32 - The Bull Case for NFTs | Jake Burkhman & Andrew Steinwold

welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david how are you doing today particularly bullish on nfts today i don't know why but i just feel that way yeah me too this was definitely a bullish episode we kind of cover nfts from soup to nuts like starting with what they are and why they're valuable

and like getting into the psyche of collectibles and why humanity has valued those for thousands of years so what were what were some of your takeaways yeah i think my biggest takeaway is like when we talk about ethereum we talk about d5 we talk about all these crazy new things that we are building it's easy to forget that we are often rebuilding things that have come before us right like we are not recreating finance we are just we we are just taking the old paradigms the old primitives and redeploying them on

ethereum and nfts the conversation around nfts is very salient around this like humans have been collecting nfts for as old as time right we just didn't call them nfts we called them other things so if you collected pokemon cards when you were a kid if you played yugioh uh baseball cards beanie babies coins stamping stamps yeah all this good stuff like the concept of scarce goods is written into our human dna right like we understand scarce goods and i really

really liked the line from andrew where he said like he thinks that the worlds of nft as a val as a market cap is going to be orders of magnitude larger than d phi and the same sense that like property and items are way bigger than finance like the the the total addressable market for just property is is massive and so that's why andrew's particularly bullish on this industry yeah those guys are super bullish and something about this feels a lot like d5 and i don't know 2018 2019 where like

stuff is getting built it's bubbling it's below the surface so it's still kind of a niche within a niche within a niche yet you see the the organic material here for something really incredible to be built and you're not yet sure when this is going to bubble over and become massive you know for for d5 in 2019 it took a year for things to start bubbling up and getting some mainstream attention uh and i wonder if the same thing is going to happen with nfds whether we're

a year away whether we're two years away whether we're longer but certainly the gentlemen the guests that we had on our show today are ultra bullish in this world and they eat breathe and live in it every single day also what was cool i think is um they really left the listener with with some action steps some things that you can do next to get a taste of the nft world um and it's it's far bigger than i thought like there are a lot of things that you can do today it's primitive it's kind of

nascent it's a little clunky in places but you can see the potential there as i'm looking towards the the d5 world and yield farming i'm expecting that energy to kind of die off at some point right like be it like two months from now or two years from now like that energy isn't going to dissipate so when i'm thinking of like a long-term bull market i'm thinking about things that kind of pick up the slack things that add energy when energy is needed right like when when the yield farming runs out of gas what adds gas back into the fuel tank of

the bull market and the nft phenomenon thinks i think that is like the next step right and we need to do ryan another episode on nfts because there's it's such a rich world and we really only scratch the surface one thing that i'm really particularly fascinated by is just the massive amounts of intermediaries that get cut out between an artist or a value producer and a value consumer right like in the in the legacy world with uh with music artists there's like seven different intermediaries between the

listener and the artist right and that ends up making the the listener experience the listener can't express their value to their artists their artists can't receive the value being expressed by the listener because of all these intermediaries and i think the nft industry is something that can really just streamline the connection between value producer and value consumer without having a bunch of middlemen we definitely talked about that at a high level in this episode but i think it's definitely worth going into in in future episodes so here's the takeaway guys

this is the frontier chris breninski in our episode with him called the land of ethereum infinite white space and i think there is an infinite white space for the growth of nfts here and you know with that david why don't we just get right into it but first we're going to talk about some of these fantastic bankless sponsors that make the bankless nation possible one of the tools i've started to use recently is zapper for those of you that were part of the 2017 bull market it was characterized by just opening up blockfolio and refreshing it over and

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jacob all right bankless nation we are super excited to have our first two guest episode on the podcast we're gonna be talking about nfts today are they the next big thing is this the thing that's going to happen after d5 hopefully we will find out with our next two guests the first is jake burkman who

is the founder of co coin fund he's also an engineer he's a long time crypto investor we've gotten him to write bankless articles as well so he's he you know three things at the same time and also andrew steinwald who is the founder of the fermion fund he invests in the metaverse which we'll be talking about today what that is he also writes one of the best newsletters i've found that covers the nft space it's called zima red welcome to the show jake and andrea how are you guys doing

yeah doing great so happy to be here doing great thank you so much for uh for having me guys are nfts about to blow up they're kind of blowing up already right so so you you you know we were talking a little bit before the recording about how defy is killing it and recently zapper published some of their uh some of their like website statistics right about how many daily active users there are and how many monthly active users there are and everyone kind of thought like oh you know there's probably a few

tens of thousands of people in d5 uh but the month maus at zappa were 300 000 which is surprisingly high and the daus are something like 20 000. i think that's august numbers i i'm here to say that the numbers for nfts are not far behind so i wrote a blog post a while back that looked at the total number of unique addresses that used openc and it was april 2020 the stats were roughly 20 000 totally unique

wallets on openc and openc is the number one nfc exchange in the ecosystem right now there are others but um so i looked at that and i think that that's you know people that you trade nfts they have usually more than one wallet just like how people in d5 have more than one wallet so you know at the maximum i'd say we're around let's say 10 000 to 30 000 active participants in the nft space right now so you know there's a lot more space to grow especially if we're looking at d5 numbers which jake just mentioned is 300

000 and we're if we're looking at total active crypto wallets which i checked up just because i was curious about that number in 2019 i forget which month but it said i think it was 42 million total active crypto wallets so the the total you know market growth potential here is absolutely massive yeah dave and i were talking the reason we wanted to host this episode is honestly nfts feel somewhat like d5 felt back in a year ago right so back in 2019 you know around this time d5 d5 was kind

of on the cusp you could see a lot brewing nfts feel like that right now i'm not sure whether they will burst in the same way that defy has lately but those two things are certainly uh super interrelated um but before we get too deep i feel like we should just spend a minute to define nfts we're using this like you know um this acronym uh nfts of course stand for non-fungible tokens but what what are nfts maybe jake we

could start with you well nfts are non-functional tokens what that means is there's um there's some assets mostly we we see this in kind of currencies and stocks right where each unit of the asset is exchangeable with any other unit of the asset so if i have one ether you have one ether i say you know so if i send you one ether and you send me one back will you is that a fair trade absolutely um we're willing to do it in non-fungible tokens you have a

plurality and diversity of different assets and they're not all valued the same so for example cryptokitties right some cryptokitties are more rare others are less rare more common um and so the rare ones are going to be worth more non-fungible tokens captures that idea and i think as we'll discuss it extends um it extends it to not just art not just collectibles not just crypto kitties but to a broad spectrum of uh of different assets that could be understood that way

yeah i think jake hit it perfectly well i i like to describe non-fungible tokens as unique digital assets so unlike bitcoin and us dollars that are totally interchangeable my use dollar is the same as yours and my bitcoin's the same as yours it's worth the same uh nfts they can be basically let's use an example from a video game if i have an nft sword that i won from defeating some boss and maybe it's called you know flaming sword number one then you come along you also defeat the same boss and you get that sword but you have flaming

sword number two so even though they might have the same stats they're totally unique from each other and in theory the market should probably value mine slightly more because i was the first one to defeat the boss and i you know have the number one sword and that's just the example from video games but most nfts that we see today are just completely uh unique assets from virtual worlds to collectibles to game assets and etc so i think the average listener even if they don't know like what an nft is in the way that we're talking about it they

are still familiar with the concept of an nft and nft is just kind of like in the d5 world we like to put in confusing lingo and nft is definitely one of those things but people should really know what these things are like andrew you gave this great explanation of like a it's a sword that you found in a game it's some some loot that you found in your favorite video game but in the real life there's more to it than that like art i think and you know renaissance paintings and marble sculptures things that you know there are only one of and

that one thing has value uh this this is something that has been as is this is something that is as old as time uh can you guys go into kind of the the the relationship that humanity has with what we now are calling nft yeah so i guess um yeah so you know throughout forever people are always trying to verify the authenticity of certain goods right and that's just been the case since probably the down of man and what what we're seeing with nfts that are attached to

real world items today is usually they're they're sold as certificates of authenticity so i can buy a physical piece of art and then attach that maybe they'll they'll attach some sort of nft or you know send me the token so it's kind of a certificate and i think that there's a ton of use cases that will spawn and there are already some today that basically sell these nfts and then on the background they're redeemable for the actual physical good so what we see on openc there's a company called i think it's like wiv like with or something and they're

selling cases of of wine from france i believe and you're able to actually purchase these cases as nfts and i believe you're able to redeem uh the actual nft for the actual wine of course you have to pay shipping and whatnot so it's you know it kind of you run into the same issues but with the traditional uh traditional inefficiencies of physical goods but right now the use cases that are really exciting in my mind are kind of these completely digitally native things but we're definitely seeing a huge use case and what will be a huge use case is um

the more traditional physical goods with nft certificate certificates of authenticity and that can be anywhere from like rare watches to wine as mentioned or rare cars and all sorts like the entire collectibles market is becoming digitized which will unlock just so much value and be able to make people feel a lot safer transacting with these items it's kind of weird that the humans have always collected things like this so i had a i had a neighbor growing up who used to collect um cars like classic cars and when you think of the value of a classic car

it's it's not valuable for its utility function it's not valuable because you know my neighbor could use it to go from point a to point b on his commute to work in fact he like left his cars in his garage and never drove the things but they had some collectible type of value like what is that is that just something inherent in uh inhumanity that we um we treat scarce things that are unique uh that have some kind of nostalgic value

as as valuable like we do this all the time in the physical world and we're just kind of porting that same thing into the digitally scarce world that's what nfts are right jake do you have any thoughts on that i do um i i think if you kind of dig down into the human psyche it kind of you know i think it kind of boils down to two things it's like value and ownership there's this great talk that that has influenced me over the years so much from andreas antonopoulos i think it's called the future of bitcoin and i think

it's from 2015 and somewhere in that in that talk he mentions you know like if you perform an experiment where you put some some children on a deserted island they'll naturally develop ways of transferring value to each other they'll start collecting shells they'll start start collecting pretty rocks and flowers and they'll basically start using those things as a currency so in you know i totally agree i think like there's some aspect of you know embedded in in people

that want to encapsulate the idea of value um in in an asset form and then the idea of ownership i think extends that right there's something also innate in us that you know that likes property that likes the idea of being the sole owner of a thing um and on the internet like this is a view that i kind of have come around to lately um i heard adam b levine talk about it on on one of these calls that that i was on

recently but but he was basically saying like if you think about um digital content on the internet um you know one view is that is that we don't really own too much of it right like we we maybe own the content that we create but we we certainly don't own the content that we consume right so if you're um borrowing an ebook from from amazon or you're watching a movie on netflix you don't actually like own the thing

you kind of own the license to to view the thing for a little bit of time and what nfts allow you to do is just like all you know blockchains enable this like strong personal ownership of assets nfts allow you to create strong personal ownership of of digital content and i think that's like a really really interesting view and the reason why i think that is because as an investor

i'm looking for markets that are high growth and what i'm observing about this market of ownership is that it's like very liquid right it's not it's not out there there's not a lot of secondary markets for for digital content and that's because primarily the ownership of these things is not owned uh in actuality kind of by the people by most people and so what happens is when you when you take nfts which are digital assets that enjoy the benefit

of all the advances we've made in blockchain like dexis and liquidity and trading and you sort of start to unlock this asset class of digital assets you create a bunch of value and unlock a bunch of value that before was completely internalized right and so it spills out onto the markets i sort of share that take right so if uh this is sort of what i've kind of concluded after being in this space that the thing that humanity unlocked with the birth of crypto in

2009 with with bitcoin first is digital scarcity like if i if i could kind of sum it up right so the internet gave us digital communication but what crypto gives us is the ability to have scarcity on the internet to to create inject scarcity into our digital goods and that's closely as he said associated with uh ownership and and property rights and they're all kind of interrelated but before 2009 we didn't even have the ability to have a

digitally scarce good every good could be copy and pasted but through this mix of cryptography and economic incentives humanity has essentially unlocked digital scarcity and everything's kind of falling out from that like there's this game uh civilization i don't know if i used to play it as a kid right so you kind of level up your civilization and know that the civilization has discovered writing the civilization has discovered mathematics and now physics and you know now the nuclear weapons oh gandhi's going to war with your civilization right like that's how the

game's played i really feel like humanity has just unlocked digital scarcity and all of these things like nfts are just falling out of that what do you think of that take jake is that the big discovery for crypto when i started thinking about nfts i actually started at the um you know the stanford encyclopedia of philosophy because i was trying to understand how digital art sort of meshes with uh with this idea of digital scarcity and what i noticed was that

you know if you talk about physical art like if you talk about the mona lisa it's a very uh it's a very solid problem to answer the question like where this art is i know exactly where the moon is where the mona lisa lives right it lives in the louvre um on the other hand when you start to think about digital art this is a you start to fall down this like philosophic rabbit hole where you kind of don't know where it is like is it in the creator's like photoshop like is

it in the email where he sent it to the gallery is it in the box of the gallery what you realize is that digital art is it doesn't have like a place where it lives it's just sort of like a concept it kind of like lives in our minds and then it has like different um you know actualizations of that concept which might be like a copy of it on my computer or phone or something and what actually blockchain technology and digital scarcity do for for art

philosophically for digital art and ephemeral art is they find a place for it and that place is on the blockchain you you know like exactly where where it is like and who owns it and so that's kind of like where i started um in thinking about it and then as we develop the idea of digital scarcity you kind of realize that that strong ownership of it also enables you to you know

be entitled to the rights that owners are entitled to and these rights might be the right to hold the right to sell the right to lend the right to collect the royalty stream uh on this on this work uh the movie rights to this work and so on and so forth and that's where the view of uh what we call liquid ip or liquid intellectual property kind of comes from one of the favorite ways that i've had bitcoin described to me is that bitcoin is this uh ledger of property rights for these 21 million units right and you know people can perceive these units to

be whatever they want them to be but the property rights ledger of bitcoin itself is so incredibly valuable that these 21 million slots right these 21 million like parking spaces or just like units are so incredibly valuable because of the value of the property right system that is bitcoin that that it turns into like btc as money right and what ethereum has done is it has generalized this concept of like digital scarcity and it's it's actually a funny little statement that i that i like to to say in my head is that you know

ethereum has made uh scarcity abundant right and so while bitcoin is this this one like monolithic property right system ethereum is this property rights platform right a platform for property rights and what nfts are is this uh you know this very specific instantiations of one very specific form of property right and ever since you know ever since we human humans moved out of like 100 gallery societies and into like settled lands where capital and property therefore was established

we have been like property owning beings right like our the one of the ways that we perceive and and share and grow wealth is through property right and so i'm just particularly bullish on like ethereum just as a generalized property rights management platform yeah no i i absolutely love that ethereum as a property rights platform and you know my whole thesis is that non-fungible tokens enable a true metaverse to form because they give us property rights right whereas before as you mentioned like on in the digital

world we had zero property rights and you could copy and paste and you know print unlimited things and you know property rights are the basis of all basically successful economic systems that we've that we've kind of seen today and um i and also going back if you kind of think about you mentioned the hunter gathering days like even back then people were collecting shells and kind of collecting stuff and um taking ownership of these kind of goods and it's really interesting to see that maybe we have some like innate human you know piece of us that likes to

collect and likes to have property rights over over certain like items and so i think that ethereum as a property rights platform is just enabling the entire virtual world to have property rights and uh that is going to open up the door to our it's you know people call it a mirror world or a metaverse where whereas before we could you know we could build whatever you want in in the virtual but you couldn't actually own anything now we can transfer our entire society that we've built in the physical realm and port that into a digital and that is going to create an entire you

know society that's completely uh virtual you know it's called the metaverse but yeah that's that's why i'm so excited about this and i think you hit a spot on with ethereum being the the platform to do all that what do you mean i've heard you say this before andrew the metaverse right so is the metaverse basically a virtual world um like with property rights or is it describing crypto how do what is the metaverse in your mind what what do you mean when you say that yeah so i like to to say that the metaverse is just a virtual environment that people live

work and play in so you know it can be any sort of uh it can be on a computer it can be in a vr headset it can be you know i guess zoom is some very very simple form of the metaverse you know obviously for a true metaverse you want to be way more immersive and also you want to have property rights in there but this is like ready player one basically exactly yeah and i think that there is no there is no one singular platform that's going to be the metaverse it's going to be kind of like the internet where you don't say like oh google is the internet or facebook is the internet it's just kind of all these things

together create the internet and it's kind of my opinion that you can't have a metaverse without something like ethereum for property rights because uh you know if let's say facebook made a really great virtual environment where people could actually earn money and stuff like that well at any time facebook could delete your account and delete all your items or even epic games who are very you know kind of pro user and kind of pro you know they want people to you know have more freedom even if they created a metaverse and enabled a lot of this it

still wouldn't be real unless the users actually had true property rights where epic games no matter what could not delete your stuff because if they can then it's not it's kind of like living in i don't know like the soviet union back in the day where you know you couldn't really uh i i don't think you could have too much too many actual property and um your your options for business and whatever were very very limited so that's why people want to move to america or or some other country with stronger property rights so they can you know build a business and thrive and i kind of see that with any any virtual world or platform that

utilizes ethereum or other you know other technologies that enable digital property rights that's when you start to get the first inklings of a metaverse all right so when you watch something like ready player one and you're seeing like um you know the avatars run around they're collecting coins and they're grabbing items and they're you know getting things that have value and they have an inventory yeah they have an inventory you're saying all of that is basically registered on some sort of crypto economic blockchain system like ethereum yeah and i would say i'm actually pretty

blockchain agnostic which is funny to say i mean right now ethereum clearly gives the the biggest advantage in terms of property rights and real property rights i don't really think you know platforms like um you know i don't want to cause controversy but you know there's other chains out there that don't provide the same guarantees that ethereum does i mean obviously there's there's issues with ethereum scalability and whatnot but i'm confident those will be solved but you really have to have some system some blockchain-based system or distributed ledger system that enables these rights so it doesn't matter what the chain is that you're

using what matters is that these these property rights are guaranteed by the network and that they enable this kind of metaverse to form well we're okay with a little bit of controversy right david so um like something like tron right with like so or something like uh eos with maybe you know 21 block producers who can censor your transaction what you're kind of saying is that's a less valuable property rights system because it's it's much more centralized much more subject to some third party control

than something like the ideal state of ethereum is is is that kind of the case so like we we have to have a credibly neutral property right system whether that's ethereum or something else that's what you're more bullish on is that what you're saying yeah so you know um for me it doesn't i'm totally blockchain gnostic as long as you have true property rights because my goal is the metaverse right so how will we get there doesn't matter i just want to be certain that we have true property rights and right now ethereum is by far the the leader in that and yeah i think that there are some issues

with you know things like eos just personally i think that there's some uh issues with having only 21 because in theory there could be some group of people that kind of take control of that and then your your property rights are have get you know those get diminished and uh so that would hurt kind of the metaverse thesis so yeah in my opinion ethereum is by far the best uh option today so there seems to be a lot of excitement around nfts right now like in the last few weeks or months or so what is generating all of that hype like