Afford Anything - Harvard Business Professor Explains Investing in NFTs

Episode Date: April 10, 2024

#498: Financial literacy includes understanding NFTs, DeFi, and cryptocurrency. But it's hard to separate education from hype. Harvard Business School's Scott Duke Kominers, a professor in Harvard's Entrepreneurial Management Unit, and a Faculty Affiliate of the Harvard Department of Economics and the Harvard Center of Mathematical Sciences and Applications, joins us alongside Web3 expert Steve Kacizinsky to explain the financial, technological and social significance of NFTs. NFTs, or Non-Fungible Tokens, are a rapidly growing digital asset. Comprehensive financial literacy requires understanding NFTs. While NFTs are emerging opportunity for investment diversification, they are also highly speculative and volatile. NFTs also represent how digital ownership is evolving, and have implications for the economic futures of a myriad of industries. These assets stand at the intersection of art, technology and commerce. This episode provides a deeper understanding of NFTs, taught by a Harvard Business School professor and a Web3 expert. For more information, visit the show notes at https://affordanything.com/episode498 Learn more about your ad choices. Visit podcastchoices.com/adchoices

If you have an interest in financial literacy, that includes learning about the world of non-fungible tokens or NFTs. Now, there's going to be polarized response to this. Some people are highly interested in learning about NFTs. Others are quick to disregard it. But if financial literacy is the objective, then learning the foundational elements of NFTs is imperative. Today, Harvard Business School professor, Scott Duke commoners, along with Web3 expert Steve Kaczynski, join us to explain at a deep fundamental level what exactly NFTs are. Welcome to the Afford Anything podcast.

You can afford anything but not everything. Every choice carries a tradeoff and this show is about optimizing money, time, focus, attention, and all other limited resources. I'm your host, Paula Pantt. I trained in economic reporting at Columbia University, and I help you focus on what matters. Today, as I mentioned, Harvard Business School professor, Scott Duke Commoners,

joins us for a no frills, no BS explanation of the world of Web 3 and NFTs. Now, learning about NFTs enhances financial literacy by virtue of introducing concepts such as blockchain technology, decentralized finance or defy, and digital assets. Understanding these concepts is central to understanding how to navigate both finance and technology. NFTs can of course be highly speculative and volatile,

but they do pose a potential for diversification and profit if that is something that you choose to allocate, portion of your portfolio into. And there are many good reasons why you may or may not want to do that. But learning about NFTs and blockchain technology and Web3 gives you, arms you with a solid bedrock of information from which you can make an informed, thoughtful decision. This is an emerging asset class with significant risk. And it is also a topic that has significant cultural and economic impact, including.

including its impact on the way in which people invest in art. So if you would like to understand this intersection between finance, technology, and culture, as well as to enhance your financial literacy, you will enjoy today's episode with Harvard business professor, Scott Duke Commoners, and Web3 expert, Steve Kaczynski. Hi, Steve, hi, Scott. How's it going, Paula? Hi. Hi.

Thank you for joining us. you know, it's rare for me to have two guests on the show at the same time. So I would love for each of you to introduce yourselves one at a time before we dive into today's very deep conversation about NFTs and Web 3. I'm Scott Commoners. I teach at Harvard Business School in the Entrepreneurial Management Unit. I teach Making Markets, our course about marketplace design, and then just recently co-launched our first ever course on Web 3 called Building Web 3 Business. And then I'm also a research partner at A16Z Crypto, where I work with, you know, sort of a team of other researchers and broader collaboration with the firm and on foundational questions in crypto and crypto marketplace design. We co-authored the first ever Harvard Business Review article on NFTs a couple of years ago.

And then we've just finished and published the Everything token, which is a book that talks about what NFTs, how they create value, and then how you can build businesses around them and or build them into your business. businesses. Also, quick disclaimer and disclosure note, Steve and I both collect and hold digital assets of various forms, including lots and lots of NFTs. And we also advise companies in the space and sort of help them think about their business challenges and puzzles. Also, A16C is a registered investment advisor with the Securities and Exchange Commission. So none of this is, you know, business, legal tax or investment advice. My name is Steve Kaczynski. My experience in Web 3 and NFTs was I started there full time a couple of years ago. I host a daily morning show, we cover the news of the day called Coffee with Captain. Scott and I co-authored the first Harvard

Business Review article about NFTs together in November of 2021. I also do consulting, including working with Starbucks as the community lead on Starbucks Odyssey, their Web3 NFT program, as well as a brand that's native to Web3 called Doodles. And of course, recently co-authored the Everton everything token with Scott. Speaking of foundational questions, the most foundational question, what is an NFT? It's sort of a record that says you, and we'll talk about what the you is in a second, own this digital asset, and that can then be attached to other information or media, right? So it's a digital deed to an associated image, or it could be a physical good. This is a digital deed to either the right to claim a physical item, right? You have a digital deed to a hoodie you can

later collect from, you know, from whoever's selling it. We've even occasionally seen like NFTs used to exchange things like houses, like, you know, digital deed that's actually acting like a transfer of a deed. Then the other thing to think about is like, what does it mean to say you own a digital record? We've had digital goods of a form for years, right? You know, there's been music files on computers and like your iTunes account or your Spotify. You know, We have lots of images we've, of course, stored in all the social media platforms under the sun, right? You know, my Facebook profile is just full of images and so forth. But the difference is that in those contexts, it's actually very hard to define property rights.

So like in digital goods, you know, pre-NFTs, it's been really hard to sort of say what it means to actually own something. Right? If I own a digital image, or rather, I have a digital image on my computer and I say I want to sell it to you or transfer it to you, give you ownership of it. What does that even mean? If I email you a copy, I still have a copy on my computer, presumably, and then maybe you trust me not to resell it because I'm the original seller. But then if you want to sell it to somebody else, how do they trust that you're going to delete the copy and like, how do you even know who owns what? It's been very difficult to do market design around digital goods for precisely this reason, that when using or accessing the good is sort of the same as copying it, you can't really define an owner very precisely. And so NFTs, oh, by the way, the term stands for non-fungible token, non-fungible in the sense that each one is individually distinct.

A non-fungible token is a way of creating essentially like a ledger record that is a token. It represents ownership. It's a thing that can be passed from one person to the other to another or stored in your personal account. And you can verify consistently who owns it. And so when I instantiate, I create a non-fungible token associated to an image. What I'm really doing is saying, look, I am creating an asset, a digital record that whoever owns this digital record, they have a computer account that controls the record and can determine how it's used and can verify that they are the owner.

They as the owner of, you know, sort of of the record also own the image in the same way that like when you write a paper deed to say you own this piece of physical property, you know, it's standing in for being able to just hand someone the property because it's kind of hard to hand someone a house. Yeah, and I would just very quickly build on that with an analogy that we really like. Imagine you go to a museum and you see a beautiful painting on the wall. That painting is worth a tremendous amount of money. Now, you can take a picture of that painting, but that picture is not worth anything at all. You could buy a print in the gift shop and it's not worth really anything at all either.

The reason why the one on the wall is worth so much money is because the museum owns it. It's the original, and they can prove both of those things. And up until recently, it was impossible or nearly impossible without a tremendous amount of effort to prove the ownership of digital property. But now, to Scott's point, owning those digital property rights actually leads to so many applications that could fundamentally disrupt a variety of industries, almost everything we can possibly think of on Earth right now. How do NFTs differ from other forms of blockchain technology? Because my understanding is that blockchain technology is fundamentally a record keeping methodology and that on blockchain, you can have a ledger in which you record transactions and record ownership rights. I'm not sure we would say they differ. They're actually an application of this ledger technology. So a blockchain is a large,

digital and decentralized, typically ledger. So it's a system of record keeping that keeps track of who owns what in digital space, exactly the same way you might maintain like a bank ledger or something of the sort, except modern blockchains are often very generalizable. You can do more with them, like you know, run, store software and like execute the software as part of the ledger. And NFTs are one particular category of record. Two very common record types are fungible tokens and non-fungible Tungible tokens, fungible tokens, most cryptocurrencies are of this format, any two units are sort of exchangeable and interchangeable. Non-fungible tokens, you sort of instantiate an individual record for each type of ownership

or item or instance of ownership you want to track. And then the ledger, indeed, exactly as you say, keeps track of who owns it. And that's what enables this sort of synchrony and clarity of ownership, right? If I have an NFT and then I send it to Steve, right? Maybe it's a NFT associated to an image or it could be an NFT. associated with digital ticket, right? I got a ticket to a concert, but it turns out I can't go. So I send my ticket to Steve. The blockchain ledger records, you know, securely and and verifiably that the digital ownership record in my account has been transferred to Steve's account. And many of the most

popular blockchains today have the additional feature of being public, right? So anybody who wants can verify this. And so, for example, you know, if somebody just wanted to, you know, give out, you know, a restaurant discount or something to, you know, you're a restaurant right next to the concert venue and you wanted to give out a discount to anybody who had a ticket, you could verify ticket ownership in the same way you could look at a physical ticket. You can verify that these digital tickets are real using the blockchain without having to interact with the venue or with ticket master and whoever. And so it captures actually a lot of that, you know, intuitive interaction and third party opportunity that physical tickets have. And then the other thing, just sort of thinking again about the way that

the ledger works here, because blockchains are fundamentally like software platforms, and by design, they're interoperable, which means you can use what's on them across many different platforms. They're sort of their technology standards. You know, an individual can on their website interact with the stuff that's on the blockchain. You can create higher order and like more generalized experiences on top of blockchain records. This idea of like the NFT staircase, they start with simple ownership, but because they live on these big public interoperable software databases, you can actually build more and more on top of them in a way that creates additional value. It's like the fungible versus non-fungible is like, hey, I could trade you $1 for $1,

one grain of rice for one grain of ice, one Bitcoin for one Bitcoin. But you wouldn't trade me your puppy for my puppy because your puppy is non-fungible. That's your dog. And so, you know, when you think about it that way or my ticket, like if you have a front road ticket to a concert, it is non-fungible to the ticket in the upper deck. And in many ways, that's a distinction between, you know, sort of like maybe think of a fungible general admission ticket. And once you start to think about those applications, it opens up why you care about owning maybe one of these versus, say, you know, trading one Bitcoin for another Bitcoin

or anything else. Let's say that you have a, in the physical world, you have a home that is valued at $300,000. The cash value of that home, $300,000, that is, fungible. The same 300,000 pile of 300,000 single dollar bills is exchangeable for any other pile of 300,000 single dollar bills. By contrast, that particular home, which your grandma lived in, is non-fungible. It's a tremendous analogy, actually. Beautiful analogy. I was about to say, I love this. The non-fungibility, you can also see where differences in value might come from, right? So if it's the house that

your grandmother lived in, you might put strong idiosyncratic. value and want to own that house and want to own the associated deed to that house more than some other house and more than other people would value this particular house. And so it's very much like NFTs are about property rights. They're about giving digital goods the same type of property infrastructure that we have for physical goods and then enabling people to acquire those goods and make use of them in digital space. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also, powered by the latest in payments technology, built to evolve with your business.

Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth third better is all about. It's about not being just one thing, but many things for our customers. Big bank muscle, fintech hustle. That's your commercial payments of fifth third better. The holidays are right around the corner and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens.

Maybe you need serveware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays. You can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home. So I got tons of shelving that's in the eweller. entryway in the bathroom, very space-saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving. It's got drawers

underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop. Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-I-R.com. Sale ends December 7th. Can you elaborate on the NFT staircase? You know, we've established that an NFT is a digital record of some unique digital asset. But how then can a staircase get built that layers additional value on top of that? This is one of the wonderful parts about it is that it is a flexible brand asset because it is software.

So right now, we'll kind of build it out with maybe the ticket example as one. To give you the steps and then we'll kind of go up them, you have ownership, which is the basic function of the blockchain. It proves infallible digital ownership through blockchains. Then you have utility, which are things you can build on top of them. Then you have identity, something that you may be tied to that. Then we have community. And then finally we have evolution. And the way it sort of like builds up the staircase, I would say, is very different than say, you know, the way a ticket is used now.

So right now when you use a ticket, maybe you go in, you scan that QR code and then you throw it away. Like that's the end of the use of the ticket. But right now the way a ticket works is obviously you own the ticket, right? You then have the utility of going to the event, right? That is something you do. But really, think about any sports team you like. You probably have a little bit of an identity tied to them, right? I went to the Ohio State University.

I love the football team. So I have an identity tied around it. And when you elevate to community, if I'm walking through the Denver airport, and I see someone with an Ohio State shirt, I will yell OH, they will yell I-O, we've never met, we'll never meet again. It could be a good person, it could be a bad person.

I don't know. I always, by the way, wanted to be in an airport with Steve to watch this happen. I've heard versions of this story before. I'm so curious. Sorry, go ahead, Steve. Oh, and it's absolutely happened.

But what makes it great is like, you start to talk about like the flexibility of it and it's like, okay, like Scott's example where let's say you have this identity and this community tied around it, but maybe a bar that's across the street from the Ohio stadium or in the same neighborhood, because it's obviously on a campus says, we want to be the bar of anybody who has season tickets to Ohio State. So maybe that NFT being a valuable thing, instead of being a punch ticket or a QR code you throw away,

they would say, walk into this bar, scan it, and you get access to a special area because you are a season ticket holder, and we are forming the community of Ohio State. You know, you could picture the same thing in any sports team. Similarly, if you're not a sports fan, an example we sometimes like to use is, Think about theater, right? Like, I'm a theater fan. Like, I love Broadway. I went to see Hamilton.

It was one of the best things I've ever seen live. Well, if Lin-Manu Miranda Miranda said, hey, when I did the Heights, I was still coming up and people were figuring me out, he could say anybody who went to the heights can now cut the line and get to go to Hamilton. I'm able to let you get access to that because we can verify infallibly, you bought this ticket, you own this ticket, or even take it a step back. Don't like Broadway. Most popular artists in the world right now is Taylor Swift.

If you want to go to a Taylor Swift concert, you're probably. buying on secondary from somebody who bought it a drop and is gouging you on secondary. But if she had NFTs to her top fans, she would be able to give them first access and even other access, like an opportunity to buy exclusive merchandise. So you can quickly see how this identity, community, and this brand building can be built on top of it. And then to touch on the evolution part of it, what's great about NFTs is when you own them, because of that identity and community aspect, you inherently have a feeling about it that

you want to see it succeed. To use the sports team example, you know, if you see that the coach isn't doing good job, people are online yelling for his job, which I'm not necessarily advocating for, but it's because you want that team to improve. What an NFT holder will do is they will give you the answers to a focus group question without you even having to ask them because they know what they want to see as somebody who is a fan of your brand. And so you can see where a traditional brand like a Starbucks or a Nike or a sports team

where anybody could build around NFTs and this digital ownership to say all Jeep owners can get together in some way because they love their jeeps and find a way to kind of build utility around it. And, you know, the examples go on and on. But that small thing of digital ownership and digital property rights can extend because what it does is it lets you find your tribe everywhere. And just to put like one last point on it, I mean, I see it in like, say, the Starbucks Odyssey community where, you know, there are people from California who are friends with people from Chicago who never would have met if they weren't in that server together. And in fact, Scott and I met because we held a mutual token to a community that we liked.

We have never met in person. And yet we wrote a book together. So I think those are examples of like- To this day, you have still never met in person? We have never met in person. We've been on like literally thousands of hours of Zoom calls, but we have never actually met in person. Wow.

And I think it's the perfect example of like NFTs where we found something that we liked. It had utility we liked. We built a sense of identity around it. we met in a community shared space, which was a ex-Twitter space that we met online in. We became friends. And then we wrote a book together. And it's the example of how these things can all sort of coalesce into one. So we are a living example of the NFT staircase.

But that's kind of how it can turn from just a thing you own and just, it's more than just a monkey picture on the internet. It's an entire brand asset that you can build around. Right. Right. In all of those examples that you gave, when I'm imagining Swifties or Broadway fan, or sports fans, for that to really permeate into the culture of everyday life, there would have to be mass adoption, mass use of NFTs from the average individual. Why has that not happened yet? What are the barriers? Because right now, NFTs and this entire world of blockchain and

cryptocurrencies seems to be something that is relegated to one very niche corner of the internet, where it's a little bit like rock climbing, the people who are into it are obsessed with it, and then everybody else has no relationship to it whatsoever. Oh, let's got it. I love your analogies, by the way. Your analogies are phenomenal. Your analogies are so on point. And as someone who has, for many phases of my, many different phases of my life, been a

completely obsessive rock climber. Perfect, perfect analogy. first of all, your question is sort of like why mass adoption hasn't happened. And I'll talk about that in a second. But I do want to point out that one of the things that's sort of magical about Web 3 is that there's a different paradigm of accounts. Like what you as a user have is different from what you have in Web 2 and sort of classic Internet platforms and classic Internet platforms. And every website you go to, whether it's, you know, a social media platform or, you know, a shopping site or something. You have basically a separate account. We're starting to see, by the way, A small number of cross-cutting accounts, like if you think about like Shop Pay, so a lot of independent retailers now use ShopPay for the checkout flow, and Shop will store your checkout information. And so when you land at another Shop Pay retailer, it'll just text you a confirmation code and import all of your payment information, right?

And that's pretty cool, right? That saves a lot of time. You don't have to create a separate payment account on this website you might never go back to because you have one sort of master payment account that can be used on many different websites. Web 3 is sort of a generalization of that idea. You control a set of digital accounts, which are often called wallets. Instead of creating a new account for each website you log into, you take your wallet, your digital account, and connect it to each website. And it loads information from there.

And so one thing that's very special about it is it means once you acquire your first NF ticket or something like this, right? If you're attending a concert for which the tickets happen to be NFTs, you set up one of these accounts, you set up a wallet, and now at least in principle, you have an account that can be used throughout other Web3 applications later. And so there actually is, there's sort of like a potential for a much stronger flywheel there on some dimension because, you know, Steve and I just wrote an article about this in Project Syndicate recently, that once you join into one of these Web3 applications, you know, so if you acquire an NFT for some reason, now suddenly you can, you can have and use NFTs for other reasons. And indeed, you know, that ticket you have, you can start

engaging in all sorts of various activities built on top of it. If, you know, some fan creates an online fan channel for everyone who holds, you know, a season ticket pass, you can take your season ticket pass and just like directly port it over there without having to do any additional effort. You just, you know, basically use your wallet login to log into the chat channel. To make an analogy on that, it's like I used to work with Nestle and Hot Pockets is one of our brands. And one of my favorite examples is like Hot Pockets, unsurprisingly, targets gamers, right? They want to talk to gamers. They sponsor NRG, which is this big gaming team, which is like a giant sponsorship approach. And they would still certainly do that. But imagine if Hot Pockets wanted to know people were absolutely

positively gamers. Well, what if they said everybody who bought the most recent Fortnite skin can connect that wallet, because that's where the Fortnite skin exists, to their website and get a 20% discount? Like, it's that like simple for the brand building to say now, we can, with certainty, say, the person making this purchase is into gaming because we know for a fact, rather than, hey, this person might be having to stumble upon the gaming team or maybe they'll see it, maybe they won't. It's, we know that they're gaming right now actively and spending money in the ecosystem. But Scott, I'll let you continue. No, you're exactly right. So as Steve's saying, like Hot Pockets, if they're trying to market to gamers, what they have to do right now is very abstract, right? They like go to a web platform like Facebook and they say, look, we're trying to market to gamers. And Facebook will tell them something like, okay, you're looking for, you know, 20 to 35 year olds in these demographics. And they'll tell you something that lets you sort of target the gamers in this very abstract and indirect way. Or if you're really lucky, Facebook will know, oh, this person's active in these gaming groups. But wouldn't it be nice? nicer if Hot Pockets could just say, look, if you're an active gamer, come to our site, connect your gaming account, and we're going to, like, give you rewards based on the stuff you've collected, right? That would be like so much more direct, like no intermediary,

and actually answering the question that they're trying to answer in the first place, rather than having to sort of vector into it in this abstract way. But okay, so if it has all this value, why are people doing it? So there are a bunch of challenges. First of all, And, you know, we talk about this a lot in the book. First of all, Web3 technology is currently very early. And you're like, well, you know, it's been around for 10 years, hasn't it? But the Internet 10 years in was also early, right? If we think about relative to what people do with the Internet now and like all the ways it's embedded in our lives, right?

The Internet preceded smartphones by a wide margin. And smartphones are how a lot of us interact with much of the Internet today. Web3 Tech is early. And in particular, for many people and for many applications that exist on the technology today, you have to interact very close to the rails of the system. It's very inaccessible to the average user because you have to understand the technology of what's going on. You have to sort of understand how the blockchain works and how you interact with it. How do you basically, in effect, send a message to the ledger telling it to do an update and so forth?

You're not like writing computer code to do this, but you're still interacting with things that come out in like binary. strings and stuff. It's very, it's confusing. We're like in in the Linux era right now. Yeah, we're sort of in a Linux era. By the way, remember, Linux is actually, you know, there was a Linux era, but we also live in the Linux era today, right? The open source Linux platform basically won a lot of the like server and platform wars. And so there's a sense in which it was the domain of people who were really into these like open source and like sort of rails of the system projects. But actually, the fact that it was this big open source ecosystem actually enabled it to create a lot of value. And then we're sort of in the Linux era.

And there's a second challenge on top of that. Oh, and especially as a side note, so much of crypto to this point has been financialized that there's also, you know, sort of an accessibility problem on that dimension, right? Like a lot of the early experimental NFT products were things that were very, by design, like sort of were very small supply. They were, and they were became very quickly expensive, right, for better or worse, right? And, And so not only did you need a lot of technical understanding and savvy and experience to be able to interact with this market, but for many people also, you needed a fair amount of financial capital, all of these things, you know, made it very hard to access. But we also think,

at least Steve and I hope that these are all very non-equilibrium phenomena. And when we talk in the book, like, you know, what are digital goods really? Like, what are the digital goods we like mostly like to collect? We collect, you know, songs, you know, song tracks and souvenirs, you know. And we're imagining that people will get NFTs when they go to national parks, right? There's like National Park stamp passports. This is like a digitally native version of that. And you'll be paying a dollar or two for them. And we're already seeing the market starting to move towards these like much more mass market digital collectible products and so forth.

And then there's one other big challenge here, which is that a lot of, in part because the technology is running so close to the rails, it lacks a lot of the protections that currently lacks a lot of the protections that consumers are used to for other consumer internet products. right? Like if I transfer an NFT to the wrong address, and indeed, like, I go to like an NFT platform and I want to like send an NFT to someone, I will often get like a warning, like warning, NFT transfer to wrong address cannot be recovered. It's like you put a thing in the mail with the wrong address on it and like, you know, it's probably gone. Those sorts of things are totally, you know, account recovery is hard. These are things that we're not used to at all from the consumer internet. Right. If you, if you lose access to even a, you know, a very secure account. There's some mechanism. At some, at the end of the day, there's like a human somewhere who can

like help you solve it. Typically, the accounts people use to interact with blockchains, by and large, do not yet have those sorts of consumer protections built in, but all of that is changing. Like there are, you know, there are like new layers being built on top that abstract away a lot of the technological rails and implement a lot of those consumer protections. You know, I think even the Linux era, as you said, that was a great way of explaining it to the point of like, you know, like, when I think about like, you know, again, as someone who's 40 years old, I remember, you know, I saw a Nate Bergettzi, a comedian I love made a joke where he was like, when I was a kid, someone's like, do you have a computer in your home? He's like, what are you a zillionaire?

Because there were these like, you know, tech and cost barriers to do it. And it's like when I was building websites in, you know, 95, 96, 97, like as a middle schooler, if I had a line of code off, the whole web page turned into code. If my sister got a phone call, it kicked me offline because everything was through the internet. And I think a lot of times, like, we have short memories to think about in the 90s, like, the idea of like banking online, you wouldn't. never do that. Now I never bank offline. You know, when you look about cell phones, like, you know, 20 years ago, the iPhone didn't exist. Now this morning, I ran an entire radio show off my phone. One of our favorite anecdotes we see is like David Letterman giving Bill Gates a hard time. He's explaining the internet. And David Letterman says, you know, he says, well, you can listen

your baseball game on the internet. Dave, you're a baseball fan. He says, have you heard of a radio? And he goes, yeah, but you can listen to it any time. And he says, have you heard of a tape recorder? And the concept of a tape recorder and a radio replacing the internet is wild. But this is how these technologies tend to evolve. And I think sooner than we think we'll see this thing sort of move forward. So it's just early. I mean, there was time when the cost and tech barrier of the internet was way too high. And now it's, you know, at the palm of our hands in a six-inch screen.

You know, there's something we'll drop in the show notes, but there's a image that I have of a print newspaper article that was written right around the year 2000. The headline said, internet may just be a passive. fad. You can find that about video games too, by the way. People said video games were passing fat and streaming wasn't going to be a thing right until it was. Now, I'm going to repeat back some of the things I've heard to make sure that I'm understanding it correctly. So as you talk about the fact that this is right now a little bit inaccessible, you need to be technical, you need to be close to the rails of it. What that reminds me of is before blogging became what it is today, or really, You know, the heyday of blogging was probably 2008, 2010, right?

And that was largely because there were programs like WordPress that made blogging accessible to people who are people like me who are not tech savvy. In the personal finance space, one of the biggest and earliest personal finance bloggers is a guy by the name of J.D. Roth, very, very good friend of mine. But part of the reason that he was early to personal finance blogging is because he started doing it in the days when you had to hard code every blog post. Few people were blogging back then. Is that essentially what's going on right now? We're in the days when you had to hard code a blog post. That's a great analogy again. It's like, it's like, you know, yeah, like really incredible at these.

Yeah. Thank you. Yeah. It's like you do it for a living. Yeah, it's exactly how it is. It's like hard coding and doing the blogging. By the way, J.D sounds like my people then. Hard coding and the blogging is there versus like now, you know, the three, of us could go get a square space and spin up a website tonight, right? And that, you know, that out of the box software and those out of the box picks and shovels are going to be so huge for moving things forward when you can tell a small business, take this software, use it. And now it's accessible to you to build an entire loyalty, you know, NFT program to help level up your business versus right now, you know, some of the bigger brands, the Nikes, the Starbucks, the, you know,

etc. are really kind of looking into, you know, you see Disney lagging in a little bit because they can because they're able to do it right. now. Right. So basically, we're waiting for more plug-and-play that non-technically savvy people can intuitively use. And that stuff's being deployed, like, in real-time right now. The first really intuitive, no-code platforms for launching various NFT assets that I was sort of exposed to came out in the period we were working on this book. And suddenly now people were able to deploy NFTs without writing code, but there's still a need to understand, but these platforms, even just the decisions they have you make as you're launching your NFT collection, you still have to understand a lot about

what's going on under the hood in order to make those sorts of decisions. And so like, and then yet just very recently we're seeing like a whole other layer of abstraction being built on top of it. So, so I do think it's the blogging analogy very apt. You know, there was sort of write your, you write your blog by hand that, you know, sort of via HTML. Then it was like whizzywig editors. And then there's, you know, WordPress and so forth. And so we're, We're maybe now in the whizzywig era and hoping to get to WordPress soon. To the second thing that you talked about, which is the lack of security. I bought a few years ago, I got a cold storage wallet for some cryptocurrency that I held.

And for the people who are listening, that just means that it's a digital wallet that is disconnected from the internet. And I remember when I read the terms and conditions, it essentially said like, if you lose the password, may God have mercy on your soul, right? I mean, those were basically the cheese and Cs that I had to agree to. And I remember talking to my best friend who is a software programmer. And I know we're talking about NFTs and not crypto specifically, but in this conversation she was saying, I don't think crypto will ever be part of our daily lives

because the only way to keep it truly secure is by putting it in cold storage, And if you lose this physical, I lose physical things all the time. I can barely keep track of, I mean, I lost my aura ring this morning. And it is literally supposed to be on my finger. You know, like. So given that that's where the market is right now, how can this security problem be improved? I think there's a couple things. And I think there are like certain softwares being built.

Like, there's a software called Wallet Guard, for example, that it's an extension in the current, like, existing, you know, market where you install on your computer. And when you go to make a transaction, it will warn you if things seem malicious. It will warn you if things seem wrong. So it's like just an extra layer of security to slow you down and say, hey, you think this is a real link, but it's not. We've actually seen recently some people getting hacked and some, and pushing supposedly to a platform called NBA Topshot, which is a digital collectible for, sort of basketball, almost digital basketball cards, but they're live moments. And, you know, these people have been getting hacked and sending people there. Well, if you were connecting a while to that new wallet guard, it would warn you that this is a malicious site, don't connect your

wallet to it. So things like that exist. You know, you mentioned the cold storage. That is a example of a key where you need to be physically present to approve something in your hand before you do it. And I think these sorts of levels of security will improve, but also there are custodial options where you can hold cryptocurrency. You know, Coinbase says, hey, hold it here. And yes, you still have to trust Coinbase the same way you would trust a bank with your money. But, you know, there are ones like that and others that exist the same way. So I'll actually be curious to get Scott thought on this because I don't know what we've ever talked about it is, I think most people are more comfortable with a custodial option where, you know, if you're,

say, Nestle and you set up a program like this or your Dejorno pizza and you do, I think most people aren't going to want to say, I want to set up my own non-custodial wallet where I control all these assets and need a cold wallet. I think they're going to say, Nestle, we trust you to find a custodial partner who can hold those, say, on your website without having to think about it because I think the goal, generally speaking, is the blockchain disappears into the background and it becomes the software that powers it, much like a QR code, as I mentioned earlier, I mean, that just powers the ticket. You don't say, let me go to the football game and grab my QR code. You say, let me go get my ticket. And I think,

similarly, you'll just call the asset what it is and say, you know, oh, I just am part of, you know, Dejorno, you know, I'm a Dejorno pizza head or whatever they call and you'll just be in their platform using it and they'll set up a custodial option. So I, my inclination is that's the direction things go more so than the self-custody option, even if that is an option. But Scott, I wonder if you kind of are aligned on that. No, I totally agree. Also, I think it's important to note that on the evolution path we're imagining for NFTs, the need for self-custody goes down for two reasons. One is you're using these assets sort of like in the ordinary course of business. And again, you're using them as tickets to events. You're using them as, you know, sort of coupons. You're using

them as digital wearables and like metaverse games and things like that. And so, you know, having that, you know, wrapped in a in a custodial platform of your choice, right? The web, the power of Web3 is that that account can be connected to many different places. You don't even have to self-custody the account to make it accessible to many other platforms. And moreover, ownership of your assets, in the same way you can take money out of a bank, right? You can sort of take your money out of a bank and move it to a new bank account. You know, it's possible to enable a custodial, like a managed wallet system that still enables you to take out all of your assets and move it to a different managed wallet system in the same way, or even really sort of like

move the underlying, it's even a little bit more precise than that. It's like you're sort of moving the underlying account pointers somehow. And so the uses we're going to see for these things are ones in which that type of architecture is often going to be, you know, optimal, even just from a design perspective. And again, from the user experience perspective, I think also, like, very important. And moreover, as we see digital assets evolve into these broader and sort of like much more like everyday application domains, I think the concerns around, you know, so, you know, both the concerns around security are, are less because like you're, you're not invested in the same

way, nor are people necessarily going to, you know, be as interested in trying to capture your stamps from your National Park Passport or something like that, right? It's like, this is, again, sort of a phenomenon that is, you know, sort of very present in this, you know, sort of very unstable equilibrium with a lot of people holding very large value assets of, you know, that sort of move around a lot. As these become sort of much more part of everyday applications, we're going to see them being managed through wallet platforms that look like a lot of the types of consumer applications we see today. They're going to be custodial. They're going to be intuitive. And they're going to have sort of better account recovery back-end options than sort of what you see, what you were describing

for a hardware wallet. And then again, there are going to be types of assets that are much more native and intuitive for that interaction type. As a footnote, there's also a lot of evolution. And neither Steve nor I are cryptographers, so we shouldn't really speak to this. But my understanding is that there's also a lot of evolution in questions like how do you do account recovery, how do you do various forms of protection, even in these like self-custody solutions, as more people use the infrastructure and it needs to become more broadly accessible, even the hardened, like, base versions of these technologies, people understand you have to figure out ways to make them more usable for the ordinary consumer.

With a custodial option, one risk is the risk that the underlying entity might collapse. And, you know, we saw Voyager, for example, collapse. You know, we've seen a lot of these custodians collapse. And when that happens, the depositors who had deposits in custodians that collapsed lost their deposits, right? Well, Voyager being a perfect example. What we've also seen is that there is generally mistrust of the banks. And so a couple of years ago, when Silicon Valley Bank collapsed and then First Republic, there's, you know, signature bank and First Republic, when all of that went down, I remember at that time, I've started. I've started hearing from people in this audience who had deposits at very secure, well-established major banks like Chase Bank saying, hey, should I withdraw everything?

You know, people were panicking and people were ready to make bank runs, even with a collapse of just a couple of regional banks that were FDIC insured. So given the lack of FDIC protection, given the risk of custodial collapse, And given what that would mean to any depositors who are unlucky enough to be holding the bag, how do we safeguard against all of that? That's a great question. Neither, Steve, nor I, are regulatory experts either. So we're not really qualified to speak to the precise details of how this should work. But at a high level, banks are regulated and insured.

You know, these sort of centralized or quasi-centralized, you know, sort of entities dealing in the Web 3 space, you know, many of the centralized, entities have actually sort of been, you know, on the edge of regulation. But, you know, a common misconception about, you know, the concept of a free market is that a free market is a market without rules, right? Like even Hayek didn't think a free market was a market without rules, right? To the contrary, Hayek thought the idea is to design the market so that the rules enable the market to be as free as possible in the sense that people can engage in the types of transactions and interactions they want.

regulation and, you know, and disclosure and probably some degree of insurance, like all of these things are going to be very important for custodial solutions to become, you know, sort of broad and mainstream, especially to the extent that this borders on financial technology applications. I'm sure ticket master is subject to some sort of rules around like what happens if tickets evaporate or somehow get extracted from the system. In all of these contexts, I think we need regulatory rules that make the system easier and better for consumers to use. And that's actually a necessary step, talking about this mass adoption. That's a necessary step to making this technology accessible and usable by everyone. The other thing that's kind of cool about it, like related to NFT specifically, is in theory. So let's say that Jeep released NFTs to everybody who owned Jeep to sort of showing their Jeep owner because Jeep people love their jeeps, right? And it's like figuring out how they can all get together. And let's say Jeep says, you know what? We don't want to build anything on top of this or maintain it.

well, if it's built on a blockchain that is publicly accessible, in theory, they could say, does anybody else want to pick this up? And it's very easy to transfer over. And Jeep doesn't lose anything. They continue to get the brand equity of having those out in the wild. And the person who's taking it over can take it over quite easily if they're willing to relinquish that sort of brand control, which is something that's not a super big ask if they're going to sunset it anyway to say, hey, just prove your ownership tokens. It makes it a little bit easier for people to say, hey, we're shutting this thing down, but if anybody wants to take control of these tokens, they're on a public blockchain. So it actually makes it a little more accessible than, say, a program that's in a current

digital scenario where it's like, let's say Jeep had a digital program completely built on a closed server and they shut it down. Transferring that to someone else would be a tremendous lift. Transferring a set of tokens that are on a blockchain to another group, well, it's not easy. I don't want to underplay that right now. It's a little bit easier and more realistic to say, somebody saying, I am the biggest Jeep fan in the world. I own 74 jeeps and I'm a multimillioner. I want to run this thing. Someone could do that and then run the Jeep program all the same. So they actually have a little bit more ability to survive. And once you're on the blockchain, if they're not removed from the safe face of the earth because they're immutably there,

someone theoretically could always build on top of them, even if the company gives up. So it's a unique property of NFTs that, you know, we've seen brands where they haven't done particularly well. And then a really intrepid sort of, you know, person comes and picks it up and takes it over and brings this new success. Like we've already seen this in Web3. So it's certainly a doable thing where somebody could spin those off, even if a brand or a company goes with NFT. So it has a different unique property there. Yes. Let me jump in for one more second, if you don't mind. So Steve raises a really important point, which is that these digital assets have a form of persistence that exists. And this is separate from the like what happens if, you know,

your custodial solution like Voyager is like fundamentally mismanaging or misrepresenting what they're doing with the digital digital assets. But just the digital assets themselves, right? Like in Web 2 incarnation, of digital goods, right? If you have a book on Kindle or, you know, sort of a song on iTunes, that asset lives inside the platform. And if for some reason the platform goes down, right, like, you know, iTunes like pushes an update that bricks the system for a day, like now you can't listen to your music. Or if Apple, you know, sort of, God forbid, should fold, then, you know, everything you've stored in that platform, you know, sort of no longer exists, right? You're sort of, it's a bunch of records in a database that just sort of goes.

down that doesn't exist anymore. I'm sure Apple would do something to try and like transfer, you know, information out or whatever. But fundamentally, the digital assets live in the platform. Pokemon Go is maybe a better example. The Pokemon you've collected, my brother's a huge Pokemon Go player. If Pokemon Go were to sunset tomorrow, those Pokemon would disappear, right? There's no, there's no life of them outside of the platform. But with NFTs, the digital asset, right, the record lives on a public interoperable, you know, decentralized ledger. And so if the creator, like, leaves the picture or whatever, you know, the company that produced, you know, if you had Pokemon NFTs and the Pokemon company went out of business,

people would still be able to, like, play games with their Pokemon. They'd still be able to do things with them just like you can with Pokemon cards, right? If you have the Pokemon card, then indeed, you know, Pokemon cards still going strong, but a different collectible card game from my childhood, you know, sort of Star Trek, you know, TCG. Any Star Trek TCG fans out there? Let's go. Still a fan. The game is no longer being produced, but of course you can still play the game with the cards because you have the cards. And so blockchains give these assets a sort of persistence that's very much like what we're used to with physical assets. And that means it's possible to wrap them with new platforms,

even if the original creator goes out of business or stops innovating on them. I want to define a term that we've been using throughout the this conversation that we haven't actually positive to find, and that is Web 3. So what is Web 3? How does it differ from Web 2? And also, was there ever a Web 1? I should shout out a second book by one of my A16C crypto colleagues, Chris Dixon, called Read Right Own, that is really sort of like this history of the internet that I'm about to like, you know, borrow from a little bit here. So there definitely was a web 1. There definitely was a Web 2 and we're sort of still in the middle of it. And there's this Web 3, and these are often organized in what are called the read, write, and own heroes.

So read, the early Internet, Web 1, you know, basically, what did you have the ability to do as, like, an ordinary consumer on the Internet? You could go around and, like, read stuff, or you would go to a webpage and see things that were on it. You could look up your, you know, or your favorite finance blogger, your personal finance blogger or something. You can read their finance blog. But primarily the interaction was purely sort of consumption of information, unless you were a business or the person creating the information that others were consuming.

But it was sort of the web was a platform for accessing information. The right phase, W-R-R-I-T, so the writing phase was when you suddenly now had the ability to write content into it as well. It isn't read only. It's also now you can add. And so the consumer experience becomes sort of modern message boards and so forth. You interact with sort of the content that you're consuming in some way. And you can sort of like write and communicate with others through the internet. And then own sort of this Web 3 era is, you know, characterized by these sort of wallet accounts that we've been talking about.

And you yourself own your digital assets. So in the right era, so in Web 2, what you created, all this content that individuals were creating on the Internet, that typically lived inside of walled garden platforms, platforms that sort of walled themselves against others and to try and aggregate as much information inside of them as possible as a way of, you know, making their business models grow, right? Sort of leveraging network effects to make the consumer experience, think Facebook, they can show you better and better content and things you more want to see, and also they can show you better and better ads.

And their competitive advantage in doing so is from having aggregated lots of people and learn lots of things about them, train predictive models to figure out what you should show whom, and that gets better the more people join. That's a network effect. As more people join the platform, the platform's ability to create value for each individual consumer goes up. But the competitive advantage comes from locking in all of those users and locking in all of that information and sort of growing their platforms relative to their competitors so that their network effects are stronger and they can sort of always continue to provide the best version of these services. former student and frequent co-author,

Chad Esber, who's now a Web3 founder, founded a company called Kudos Labs, uses this metaphor that in Web 2, it's like you rent an apartment, right? You sort of create an account on Facebook or on Twitter or something. You've rented an apartment. You put a bunch of posters on the wall. You form memories, too, right?

Those are your likes and sort of all of the sort of content that people and reputation you've built up there. You form your memories, you put up your posters, and then if you want to move to another platform, you have to leave all that stuff behind. You leave your posters, all your memories like drop out of your head. You can't take anything you've built in a platform with you.

Whereas in Web 3, you own all of that. When you post something that post lives in a digital account that you control, and when someone says, I like it, that interaction sort of also sort of lives in an interoperable, transferable account. Now you can move from platform to platform, taking all your posters with you. And so that's the sort of,

of the transformations, from a world of walled garden platforms with individual accounts on each platform and locked in users, right? The more you've embedded yourself in a platform, the harder it is to leave. In Web 3, the hope at least is that you get to much more competitive environments across these platforms because the users can vote with their feet. They can just take all of their content and move it to a platform that offers better terms. And we've seen that happen in many different contexts in Web 3 already. Yeah. Steve, you have a great metaphor for this. So let me head do you. No, I always, I was kind of looked at it like this, right? It's like the read, right? It goes kind of as follows. You know, in Web 1, you were the consumer, right? You could buy things.

You could kind of read. You were the consumer. In Web 2, like, let's not mince words. You're the product, right? They're using your information. They're selling your data. That's what you are. In Web 3, you are part of the brand. And it's a huge distinction that allows people to be participatory and create aligned incentive structures. Because let's face it, Like, if you are enjoying that and the brand's building on top of it, you're going to continue to interact with it more because of that level of ownership, identity, and community you build around it. So it's, you know, from going from being the consumer to the product to the brand is a massive

step forward. And to Scott's point, I can't recommend read write own enough by Chris Dixon to people because it really sort of lays that out in a very thoughtful way. Yeah. Are there any ideas on what might come next? Can we predict what Web 4 might be? Or is it too early? What comes after own?

To infinity and beyond. Maybe we skip straight. Maybe it's like Windows and we skip to like, you know, Web 10 or something. I think what's really an interesting concept to me that I'm hearing more and more from Web3 Native brands. And I think this is going to have to have like an evolution to it is the concept of participatory brand based storytelling that's always on. Meaning like if you own an asset, a persistent asset in an ecosystem, like let's say you

own a character in a universe, you can build a story around. it. I was talking to someone from a company called Truth Labs this morning. This person, Process Gray, who's created an incredible ecosystem. And the idea of like somebody being able to have an asset in the ecosystem, build a story, and then be inserted into it, to me, that actually goes even beyond the ownership category, even though it's part of Web 3 and something that I think of CIS evolving, I could see that becoming a new category where you imagine being somebody who was deployed a character that becomes a character, in the Marvel universe because you build a story around it,

you create a character around it, whatever that is. To me, I don't know what that's called or if that's an entirely new category, but it's a different way that you're gonna be to be able to interact with ownership that I think, to me seems like at least a half step above what we see with Web 3 in its current form. And so that would probably be my thought is like,

you can become the Jeep person who then becomes like a spokesperson or representative from Jeep like never before. And so I think maybe there's something to be said about that. I don't know how to put my finger on it because it's hard. I think that participation with a brand is something that we see coming from Web 3, but becoming a next iteration of how you interact with them, possibly would be the next iteration of the internet. Yeah, I like that a lot. We might call it like read, write, own immerse, right? That somehow, you know, your digital and

physical experiences, your ability to interact with your favorite brands, teams, whatever. the ownership technology of Web 3 evolves and transforms that, right? It puts you into sort of bidirectional communication with your favorite brand. Right. Like, you know, and incidentally, on the brand side, it gives them the ability to have a longer and more extended interaction with the customer. One of the things we did with some copies of the book is we put these chips in them that have an attached NFT.

So when you tap the chip in the book, it like, you know, gives you an NFT that's attached specifically to your special copy of the book. So they were different themes. We did them with various NFT communities. We did some for friends. But like this idea that now we have a digital imprint of people who have read the book and they can interact with us and we can interact with them. And other people, if they want, can innovate it around. If someone else were launching a book on Web4, you know, maybe they would like look to these people as potential early readers and commenters. That I think is like very novel. And it lets it lets the, the, the, the, brand continue the interaction with the customer past the point of sale, which has always been,

you know, something that was a potentially high value for both the customer and the brand. But as Steve says, it also unlocks this possibility of immersive interaction, right, that you can actually have a character in a story universe or you can actually like, you know, be a part of the like of the design of future products and so forth. and maybe it was once we once we all have our VR glasses on or something of the sort, like that will be like a truly immersive experience in the sense that when you're thinking things about a brand, like you can you can sort of experience and add those into the brand or like, you know, sort of submit them directly.

Sorry, like we're now we're in like really scary tech, you know, text space or we're writing this podcast and discussion about like, you know, VR and brain reading of wherever it's totally cyberpunk. Realistically, like, you know, we're talking about tickets to shows. But no, no, but like, but like what makes web one web web, two and web three unique is that they are general purpose and their widespread technologies. And I think an immerse just to give like one more quick example of that, like, well, maybe you're not a storyteller, but maybe you're somebody who really likes

Nike and you wear their clothes. And I'm giving an example, Nike's not saying this, but like looking at any clothing brand, in theory, they could chip that and say, hey, like, you're a billboard to the world for us. So if you attend a concert in our clothes, we could give you some sort of credit or loyalty against it. So you're immersed in the brand in the sense that they could reward back to you for showing up to a show because there's a chip. They know that there or 60,000 people there, right? Like, it's an immersive example where maybe you're not telling stories, but maybe you're immersed as a, you know, like people underestimate being a billboard

to the world for every brand and everything they wear, both online and offline. And there is potentially an immersion there that happens. It isn't necessarily tied to storytelling. But yeah, I like the idea of rewrite own immerse as potentially the next one because there can be built. And it makes sense because each iteration of the internet is built on the last. And I think that this one would be built on top of that in that way. And that makes a lot of sense as well, especially.

as as AR becomes more and more developed and more integrated with our lives. I mean, the Apple Vision Pro has already taken off in a way that Google Glasses from a few years ago never did. I still have my Google Glass. And so, yeah, it's clear even that the Apple Vision Pro is just version one of, you know, what the gap between version one and version 10 is going to be. worlds apart. So we're coming to the end of our time. Are there any final takeaways that you would like to impart on this audience? I mean, on my end, I just appreciate your line of questioning

and your, you know, sort of grasp of the concepts in a very understandable way. Like you very largely do our job as well or better than we do. So we appreciate like all the analogies just kind of putting throughout and your line of questioning. So, you know, I appreciate anybody going out and grabbing the book. And if you're on a social media platform, my big ask is if you grab the everything token, please tag us so we can thank you personally. We have had thousands of people tag us online and we are thanking every single one of them because it means the world to us. Because our goal is just to spread these ideas and, you know, whether you are somebody who is super tech savvy or you're just somebody who wants to learn and understand it, it's a, you know,

if you listen to audible, I think it's a five and a half hour listen on regular speed. So fairly short, easy listen if you're looking to understand it. We really just want to move this technology forward so that we can enhance the lives of brands and consumers by getting it in the right hands and the right ideas. So appreciate you having us and hope that more people will check it out. Let me say a second thank you. You've been an incredible host and to the audience listening. Like you're awesome. And we're so excited that you're curious and want to learn more about this technology. And again, I mean, I think this is a special. This is a special. where intellectual curiosity has a lot of dividends because there's so much new and novelty

being explored in Web 3. It's a totally different paradigm for how we could have our interactions on the Internet that in many ways, you know, Steve and I, you know, sort of believe and hope will make the sort of our experience as consumers and, you know, sort of better and more aligned, right? Sort of like the experience of being a consumer on the Internet, you know, with the platforms and brands you interact with, like, more alignment, more opportunity for value creation for all. And so, you know, we'd love, you know, we'd love to hear from me. We'd love your thoughts. Please push us on our ideas, right? It's like, it's great to hear from people like, oh my gosh, we loved your book. Like, you know, every single part of that was perfect, like,

absolutely wonderful. But it's in many ways even better to have people come and challenge and say, like, you know, okay, like we, you know, this thing on page 12, like, I don't really get it. Like, you know, sort of like, let's talk about it. Because that's how we keep learning. too, right? Like, you know, sort of, and, you know, I privilege it was as a teacher, right? I get every year all these students who, you know, push me on really hard ideas, right? And, and that's how we, like, you sort of level up and, like, sort of build forward to, you know, Web 3 and 3.1 and 5 and whatever else is next. So thank you so much. Thank you for having us. Thank you for tuning in and QED.

Thank you to Harvard Business School professor, Scott Duke Commoners, as well as Web3 expert, Steve Kaczynski. What are three key takeaways that we got from this discussion? Number one, for the sake of financial literacy, you need to know what an NFT is. And the primary takeaway of this interview was to facilitate a foundational understanding of the root question, what is an NFT? The term stands for non-fungible token, non-fungible in the sense that each one is individually distinct. A non-fungible token is a way of creating essentially like a ledger record that is a token. It represents ownership. It's a thing that can be passed from one person to the other to another or stored in your personal account. And you can verify consistently who owns it. Whoever owns this digital record, they have a computer account that controls the record and can determine how it's used and can verify that they are the owner.

So it's a digital deed to an associated image, or it could be a physical good. And so an understanding of the fundamental root question, what is an NFT? That is the first key takeaway. Now, the second key takeaway, as a beginner, you hear a lot of terms, decentralized finance, cryptocurrency, digital ledger, Bitcoin, blockchain, NFTs, and it can be hard to parse through all of this new vocabulary. In the second key takeaway, Scott and Steve describe how NFTs are an application of blockchain technology. I'm not sure we would say they differ. They're actually an application of this ledger technology.

So a blockchain is a large, digital and decentralized, typically ledger. So it's a system of record keeping that keeps track of who owns what in digital space, exactly the same way you might maintain like a bank ledger or something of the sort, except modern blockchains are often very generalizable. You can do more with them, like, you know, store software and, like, execute the software as part of the ledger. And NFTs are one particular category of record. Two very common record types are fungible tokens and non-fungible tokens. Fungible tokens, most cryptocurrencies are of this format.

Any two units are sort of exchangeable and interchangeable. Non-fungible tokens, you sort of instantiate an individual record for each type of ownership or item or instance of ownership you want to track. And then the ledger indeed, exactly as you say, keeps track of who owns it. And so refining that understanding is the second key takeaway. Finally, key takeaway number three. In this final key takeaway, we discuss aspects of cryptocurrency security that are geared around making this investment more secure. There are like certain softwares being built. Like there's a software called wallet guard, for example, that it's an extension you in the current like existing, you know, market where you install on your computer. And when you go to make a transaction, it will warn you

if things seem malicious. It will warn you if things seem wrong. These sorts of levels of security will improve. But also, there are custodial options where you can hold cryptocurrency. You know, Coinbase says, hey, hold it here. And yes, you still have to trust Coinbase the same way you would trust a bank with your money. But, you know, there are ones like that and others that exist the same way. So I think most people are more comfortable with a custodial option where, you know, if you're, say, Nestle and you set up a program like this or your Dejorno Pizza and you do, I think most people aren't going to want to say, I want to set up my own non-custodial wallet where I control all these assets and need a cold wallet. I think they're going to say, Nestle, we trust you to find a

custodial partner who can hold those, say, on your website. Those are three key takeaways from our conversation with Harvard Business School professor Scott Duke Commoners and Web3 expert, Steve Kaczynski. Thank you for tuning into the Afford Anything podcast. If you enjoyed today's episode, share it with a friend or a family member. That is the single most important thing that you can do to spread financial literacy. If you'd like to discuss this episode with members of our community, you can go to afford anything.com slash community. You can find me on Instagram at Paula Pant or on Twitter at Afford Anything.

To subscribe to our show notes, please go to Afford Anything.com slash show notes. We offer a course on rental property investing. it will become available for enrollment at the end of May 2024. If you'd like more information, please make sure that you are subscribed to our show notes. That's at afford anything.com slash show notes. Please make sure that you are following this podcast in your favorite podcast playing app. Open up Apple Podcasts, open up Spotify. In fact, I recommend opening up both and following us on both platforms.

While you're there, please leave us a rating and a review. I hope that you've enjoyed today's episode. and I will meet you in the next episode. See you there.