Good Disruption: NFTs

The Disruption, a lively discussion between UVA Darden School of Business professors Yael Grushka Cocaine and Mike Lennox on cutting edge technologies and practices that are challenging the status quo.

Good afternoon, Mike.

How are you?

I am doing real well.

How are you doing, Yale?

I am great.

I'm excited to talk to you about our next topic because it's a buzzword in and of itself, NFTs, non-fungible tokens.

Is this a fad?

Is this an actual New technology, can we even talk about it as a disruption of some sort?

Well, before I even answer that question, I've got a question for you.

Oh.

Have you been watching the World Cup?

I have, and I'm very sad that England is out.

Do you have like a favorite highlight at this point?

Um, that's a great question.

Um, I did really enjoy the France versus England game.

That is for sure.

Yes, not the Harry Kane, you know, shot there that he missed, the first, not the second, the first.

OK, there you go.

Well, the reason that I, I, for me, I will say I am, uh, you know, after the US left, I've been following Messi, and Argentina, and he had that incredible pass, uh, in his last.

Game there.

The reason I bring this up is, do you know you can own that highlight or at least have an ownership claim on that highlight?

I see what you're doing there.

You're bringing the idea of non-fungible tokens to life through this example.

I love it.

I am.

I love it.

So in fact, FIFA did sign a partnership with Upland, which, uh, another.

The topic we've discussed, the metaverse.

This is, uh, a digital virtual open world that they run, and they are there selling highlights.

So you can go on and there's a marketplace now to buy the highlights from those different, uh, different moments in the World Cup.

OK, so tell me, tell me more.

Why would I want to buy the highlight?

I mean, I enjoyed it.

I enjoyed.

I go to a lot of music concerts and I love being there enjoying those moments in the music concerts.

Why would I want to buy a highlight from a live event?

Well, and this is the thing, right?

So NFTs in essence, allow you to exert ownership rights or kind of, uh, claims on digital assets.

And just to kind of, you know, go with the terminology here, a non-fungible token.

Is in many ways the opposite of what we might call a fungible token or a fungible asset.

So what's a fungible asset?

That would be something like Bitcoin or cryptocurrency more generally, where the whole idea is one Bitcoin is the same as another Bitcoin and allows us to trade.

The non-fungible tokens are about unique assets, you know, one of a kind things in the world, like a highlight from the World Cup there.

So for instance, I could have a $1 and exchange it for $1.

That's your fungible component, or I could own a Van Gogh, and that is unique and non-fungible.

Is that correct?

Exactly.

And so what the NFT is doing, it is allowing you to basically exert that ownership right.

Um, and typically, this is done on the blockchain.

So the idea being we're gonna leverage blockchain technology, this idea of a distributed ledger, which we've talked about in the past, which is gonna allow you to record that UIL own that highlight of Keynes, you know, hitting the, uh, hitting the penalty kick there.

That is, that is fascinating.

And you mentioned earlier on that the partnership was related with a company that's active in the metaverse.

Do we need to be in the metaverse to benefit from this?

Like only people that have some kind of presence in some kind of world out there online would care about these assets?

Not at all.

I think, I think this could be for really again anything where there's a digital representation of an asset.

It's also not clear to me that while this has always been kind of framed around blockchain.

There are kind of closed worlds where you still have ownership of digital assets.

Uh, think about a game like Fortnite, where you have different avatars and different things that you might bring to the table that in some cases you might uniquely own.

What the blockchain starts to do is allow you to transfer those assets into other applications and other parts of, you know, the Internet, if you will, um, so it doesn't have to be in the metaverse, uh, it's just simply this idea of exerting digital ownership.

So let me just give you a sense, by the way, of whether this thing is, is real, um.

Right now, NFT sales volume is upwards of $41 billion.

There's been 122 million transactions and over 7.8 million buyers just on one platform alone.

So this is getting big, as you can imagine here.

Um, we've talked about crypto on our podcast.

We've talked about blockchain.

Uh, is this something different?

Is this something fundamentally new, or is it building on the same technologies?

I think a lot of people are viewing these things as kind of bundled together in what we might call web 3, that we've again talked about in our, in our podcast on the metaverse here, but I think it's unique enough and distinctive enough that we can view it again separate from these other, um, these other trends and these other technologies.

Um, if you think about, uh, One of the examples like NBA Top Shot, which is a very popular exchange for NBA highlights, so kind of sticking with our theme with the World Cup here.

So you can literally, you know, purchase a highlight, uh, that you quote unquote own.

Now what strikes me as interesting about NBA Top Shot, they are not giving you the copyright to the highlight.

So in other words, if someone else shows that video, you do not have any ownership claim.

Now there's no reason you couldn't have that though.

So there are absolutely digital assets out there where you could exert ownership rights and assets.

Top Shot does not do that.

So the question resides like, why would you pay for this, right?

And but I think the way to think about this is look at some comparables here, right?

So let me give you first some numbers here on the NFT world, and then I'm gonna give you some comparables.

So in March 2021, probably one of the, uh, uh, ones that attracted the most.

Attention was a sale by the digital artist people who sold his work for over $69 million.

Uh, digital artifacts, again, these are digital imaging.

That was one of the big early success stories.

Absolutely, absolutely.

And you know, my own perspective is selling artwork is a viable market.

Um, I don't know about your taste.

Have you ever seen what people have done, like they're like cat pictures and stuff?

I'm not quite convinced that that I would pay that money, but you know, hey, everybody, my daughter might, right?

Everybody has their own taste, so that's one.

Uh, Twitter's Jack Dorsey, the founder, uh, and former CEO, uh, sold his first ever tweet, which was just setting up my Twitter, uh, for $2.9 million.

So somebody paid $2.9 million to own again that digital artifact.

Uh, and then probably my all-time favorite here is the Bored Apes Yacht Club, uh, which is a limited set of cartoon renderings of apes with different combinations of hats and scarves and looks and And expressions, um, some are more rare than others, some combinations.

Uh, so there is an active market to purchase the rights to these bored apes, and the market was at least back in January valued over $1 billion for just this limited edition bored Apes Yacht Club.

Uh, the highest ones were fetching over $2 million each, so.

There's a market there even for something like cartoon drawings of apes.

Now maybe not it reminds me a little bit of comic books, right?

Is it, is that a fair comparison to think about?

People buy a lot of comic books.

Some people invest more readily on very unique comic books and rare.

Well, that's what I was gonna go.

Like, if we really think about comparables here, you know, you mentioned artwork.

So Leonardo da Vinci's Salvatore Mundi sold for $450 million in 2017.

Again, you know, is it worth $450 million for a piece of artwork in your home?

A 1911 Horners Wagner baseball card sold for over $6.6 million in 2021.

Now, you know, just a piece of paper.

It's been around for a while, but, uh, now selling for that.

So you're moving from a da Vinci to a card.

I'm gonna go.

Digital, right.

Well, I'm gonna go one more for you, which I find fascinating.

No, this is a Beanie Baby.

There is an active market, even though they were popular in the 90s, it's still out there.

The Princess Diana Beanie Baby from 1997, you guess, how much could you buy that for?

How much could it sell for?

Oh, I don't even know how to sit maybe hundreds of millions of dollars.

Oh, OK, that's a little bit, uh, that's a little ridiculous.

Yeah, that, but $500,000 500,000 dollars, half a million dollars for a little toy Beanie Baby that was a limited edition from 1997 there.

So I think it's a fair question.

I mean, what, what do you think?

Like why do people value.

You know, uh, intangible assets like this.

Well, it's interesting for folks that are active in those spaces.

If somebody spends their time online and that's where they get their pride, if I don't have a wall physically like that, I can hang my Rembrandt on, but if that's where I meet my social group is online, then why not own assets in that space?

I can totally see it for those folks that have Some kind of entity or some kind of identity and some kind of existence online.

Yeah, I can imagine, you know, bragging rights, right?

Like just being able to claim that you own either the physical artifact or the digital artifact, um, has some value to people.

We spend so much of our time on our phones and on our televisions and on our machines and devices looking at things out there, reading.

Observing things in the 2D space, why not own, you know, important components in that space too?

I do find it interesting that people are monetizing these assets.

So that in other words, that they're buying them with a specific goal of making money off of them.

So maybe tell us a little bit more about how they make money because there's a whole market aspect to this, right?

Once you buy something, you can sell it again and again and again and Divided like amoebas into multiples of the same version and so on, right?

Yeah, and I think, you know, I think about that, I think there's two possibilities, uh, the one again, copyright.

So if you have ownership assets and some people are using it, you of course could have an income stream from those copyrights.

Um, but I think what a lot of people are doing is they're just trading.

In other words, they're hoping others will value it more in the future.

And they'll be willing to pay for it, which again, if you think about artwork, that's exactly how artwork works is that sometime in the future someone might be willing to pay even more for that Van Gogh or that da Vinci and the like.

And in fact, all the examples that we provided, be those base baseball cards or comic books or works of art are similar in nature.

You buy them with the idea that later you'll trade them.

In order to get something else, and I think at the heart of it is you need demand plus scarcity, right?

This is Econ 101 here.

It's the scarcity, uh, and of course you have to have some demand for it that ultimately starts to drive its value.

I, I do think it's interesting that we're seeing some of these just appear for almost brand management.

So there's a lot of companies who are getting into this now.

Um, McDonald's offered a series of NFTs around the McRib sandwich, and people were eager to buy, you know, unique digital rights to certain McRib, uh, elements here, like, you know, videos and images, uh, from that there.

Um, you can think about avatars, right?

So that ability to uniquely express your identity.

The board at Apes Yacht Club, in part people are using them for their Twitter handle or for other social media properties.

And again, that scarcity, that uniqueness, they own the rights, they can use those images to represent exactly.

Um, the other thing I think that's kind of interesting is in some of these cases they're building additional opportunities on top of that.

So one of the things again the Bored Apes Yacht Club did is they had a whole bunch of celebrities.

Who were members and then they'd have members only events.

So only those who owned aboard ape was allowed to participate in those events and hey, Steph Curry or Jimmy Fallon, they're going to be part of this.

Maybe you will see them in that digital environment there.

Yeah, and I can see that they need strong partnerships to to accomplish that.

That, uh, I've heard of a company, a company called Parody that we work with that, um, promotes female athletes and the marketing of female athletes, and they've invested in.

NFTs that also come with some in-person experience or some access to a unique event or a unique online activity that brings the athlete to those fans who purchased the NFT.

So indeed, as you say, bundling, not only the The online asset, but with something a little bit more tangible, so some experiential kind of component.

Now, of course we're talking a lot about memorabilia and tradables, um, but there's a vision here for these NFTs that goes really far beyond this.

It's really about how do we assert digital ownership over.

Data more broadly.

So I, I'd like to phone a friend, as we always like to do, uh, and I wanna bring in a, a colleague of ours, uh, Denny Kim, who's on the faculty here at Darden.

He's a Harvard undergrad.

He spent some time out in the healthcare sector, uh, has his PhD in strategic management from Minnesota.

Um, and, and really is, uh, as an authority and expert on NFTs and web 3 and, and all fun things that are happening.

Uh, he's a little younger than us, so he, he's, he's more attuned to these things than maybe, uh, you and I, yeah, uh, that we, we, of course, try to keep up on all these things.

We're as hip as it comes.

My son, my son would not agree, but that's OK.

So, uh, Denny, are you there?

Hi Mike.

Hi Mel.

Thanks for having me.

Absolutely, we're so excited to have you.

So I, I wanna start with, uh, a story because I know for a fact that you have been an active owner, uh, and trader in the Board Apes Yacht Club.

So can you just tell us a little bit about the story of how you got into this?

How did you hear about it early on and kind of where do things stand now?

Yeah, oh boy, that's, uh, still remember April 30th of last year.

That was a, a really long.

Uh, Sleepless Night.

I remember that, that launch experience, uh, very vividly, but, uh, it actually started with one of the other products that you were talking about, NBA Top Shot.

Um, I had learned about NBA Top Shot from a friend, um, and as an avid basketball fan, um, someone who grew up collecting, buying, selling, trading basketball cards with friends, um, you know, we were kinda in the depths of COVID lockdown and The packs were something like $8 or $10 each, so it was a kind of a novelty, but I thought, you know, what the hell?

And so, um, my friends and I and, and my partner as well, like, we just had a good time opening up these packs, seeing if we got any LeBron Jameses, which, you know, at the time, last January, February, that top shot market was just ballooning.

Um, And so I, I started to get a little bit more interested in, in what was going on with the NFTs because in addition to these sorts of uh ridiculous valuations, uh, there seemed to be a lot of, um, momentum coming from just the, the business world about what are these things and building products around the NFT technology.

Uh, and I found out that the, the way to really keep up to date with the news in this space was through Twitter.

And so, as it happens, um, you know, April 30th, again, in the depths of lockdown, it was a Friday night.

I wasn't doing anything.

I was sitting at home on the TV and, uh, scrolling through the Twitter timeline, and I see these folks, um, posting images of these, these apes.

And by this point, I had explored a little bit of NFTs, um, outside of the top Shot ecosystem.

And I knew enough about the, you know, what had happened with GameStop recently too.

And in that subculture, there was this, you know, language of calling one another, another apes.

And so that was, it was a sort of cultural significance there.

And I thought the artwork looked kind of interesting.

So I decided to, uh, to get one.

That led to getting two more.

And then, as I started to see what was happening that evening, more and more momentum started to build, and all of a sudden, And there were 9000 out of 10,000 remaining.

An hour later, it was down to 50.

Wow.

And it just kept escalating.

So I thought, you know what, like, why not?

I, I, so I cashed out a couple of crypto.

Uh, I had some investments in crypto and I cashed out the rest and um bought about 14 that, that evening.

Um.

And I remember just going to bed around 5:00 a.m. thinking, uh, how am I gonna explain this to my girlfriend that I had just spent $5000 on pictures of, of monkeys, um, and yeah, that's sort of how it began.

What have you done with them since?

Well, you know, sadly, most of them, uh, 11 of them, so then I bought one more the next morning, so I had 15 at first.

Um, the vast majority, 11 of them I sold well before they, you know, I, I had made a little bit of money on the initial purchase, um, but sold them below 1 ether, which, uh, I think at the time might have been, uh, valued at around $2000 or $2500 US.

Um, I still have 4, including the first one that I ever, um, minted, which is sort of the parlance for Um, when you create NFTs for the first time, uh, from their smart contract, which is a sort of blockchain lingo for the computer program that sort of births these tokens.

Um, I still have that first one, that's sort of my primary web 3 avatar, uh, as you, as you all were talking about at the beginning here.

Uh, so, and I, yeah, so I have those 4, and I sort of just holding to see what will become of them.

Um, we typically talk here about disruptions like the technologies that we that we like to engage in, uh, on each episode is some kind of disruption of some sort.

Can you tell us more in your mind, like who's being disrupted or what industry is being disrupted by the NFTs?

Yeah, that's such a great question, and I was just listening to the, the episode you did on, um, personalized health, and I, I remember, um, Mike and I were chatting briefly in the hall, just, um, my Initial interest in NFTs and blockchain period was from the healthcare side.

Uh, I come from, you know, working and I continue to do research in the healthcare industry, but, um, I was always interested from a medical records perspective because in many countries, but most, you know, um, most notably the US where I spent, uh, all of my life being a patient and Uh, most of my career sort of studying, we have a really big issue with, um, access to our medical records.

Um, I don't know where my medical records are.

I certainly don't feel like I own them, though, in principle, I feel like I should.

And I, so I think this idea of ownership of information, um, and this idea of custody, um, who gets to have access to these things, um, and who gets to determine who else gets access or what can be done with that information.

I think that was the sort of fundamental insight that I had when I, when I first started to look at these, and, and that, that was the thing that made me think, wow, there's potentially something game changing here, because for as long as the internet has been a thing, we haven't really questioned as a society, um, how important is it for me to have control, access and own my information.

Versus just having access to it when I want it.

Right?

And I think, um, so right there and then this sort of these business models or these organizational structures around intermediating access to information or utilize collecting and utilizing that information, say, for marketing purposes, there are so, there's so much value being created, so much money being made on the back of that, those sorts of systems.

Um, I, you know, I think.

This, if we start to question the assumptions around digital ownership, we may start to see some opportunities for innovative business models that don't rely on what we see today in terms of harvesting data, you know, collecting these massive data sets on that we as individuals might feel um a little bit creepy about that, are, are they invading our privacy, um, and, and using that to sell us stuff or selling that to other companies?

Um, I, I think really there is the, the sort of starting point of the disruption, um, though I think it can be broader than that.

You know, staying on healthcare, this has been a sector where I think this general observation about data, data access, owning your own data, uh, being able to communicate that with various health providers has been around for, forever, for decades.

Um, I think about the old healthy on business from, uh, the 1990s during the dot com era.

What's the likelihood in your mind, uh, Danny, that, that NFTs and blockchain are gonna solve this problem finally, given that again, it's just been this wicked problem and, and we haven't made great progress on it to date.

Yeah.

So, I think, I, I've, I've been sort of working and, and studying the healthcare industry for about 15 years.

And if there's, uh, specifically in the US too, and if there's anything that I've learned in that relatively short period of time, it's that the US healthcare industry, while it's incredibly innovative and excellent in so many areas, uh, can be incredibly stubborn to change.

And so, I, I don't necessarily have high expectations, high hopes for NFTs, uh, sort of revolutionizing the way that, um, existing institutions and existing healthcare systems manage healthcare data.

I think it's going to continue to be incremental improvements on that front.

Where I do see it potentially having a breakthrough is in the healthcare data that we as consumers and as patients are creating.

And collecting on a daily basis.

Um, unfortunately, uh, you can't see me right now, but I'm wearing two devices, one on each wrist.

One's an Apple Watch, one's a Whoop device.

Both of these are collecting vital signs and doing some sorts of calculations through their proprietary algorithms all the time while I'm awake and or and while you're sleeping, right?

Yeah, exactly.

And that is incredibly valuable data for me, but it could also be potentially valuable data for researchers, for other businesses, uh, for communities to, to know together if I can provide this information to my healthcare provider when I'm going from My annual visits or uh seeking care for particular issues.

I, I think that can be really groundbreaking if all of a sudden there was a way for me to tokenize or own this, have control over it, and then be able to, uh, decide what I, I will do with it, right?

Am I going to use this?

Am I going to monetize this in some way?

Am I going to grant access to it?

If I'm traveling and, um, something happens, I'm in an accident, and You know, people need some healthcare information.

Uh, is there a way for me to, you know, transmit that information securely and efficiently?

Um, so I, I do think that there can be some, uh, really important innovations on that side.

It's interesting, we spoke recently about deep fake and the need for rich databases and, you know, Lots of data to train models, pictures and videos and assets of individuals that feed in.

Or if you're coming up with a language model, you need texts from authors or poems by certain individuals, by poets and I can imagine that there's here an opportunity or a relationship between how NFTs become commonly used assets or ways to hold onto your assets if they're if they're digital, and then maybe we'll have an impact on what we can and cannot do with deep fake, for instance.

Though it's interesting my thinking about this, that so much of the language around web 3, NFTs, metaverse, which all kind of get grouped together, are about democratization and, you know, freeing the web of the constraints of web 2, which you have these large companies like a Facebook or Metaow, uh, controlling a lot of the data here yet.

Is it right to think that if we start to give explicit digital ownership to that data, I'm not sure some of these AI bots would have the data to train if they have to get, that's my point, you have to get millions of people to now approve the access to their, to their data.

So do we lose something in an NFT world if, if Simon Cowell cannot, you know, if he owns all of his assets and every single video of Simon Cowell out there is owned by him, nobody can create.

A robot that sings the way that he hypothetically could.

I, I still question what the real value of that, but again, you know, there's markets out here I don't quite understand, you know, so, I don't know if the world is going to be that much worse off without that technology in particular.

Hey, there are worse.

But the thoughts on this, Danny, this this balance between kind of privatization and ownership that NFTs actually allow us to do versus, you know, what you sometimes see this idealized version of the web and the internet where, you know, data is free and flowing and anyone can grab it.

Yeah, I, and I think this is really when, you know, and listening to your previous discussions as well on cryptocurrency and the metaverse, and I think this is where the NFTs, blockchain tech, Web 3 as a whole, has so much room to grow, right?

This is still such an early stage.

Um, what bothered me as well, initially coming in, uh, to crypto and NFTs as a, a relative skeptic, um, was this sort of incessant Um, clamoring for decentralization and, you know, down with centralization or down with big companies, just in this question of ownership, it is to, you know, excuse my language, a pain in the, uh, to we have to control of the show.

It is, sorry, it is a pain to own and figure out what to do with all of these things.

The reason why You know, our world is in, in many ways for such a more convenient place today than it was 2 or 3 decades ago is because we have these companies and systems where we can sort of delegate responsibility and we can trust that they're going to take care of our money, our information, our other things that Um, and we don't have to maintain those things on a daily basis.

And so I, I, I do think there's a lot of overhyping about the sort of value of decentralization or, um, you know, this sort of, uh, ownership idea.

Where I do think it's super beneficial, however, is that it's this sort of re-questioning or sort of relitigation of why are the systems that we have today the way they are.

And could they be different?

And so, again, to kind of draw back on my, uh, my healthcare experience, you know, when I was learning about the clinical trials process, you know, most of the drugs that get approved in America, um, aren't approved because they're superior to their counterparts.

They're approved because they're non-inferior, uh, that they're safe, and they provide a viable alternative for patients where the existing stuff doesn't work.

And so I think this question of, can we have alternative ways of doing things, we have alternative business models, alternative arrangements in terms of ownership or custody of information, I think that's a really important question that's being asked in the sort of web 3 and broader technology space right now that I hope will give rise to business model innovation moving forward.

It it makes me think, you know, um, a lot of this is often framed around questions of equity and, you know, again, owning your own data so others aren't capitalizing on it.

Do you worry at all about creating markets though that don't currently exist for data that then allow people to sell their data, you know, so it's one thing if we're trading, you know, uh, highlights from the NBA.

It's another thing where I'm being incentivized by some health providers or others, insurance companies and the like.

To provide my health data.

Um, any worries that, you know, those with means can avoid selling their data, but those others might actually view this as a, as an income stream and be incentivized to, again, you know, sell their data to, to other parties.

Yeah, no, abs I think that's absolutely a valid concern.

Um, even with web 3 or cryptocurrencies, uh, more broadly speaking, um, when folks talk about the democratization, I, I don't, I think some people, uh, maybe sort of misconstrue that as meaning that, uh, it's gonna be like a socialist society.

Um, it is decidedly not that.

I think the democratization is more in Uh, if I wanted to invest in an early stage company through their, uh, initial coin offering or, or some sort of other vehicle, if I wanted to contribute funds to a particular cause through cryptocurrency, um, that anyone with an internet connection could, could in theory do so, uh, that there wouldn't be Um, certain regulations or other sorts of information asymmetries beyond, you know, just finding out on Twitter or Discord or from a friend, um, to prevent you from doing so.

But, uh, I think you're absolutely right.

There is certainly a risk that right now, it, it is history repeating itself, right?

I mean, it's, there's so much venture capital money fueling Web 3.

It's 100% of the winners from the last round. reinvesting in what they think is going to be the next round.

And it, it's, sometimes we, we wonder, is it just a foregone conclusion because they've invested so many billions of dollars into this?

Are they just shaping the world, um, you know, in a way that's gonna make them even more money in the long run, which is where I think it's really important for, uh, for us at business schools, and I think for just the, the general public to be more aware of these things and, um, because one of the, you know, it is, it is very true that The web 3 space right now, unlike the previous iteration of the internet, is far more global.

It's far more connected because of the infrastructure that we do have, and it's way easier for an average Joe to have their voice be heard now than it is, you know, a decade or two ago.

You know, it strikes me, of course, when we have things like qualified investors for, you know, private equity and, and larger, you know, dollar sum investments.

Um, we don't have that in this world, right?

And so if I want to spend $1.8 billion or a million dollars on a board ape, you know, that's my prerogative, I think.

I don't think we have any kind of constraints or regulation on that, um, other than that, maybe, yeah, yeah.

And, and, and so it does, you know, the downsides are, dare I say, you know, we're creating a, a global gambling, uh, environment in some of these NFT exchanges where they're trading, yeah, they are buyer beware here about the money you're spending on these, and again this goes to more if you're, you're viewing this as an income stream versus, you know, the more intrinsic value of owning, uh, these assets.

Yeah, my question, um, that follows that is, uh, we've seen crypto, um, see it's, its fair share of shocks in the recent few months, up and down, up and down, and some doubt as to up at all.

I think it's been just kind of down, get mostly down, yes, especially we know that you're kind of a skeptic on that one, Mike, but, um, so how does the NFT crowd, those who own assets, those who want to sell assets, how do they protect themselves from, uh, getting some of the negative effects of the other kind of adjacent industries?

Yeah, I think, um, this is, this is a, a very complicated question.

I think in, in terms of, you know, the connections to crypto, that will always be there, um, at least right now, because, um, for better or for worse, the vast majority of, of, um, NFT trading is happening on, um, very well-known, well-subscribed public blockchains like Ethereum, Polygon, Solana.

Um, and so with that activity, there is just, because you need the cryptocurrency to, um, to buy these things, there's going to be that, that sort of, um, exposure to what happens in the crypto markets.

Um, it's been interesting, you know, over the last two years, especially with the, the big boom in the NFT, uh, market as we saw last year.

Yeah, at times, you know, so over the last sort of 24 months or so, there have been a lot of sort of peaks and valleys in the price of various cryptocurrencies.

And at one point towards the end of last year, I recall, um, you know, working with a former student to look at the NFT market alongside the price of the, you know, top 3 or top 5 cryptocurrencies.

And there was some evidence there that we found that people might actually be using NFTs as a, as a hedge against, you know, uh, crypto volatility because, uh, in these crypto marketplaces, NFTs could be Uh, listed, so valued in, in terms of, um, The cryptocurrency rather than the US dollar equivalent or the fiat equivalent.

So, there's a sort of common saying in the NFT world that 18 is 18.

Um, so whether it's, you know, $1200 today or $5000 in a few months, um, you know, and obviously, that's not always the case, but, um, there is definitely, you know, some evidence that Uh, certain classes of NFTs may be more resilient to the volatility in the crypto markets, whereas others are way more volatile than the crypto markets because there's just an oversupply of NFTs or, you know, they're really kind of worthless cash grabs.

It strikes me that it's not too different than someone like buying real estate in the.

United States to hedge against currency risk.

So rather than hold US dollars, I'm gonna buy some real estate and hopefully that will hold its value.

And of course, as you said, you know, a dollar is a dollar and might be going up and down, um, but again it, it all depends on that notion again that people value these assets and will continue to value these assets maybe more intrinsically, right?

Like that there's something about the bored apes, and this is, I think a hard question to answer like why Beanie Babies?

Why?

You know, baseball trading cards, um, any, any thoughts for us, you know, maybe this is the investment, uh, you know, uh, part of the, uh, podcast here, Danny, on, uh, how do we, the next thing, well, I was gonna say more like how can you tell, is there any way we can tell that a specific digital asset is going to have maybe longevity versus just this speculative bubble that I'm gonna invest in it with the hope that it keeps going up.

Um, any thoughts on that?

So many thoughts on this, and I gotta have the disclaimer, right, not financial advice.

You need to talk to SBK about that.

Uh, he needs he needs to listen to you on that advice.

Oh boy.

Um, but no, I think this question is, uh, from my perspective, so as someone who studies organizations, um, really is curious about, um, culture and society.

This is where NFTs really grabbed my, first my brain, and then I think kind of grabbed my heart a little bit because, um, For me, one of the things that really gets me excited and interested about something is when I see people coming together, um, creating community, creating culture, figuring out ways to work together despite challenges.

So that's, you know, the focus of a lot of my research, and, um, it's something that I was very surprised to see happening in NFTs.

And so, um, right around the time when the, the Board ape, when I got in, got, got my first, uh, Board Ape Yacht Club NFTs, Um, I began, started to saying to friends, and anyone who would listen that there's, there's something cultural going on here, that this isn't, this is not just, um, speculative investment.

This is, we're starting to get into, um, you know, to use our students' favorite marketing term, like the ego-expressive nature of certain digital goods, right?

And it's, it is exactly what you're talking about, the, the Fortnite skin.

Um, the, the in-game items that you purchase in FIFA or in Call of Duty that you use, there's really no value or utility outside of, it's kind of a flex, it looks cool, um, to your friends, but, um, there's a, there's a subculture there of uh what does that signal to, to your friends or to other players who are in this community.

Um, I think One of the interesting ways that I started to understand NFTs a little bit more deeply is when my, my girlfriend educated me on the, the luxury brand, uh, Hermes.

And so I, I knew nothing about this company, other than that it was extremely expensive, uh, to buy anything in that boutique.

But she described, um, the way in which people get access to purchase certain items from, from this brand.

And so, you apparently have to go to a particular retail location, um, register with them, develop a relationship with one or more of the, the salespeople there, um, and basically build up your track record of purchases, and kind of establishing yourself as being worthy to access higher tiers of goods.

Um, And so, I think the pinnacle for many people, particularly with Hermes products, is the Birkin bag, which from what I understand, it may be completely inaccurate now, but is, you know, it's like a five-figure purchase, so like $10,000 or so for a handbag.

And the moment you purchase that bag, in theory, your investment could be worth, you know, 50 to 100% more.

That if you were to take that and then resell that because of, again, you know, going back to your earlier points about scarcity, um, you know, there's a, a really big market for those sorts of things.

But again, like, what's the value?

It's just the bag, it's leather, maybe it's high quality leather.

There's a design piece there, so that may have some intrinsic value, but is it worth 10,000 or 20,000 or whatever you're gonna pay for it?

Probably not.

It's, it's more, and as my, my girlfriend described, it's more in people who No, they know.

Like, they see someone with that bag, and they sort of like, you know, they give each other the look or the nod.

Um, and I imagine, you know, other sorts of, whether they be luxury retail goods or other sort of small signals that, you know, we give to one another, um, have that same sort of effect, and That that's sort of where my head has been at with NFTs.

I think it's the cultural stuff that's gonna have staying power, the stuff that, you know, people use to identify themselves, but also to signal to others like, hey, I'm, I'm part of your group, or, you know, I know what's up.

That's so, so interesting.

And, uh, Danny, um, it's been fascinating to listen to you.

I'm Uh, about to ask Mike, although I want to ask you a question before.

I'm about to ask Mike something about, um, the nature of the disruption and where he comes down in terms of good disruption, bad disruption, of no disruption at all.

But before I let Mike answer that, I'm curious, Danny, like, what are you nervous about with this whole industry?

What is, uh, keeps you up at night or what do you think is the biggest open challenge related to NFTs?

Yeah, I think number one, it's got to be regulation in this industry.

So, um, you know, many of these, many of these digital assets, um, you know, they really toe the line, or in some cases are kind of blatantly unregistered securities.

Um, and so I think where countries start to come down with their regulations and how some of these things become classified or what sort of legal precedents get set.

That's gonna affect and shape a lot of innovation in this industry, I, I think, as, as is the case, uh, in many technology-driven industries.

So that's number 1.

I think number 2, in terms of what keeps me up at night personally, is probably, um, the sort of, maybe the lack of security.

I mean, they're secure.

I, I have my NFTs, they're, I use a cold wallet to secure, you know, my most valuable possessions.

Um, but every so often I'll have that dream that like, oh my God, I lost my ledger, or someone hacked my account because I clicked the malicious link stupidly, and that my wallet has been emptied.

And I think, you know, that's, uh, it, in, in some ways, it speaks to the power, but also one of the important features of this technology is that right now, there's no way to get those things back, you know, right?

You can't ask for a refund, um, or there are no undo keys.

Um, and so that, that's another thing with this technology that I think for it to become more widespread, um, that's either a really big learning curve for people to sort of Um, understand and, and become facile with, or it's a way that we're in an area where businesses are gonna have to figure out, OK, how do we make this easier for the average person to use.

Fascinating.

Uh, Dennis, thank you so much for, uh, joining us and for adding so much, uh, depth and accuracy to our conversation.

Uh, Mike, good, bad, or no disruption?

So it's interesting coming into this conversation, you know, I think these, these things are for real.

I think they're gonna continue to grow and be used.

So it really gets down to how we define disruption, right?

Um, sometimes we interpreted the no disruption to be that the technology won't take off, um, and I've pointed out some examples in the past on this.

Um, I think in this case, again, I think we will see adoption and, and proliferation of NFTs.

Um, the disruption piece is interesting to me because in so many ways to me, this is just a natural extension, as we've talked about repeatedly here, of exerting ownership rights over scarce assets.

Um, and so that, that's no different in the digital world arguably than it is in the physical world, um, with some caveats that, you know, Denny has, has shared with us and I, I agree with here.

Um, I think overall though I'm gonna go down on good disruption.

I think, uh, again this is going to help advance, um, numerous new business models, numerous opportunities to kind of control data, to privatize it in some cases and give people more control, um, as with all technologies we've got to be cautious, um, but I, I.

I think this is gonna be a net net good, good disruption.

I love it.

Uh, fascinating.

I never know where you're gonna come, you know, where you're gonna land eventually, and I'm glad to hear that our, our chit chatting changes your opinion.

I'm more, uh, personally on the fence of no disruption, uh, mostly because I give the disruption down to the blockchain, which I think we've talked about in the past, even in the context of crypto, um.

NFTs in the way that we now see them, I think, are gonna lose momentum at some point, but the blockchain is here to stay.

Interesting.

So you think like the tradable asset piece of NFTs, you think will die down over time, just, you know, not continue to grow exponentially, which is where the disruption comes in.

Um, we need to be able to create a short market then for some of these things, right?

That's a short position on, uh, board apes.

So that's what you want there, exactly.

Well, uh, thank you, uh, Danny.

Thank you, Mike, for a great topic.

All right, well, everyone, thank you as always.

And again, let's always thank our producer Gary and our chief researcher Becky.

Uh, look forward to seeing you on our next podcast. 00, we should buy Marky Mark's, uh, NFT for, before he knows it.

OK, we'll do that.

Good Disruption is a podcast from the University of Virginia Darden School of Business.