike: I think the first, let's stay on this king of Leon example. So, the first thing is it's very important buying an NFT. If you're a fan of the Kings of Leon is directly supporting the band. So, the band itself can go out on their website or their fans zone or whatever they have and they can sell you directly a digital copy of the album with all the perks.
Henry: There's no record company, there's no distributor.
Mike: No record company, no distributor, no Spotify, or apple music taking a to tell you how much money you're going to make for how many listens and all of this type of stuff. But more importantly and this is something that is actually a very interesting thing that I just thought about as I look over at my pile of CDs. I mean, I spent money when I was young buying CDs, which in effect was an NFT. But a physical one. Because my CD of Joe Jackson was my ownership of it and I have the rights to use that anytime I want to listen to it and do everything like this that comes with owning that piece of music. Whereas now, so I took all of my CDs before I moved to the UK, like 300 of them and I burned them into my iTunes.
So, I would be able to listen to them digitally as a digital copy. When I went to the UK and then when I got to the UK, I signed up for, I went into my apple account, and because I'd moved, I had to sign up for a UK apple account and guess what they did, they wiped every one of my digital files.
Henry: What!
Mike: Every single one, because what Apple did is they said, this music was uploaded into the iTunes store in North America, in Canada and now that you're in the iTunes store, in the UK, you don't have the same rights to this music and I'm like, wait a second. I uploaded this music and then subsequently apple removes the iTunes capability altogether and your choice is now to go to apple music. So, what they've in effect done is literally take all of this time and money, and effort. I spent over the years when I was a teenager and, in my twenties, and thirties buying CDs and they've basically just wiped it all out because they want to force me to be on a platform where I pay them eight bucks a month or 10 a month to access the same music that I already own.
Henry: Yeah. It's incredible.
Chris: I mean, this is a problem with services like apple music and Spotify, which is that it's not about the actual content. It's not about the music, it's about the file because according to them, a file is a file and whatever a file exists is interchangeable with another file. I remember having this conversation with you Mike when I first met you moved back to Vancouver from London. This was a key problem that you had, which is all this stuff you collected in London was no longer relevant to you because you moved back to Vancouver.
Mike: Correct.
Henry: Why should a corporation affect your ownership and enjoyment of your music?
Chris: Well, exactly and more importantly, why should a corporation be in the middle, anymore Henry in the digital world between an artist and their content?
Henry: So, Mike, what are the downsides of potential downsides of NFTs? My understanding of blockchain is not what I don't understand a huge amount, but I do understand that to track a blockchain or requires an awful lot of digital resources can you expand on that?
Mike: So, I mean, blockchain themselves. The reason why, so blockchains themselves basically are a distributed ledger. So, and we've talked about this before, but just for a quick recap, a distributed ledger is literally a spreadsheet with one row and an unlimited number of callers. So, every block is a different set of information so it's unique. Okay. Henry, what blockchain does and where it gets really kind of heavy on the energy use and stuff is people figured out that if it was just a simple matter of going back to block one and rewriting all of the data, then history was never, ever absolute. So, in order for an NFT or any of these types of digital files to work to be truly worth something as much as 60 million, okay. There can only be one place where it resides, right.
So it has to be in a ledger, but that ledger has to have a layer of mathematics on top of it that prevents any one person.
Henry: From changing it.
Mike: Organized group from taking the entire blockchain. So, the entire ledger a one to a triple AAA and replacing any, or all of those blocks with other information. So, the way they do that is they have this mathematical equation that involves, that takes 10,000 computers, two hours to process type of deal in order to ensure that the stuff that's written cannot be. So, the kind of the downside of these NFTs is that there could be some less scrupulous providers who say, this is an NFT, that's on a blockchain, but that blockchain is not as secure as saying a Bitcoin or an Ethereum, which are the original blockchains.
So, now if I build a new blockchain and I put math on top of it, but that math is easy to crack, then selling you an NFT on that blockchain is basically worthless. So, this is double-edged, right? Because if what you want is the ability as an artist to sell artwork, digital artwork for big money, or as a creative, musician to be able to sell a special version of your album directly to end-users, you need to link to one of these huge mathematically complex kinds of existing blockchains and all of the energy burn and everything that goes with it in order to actually have that thing in a place where it is truly non-fungible.
Henry: So, that's a fundamental, downside to all true blockchains then.
Mike: Correct. I mean, unless somebody comes up and I mean, there's lots of theirs people out there where lab COATS and with those pocket protectors and stuff that are working on this thing, but until somebody comes up with a better kind of mathematical way to guarantee that the brute force computing power on this planet could not be put together to crack that math’s until they come up with something that's more efficient, we're stuck with the original Bitcoin, and Ethereum mathematics.
Henry: Do you mean that there was a great amount of energy, to create the blockchain, but if somebody wants to interrogate the blockchain, it would take an awful lot of energy as well?
Mike: No. That's the exact opposite, Henry. Anybody can interrogate what's written in the blockchain, that's the point? So, there is a public ledger. So, every human who goes wants to go and download the entire Bitcoin blockchain from cell number one can do so. I mean, it's something crazy, like two terabytes now or something, but it can be done. That's the whole point. So, everybody knows that whoever has this encrypted address for this $60 million digital artwork, they're the owner of it.
Henry: So, would you guys say that NFTs are essentially a bet on the future of our mantra decentralization?
Mike: I mean think it is because the truth of the matter is, and to Christmas point. One of the things that you need to be able to do, if you want to take some kind of digital commodity or digital creative work, and you want to create an NFT out of it, what needs to happen is people need to believe in the characteristics of non-fungibility that a blockchain gives it so you need to be able to believe that this artwork really is non-fungible because it's written on Bitcoin, which means that if Bitcoin or Ethereum or one of these chains stops existing and if the investor believed that in the future was not decentralize that we were not going to be into a world Henry, where all of us had some kind of control and ownership of some part of our digital realm and rights and identity and ability to exchange data, then they wouldn't ever bet on an NFT because it would be worthless.
So, if what ends up happening. The true nexus of decentralization is that all of us it's essentially this idea, decentralized authority away from the current centralized kind of castle, walled gardens. There are lots of words that are Google and Facebook and Amazon, where everybody is inside the walls, and you have to do what they say and take that authority and move it to the edge. So, if what ends up happening is the true move to a web 3.0, which we've been talking about for years people have been talking about it for years and including us, if we move to a decentralized foundation for the internet where everybody has responsibility and ownership for how they connect to each other and to services and how they share with each other in services, then everything becomes almost non-fungible.
Right. Henry. If I have one single access point for me to go into say a Facebook and I log into Facebook and I post an NFT version of a poem that I just wrote, I could maintain complete ownership of that because it would be basically watermarked as an NFT that I created and it makes Facebook's arguments that they own all of the content on their platform kind of more superior I would say because that's the problem. The problem right now is what is the recourse? If you go up and you're a band and you upload a new album onto Spotify. Spotify has that file to Christmas point. Spotify determines how that file gets pushed out, how it gets prioritized in people's searches and how much money you make. It has no impact on how good it is or how much people like it because if they decide not to show it to anybody, nobody hears it.
Henry: It's almost as if the internet is finally maturing and if we keep on focusing on sexualization, we're going to grab control back the way it was envisioned like decades ago.
Mike: Totally.
Chris: I think Henry, what this recent auction is telling us is that decentralization has entered the big leagues now. Correct?
Henry: Yeah.
Chris: What this shows, is previously when it comes to content, it was all about scale. It was all about how many eyeballs see something. How big the social network was. But now that you're dealing with NFTs that doesn't really matter because all that needs to happen is one person has to say, hey, I think this thing is worth 69 million and he buys it. Looking at the big picture, the truly big picture here, the whole internet has to get on to decentralization. Like yesterday, this is now where the money is.
Henry: Yeah.
Mike: Correct. That's exactly it, Chris. That's exactly it.
Henry: So, Chris and Mike, I want to hear from both of you on this, as everyone knows we are so close to releasing, many, one, our decentralized, messaging app and it's just the beginning of many other things. How do we envision NFTs working with them or working for us?
Chris: Well, Henry it's actually quite simple, it really is. So, the way you want to think about, it is what we are doing with anyone is we're giving everybody their own blockchain. That's the way you want to think about it. You have downloaded the app has within it, the ability for you to store and put your identity and your content. So, in the future, we get the version two and three and things you'll have the ability as a musician, Henry because I know you're a composer and a musician. You would be able to record something transfer it into your mini one, say wallet. Put that into your mini one ledger and your mini one ledger, unlike a regular blockchain, it's something where you trust people. So, you don't need the math. You're interacting with your fans, you're interacting with your fans.
Mike: I have chosen who I am interacting with and if I don't want to, they're gone and so the way you want to think about it is if what you could do is basically everything that you did from the day forward, the way you want to think about how many ones eventually will roll out for all of us. Is you will have a wallet where everything that you do within that wallet? Every communication you make, every file you share every text, and things like this, will be stored on this personal kind of ledger. That is, basically a blockchain without the math.
Henry: So, it doesn't hog resources.
Mike: It doesn't hog resources, but more importantly, Henry everything that you do, there's one sole version of that truth. So, in effect, your entire digital life becomes this chain of NFTs, where you could put your music, in your container and invite people to listen to it and they would be listening to it off of the one place on the planet where it is in your container.
Henry: I could sell it if I wanted to.
Mike: Absolutely. You could say, hey, I'm Henry Carpus, I've recorded this thing. It's a fantastic rock opera of the ages and if you're interested in taking a listen, here's like a little one-minute snippet, if you want to listen to the full 30 minutes and you want to kind of interact with me like make it a community type experience or whatever you would be doing it from within your own community.
Henry: And there are no middlemen.
Mike: And there's no middleman.
Henry: it's brilliant.
Chris: So, I like to think in a couple of terms here. So, we're already seeing Bitcoin hit a hundred thousand dollars. Per coin, per bitcoin, a hundred thousand dollars. So, people need to store their digital assets, not just NFTs, but also fungible, digital currencies, Bitcoin in Ethereum. Right now, what they're doing it with, is a digital wallet. Here's the problem with a lot of these digital wallets is they're not attached to any identity now. Think about this in terms of the real world. When we have a wallet, we store two things, we store an asset, let's say coins, cash, whatever money. but we also store something else and that is a record of our identities.
Mike: Yeah. Driver's license, credit cards, all that.
Chris: Exactly. Now, what happens in the real world to a wallet without an identity?
Henry: it gets stolen.
Chris: Exactly. So, the thing is and I'm, maybe I'm kind of letting the cat out of the bag here, Mike, if so, shoot me.
Mike; Well, I won't go that far.
Chris: We, right now we're building a messaging app, a secure decentralized messaging app. Next step is we're going to be building online identity management. Where basically I can show in a decentralized manner that I am who I say I am and you validate my identity. Right, and the final step would be to attach digital assets to my digital identity and that's where the fun starts.
Henry: Totally.
Mike: That's exactly right and I just have two little comments first. I totally agree with you on the Bitcoin thing. Clearly, the thing about Bitcoin is okay. Is what it is I mean, and I think this is where the value is. People are getting into Bitcoin because they think it is more fundable, shall we say hedge on the future. Then say buying gold bars, they literally believe that if they have these coins and if the world is going decentralized and because of the world going decentralized, and a lot of the blockchain apps that are being developed for security purposes, security, and logistics. So, you need to have basically a token or a blockchain that can't be compromised. These things are going to keep going up. It's another bet on decentralization. It's a bet that you know what if I exchange us dollar today for another us dollar in 10 years, that our dollar is going to be worthless, but in 10 years that Bitcoin is going to be worth more. So, it's all a bet that decentralization is not just coming Henry it's here
Henry: Exactly.
Mike: This is exactly here and these folks are getting in on it and getting excited because they see it and they see it as a way to equalize things in the digital world. The Nirvana would be if all of us had this continual building ledger kind of NFT friendly framework, where we tracked and controlled and stored all of our own digital say, experiences. So, when you surf a website or you buy a pair of shoes or you listen to an album, it is done directly and reflected on this chain. That's, basically the Nirvana, because now when Facebook wants your metadata in order to provide a curated experience, they have to get it from you.
Henry: Right. You own it.
Mike: So, if we all basically were kind of walking NFTs, imagine the power we would have in this transactional advertising world that the social media and tech companies have created, it would literally shift the dynamics of power.
Henry: That's for sure.
Chris: Especially if our identities were NFTs.
Mike: Well, that is our identity.
Henry: We are at NFT's in biological NFTs.
Chris: That's exactly it.
Henry: Decentralize that's great. Henry and decentralization provide an NFTs income combination with decentralization, allowing us to actually take our personal, physical, non-fungibility and translate it into the digital realm, that's the simple way to think about it.
Chris: Exactly. So, I just want to leave with one further point here and that is NFTs, are explicitly a social concept. What's the point of acquiring the digital equivalent of the Mona Lisa, if you can't show it to someone and that's where once again, identity becomes just important because if I owned the Mona Lisa, maybe this wouldn't apply to everybody else, but if I owned the digital Mona, Lisa, I would want to show my friends, family colleagues, that digital Mona Lisa, and I would want to do it on a trusted platform.
Henry: Many one.
Mike: Exactly. Thank you, Henry.
Henry: Well, I'll tell you, Mike, Chris, thank you so much and I'm so happy you put up with my dumb questions because I mean, regardless, I learned a lot.
Mike: Well, thank you, Henry. It's a complicated topic and it's great to be able to shed some light on it. Hopefully. Thank you, boys.
Chris: You thank.
Mike: Thank you, Henry.