March 12, 2021
Which would you rather own?
Option 1: Iconic landscape photographer Ansel Adams took a photo of Bridalveil Fall in Yosemite National Park in 1927. The signed and mounted photo featured on the online Ansel Adams gallery is the earliest known print made from the original negative. That means that it’s closest to Adams’ original vision, in terms of how the light and shadow are captured. Adams (who died in 1984) himself made the print in his darkroom. And it can be yours for $170,000.
Option 2: In a mid-season professional basketball game in November 2019, LeBron James dunked on an unfortunate player with the Sacramento Kings who happened to be loitering in the King’s path. (This is also known as “posterized,” where the player dunks over another player in a play that is spectacular enough to warrant reproduction in a printed poster.) LeBron did the basketball equivalent of a WWE body slam or a bone-crunching tackle in football – and there’s a very real athletic brilliance and beauty to it, as you can see in the first clip here.
And last month, a group of investors (I’m using that term very loosely) purchased the officially licensed highlight of LeBron’s move on NBA Top Shot for $208,000 (you can watch it further down the page in the link above). What they acquired is something like a digital trading card… The clip is certified using blockchain technology, which makes it “unique” (or, at any rate, limited to the number of “printings” of the clip).
Over the past month, NBA Top Shot – a venture between the NBA, and a Vancouver-based tech geek company Dapper Labs – has seen just over $250 million in gross sales. That’s about as much as “investors” spent on NFTs – “non-fungible tokens,” or crypto collectibles – in all of 2020. (A few weeks ago, Dapper Labs raised upwards of $250 million and is now at a valuation of about $2 billion.)
Recommended Reading: Don’t miss next gen crypto tech: “ID Coin”
Next digital revolution in world-changing crypto tech is “ID Coin.” One potential gov’t announcement could make it mainstream news. Critical info here.
This Is NFTs on the Blockchain
NFTs, the blockchain… stay with me now.
Let me explain…
As your grandkid could probably tell you, the blockchain is like a big digital ledger that’s operated by a network, rather than any centralized entity or individual. Each cryptocurrency token – whether it’s bitcoin or Ethereum or Garlicoin – is equal and the same.
What that means is that my bitcoin isn’t any different from yours. We could swap bitcoins – just like we could exchange $100 bills – and there would be no difference between the two assets (that is, they’re fungible).
However, if I snatched a $100 bill out of your hand, you’d have no way to prove that it’s actually yours. This is where cryptos differ from real-world money… With bitcoins, ownership is registered on the blockchain. No one can take it away from you unless you allow them to, and only you can sell it.
Ownership of NFTs is also on the blockchain. Each NFT – that is, each digital thing (like a clip of a posterizing LeBron) – is limited in quantity, like cryptocurrencies. But NFTs are unique and one of a kind, in this case, because Dapper Labs and the NBA say so.
Dapper Labs previously created CryptoKitties, a game that’s a cross between digital Pokémon cards and Beanie Babies, that allows players to collect, breed, and exchange unique digital images of cartoon cats. Some of them have sold for the Ethereum equivalent of hundreds of thousands of dollars. In late 2017, the Ethereum network actually slowed down because so many people were buying and selling CryptoKitties.
The Kim Iskyan NFT
Now, the cool thing – or the weird thing, or the scary thing – is that you can make an NFT out of… well, basically anything. That includes you or me. As my friend Sam Volkering, a crypto expert at Southbank Investment Research in London, told me…
You could make a Kim Iskyan NFT that was the irrevocable proof you are you – and that anyone pretending to be you online would have to show their NFT public key to provide who they are. But if it didn’t match with your NFT public key, then clearly they’re an imposter. NFTs can be used for identity, or anything that needs to be proven and verified to be unique and rare.
I could create a limited number of duplicates of the Kim Iskyan NFT, which would be similar to, say, digital baseball cards. And I could post them on OpenSea, a marketplace for crypto collectibles and other digital tokens that lists millions of images, digital trading cards, collectibles, and pieces of “virtual worlds.”
In addition to the Kim Iskyan NFT, you could also bid for pixel art avatar CryptoPunk #7804 for around 4,200 Ethereum (around $7.6 million)… or Apartments #42 X 442 Y 428 of MegaCryptoPolis, a “decentralized city builder game” in which every building is a crypto token, for 0.41 Ethereum (about $738)… or digital pet Axie #226305 for 0.25 Ethereum (about $450).
Is It So Wrong?
It’s easy to dismiss NFTs as the latest chapter in the bubble economy… But it’s a world of virtually unlimited cash, as the Federal Reserve is about to add another $1.9 trillion to the U.S. economy via the latest coronavirus stimulus package… on top of the previous trillions of dollars that have been injected into the economy.
So maybe there’s not a lot of difference between buying shares of investor darling Shopify at a price-to-earnings (P/E) ratio of 420… or buying Tesla shares at a P/E ratio of 1,049… or paying 0.67 Ethereum ($1,206) on OpenSea for EtherSkull #32 (“EtherSkulls are the most powerful and mysterious artifacts that exist”). Or maybe a better deal is Twitter founder Jack Dorsey’s very first tweet (“just setting up my twttr”) as an NFT… He’s offering it at auction, and the highest bid (as of earlier this week) is $2.5 million.
Is there a difference between what people of a certain age call a collectible – anything from Norman Rockwell’s “Home for Christmas” to a 1994 Porsche 911 Turbo to Vince Lombardi’s 1956 New York Giants Championship ring – and an NFT?
Is there a difference in the pleasure of ownership of, say, a “unique” video clip of LeBron James dunking (which I can experience at an identical level of clarity and vigorous violence on dozens of YouTube videos freely available on the Internet) and an original Ansel Adams print (which I can buy a decent replica of for a few hundred dollars)?
(And if Norman Rockwell’s contemporary analogue created a unique digital painting, would I like it as much as a Norman Rockwell print on my living room wall?)
I know what I prefer… But perhaps our children – for whom a landline telephone and a map that’s stashed in the glove compartment are like artifacts from the Stone Age – feel differently. I’m guessing the roughly 350 million players (many of them from Generation Alpha, born since 2010) of the online video game Fortnite – who have spent billions of dollars on player costume “skins” – won’t be as keen on vintage Soviet-era posters or a Mickey Mantle rookie card.
But then there’s the other side of the question: Is the LeBron James NBA Top Shot NFT or the Ansel Adams print a better investment?
Business news website CNBC sees cause for concern. A February 25 article drew a troubling parallel…
The surge in prices of these virtual items has led to fears of a repeat of speculative crypto mania. It’s reminded some investors of the initial coin offering, or ICO, bubble in 2017, when multiple start-ups issued new digital tokens to raise money. Barely any of the ICO projects exist today, and some even defrauded investors out of millions of dollars.
Shares of Coca-Cola trade hands at $51 today because that’s what the market thinks the underlying cash flows and prospects of the company are worth. That may be high from a valuation perspective (at a current P/E ratio of just under 30… for a market capitalization of $220 billion). But Coca-Cola shares are definitely worth something. Outside of the world of bubble valuations, is a “unique” clip of a LeBron James dunk worth anything?
And now, NFTs are moving into the big time. Just yesterday, auction house Christie’s sold an NFT by a digital artist who goes by the name “Beeple” for $69.3 million. It was, by far, the highest price ever paid for artwork that exists only digitally. Christie’s reported that it was the third-highest auction price in history for a work created by an artist who is still living.
How NFTs Are Actually Useful
NFTs aren’t just for pixel artwork. The technology of NFTs allows for the tokenization of real-world assets, like real estate, art, (non-digital) collectibles, and almost anything else. With the actual item safely stored, ownership could be fractionalized (want to own 1/5,000th of a Rembrandt?) and traded as a token on the blockchain. By creating liquidity – that is, a broader and deeper market – for an asset, it’s possible to get a better sense of its value and allow an entirely new investor base (the Ansel Adams prints folks… rather than just the Degas originals crowd) to buy fine art.
Another use case, Crypto Capital editor Eric Wade told me, is for royalty rights. Musicians can sell song rights using NFTs – similar to the way that a record label can sell the rights to certain albums or songs. In that way, a listener could pay the musician – or the owner of the composition – for listening to a song to the unique NFT address of the song. (Payments company Square – headed up by the same Jack Dorsey – recently purchased Tidal, a music service founded by rapper Jay-Z… and they may try to figure out a seamless and fair royalty system using NFTs.)
Also, NFTs can be used for digital identity, to store identification and ownership data on the blockchain. This would improve data integrity, while allowing for trustless transactions (that is, participants involved don’t need to know or trust each other)… you’d upload a copy of your driver’s license once and be done with it.
In the meantime… I’m buying the Ansel Adams and watching LeBron on YouTube like everyone else.
Love us? Hate us? Let us know how we’re doing at [email protected].
Executive Editor, American Consequences
With Editorial Staff
March 12, 2021