Front Burner - The multimillion dollar NFT crypto market explained

Episode Date: March 10, 2021

Between Grimes, Kings of Leon and even NBA Top Shot, all of a sudden it seems like NFTs are everywhere. But what are non-fungible tokens, really? And why are they blowing up right now? CBC Business reporter Pete Evans explains. Find the links we talk about in this episode here: cbc.ca/1.5943429

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hey, Jamie Poisson here. So I'm here today with CBC Business Reporter Pete Evans. Hey, Pete, how's it going? Hey, Jamie, not too bad. How are you? Good, good. Thank you for doing this with us today. And I understand we're going to

do something a bit different today, right? Yes. If you're wondering why I've been sending you a flurry of emails all morning, I want to show you some videos so we can talk about them. Okay, okay. Okay, let me go into my phone. All right, I'm pulling it up. And there are three links here. I'm going to click on the first one. Yeah, yeah. Okay, opening it up right now.

First thoughts, first impressions. What are we looking at here? Okay, okay. So it's like a Tamagotchi-like cat. I don't know if people are familiar with those. Tamagotchis are like very computerized, animated, animal-like things. And there's like a rainbow sort of coming out of the cat and it's running. Right.

Coming out of the cat's butt, let's say. Coming out of the cat's butt. Yep. And I would describe the music as annoying. It's certainly memorable. It's probably charitably described as an earworm, but yeah. Okay. So why am I looking at this?

I wanted to ask you something. Now that you've sort of experienced all that this wonderful digital cat has to offer, how much do you think something like that might be worth? Well, I mean, I don't know, Pete. Like, this music is so annoying i i feel like i feel like i would pay nothing for this i feel like i would pay you for me to not hear this i mean the colors the music the whole thing could be yours for the low low price of what do you think uh i don't know like five bucks how about six hundred thousand dollars what oh my god okay so this little guy is called nyan cat and it's basically like a digital How about $600,000? What? Oh my gosh. Okay.

So this little guy is called Nyan Cat, and it's basically like a digital version of this GIF you may have seen online whenever people just want to make a joke about how sort of like funky and quirky and weird the internet is. They'll send this out. The difference being this is the original, and the creator of it, a guy chris torres sold this last month for six hundred thousand dollars us wow so now that we've sort of set the table and given you a little little amuse bouche for where we're going here let's look at item number two on the uh videos i sent you there okay i'm pulling it up i'm pulling it up all right so i'm looking at this oh i know what this is so i'm looking at lebron james laker era lebron james he's playing sacramento very impressive dunk i think this is like a pretty famous one yeah it was from the championship run last year and you want me to guess how much this is worth sure sure what do you think you'd pay

for that one well i mean i feel like i could just watch this for free on youtube so you certainly can i would definitely pay nothing for this you know you were so close you're only off by about four million percent because uh because this video somebody paid 208 000 us for the digital rights to this clip oh my god last month oh my god okay wow okay okay i'm gonna click on the third one. All right. So I'm pulling it up. I see like a bunch of avatars, like people, avatars walking along a path. And there is like an obese, naked man that looks like Donald Trump. And he has a bunch of words written on him, including like loser. He's got a little Twitter bird landing on him sort of tweeting as well yeah there's a twitter bird and it's tweeting a clown okay so how much how much is this i feel like i already know where this game is headed this is this is like way more than i think it is so this yes it certainly is considering i would probably

pay zero for this but so the artist in question is a guy who goes by the name of people and he made this video last fall and he sold it for 67 000 us to an art collector from from down in miami and then this month so i guess what barely three or four months later that art collector then just resold this thing for 100 times what he paid. He sold it for $6.6 million US. Wow. Wow. Okay. And so, Pete, what are these? You know, you mentioned digital rights. What are these?

What am I looking at? So these are an example of something called an NFT, a non-fungible token. They're all the rage on the internet right now. Maybe you've seen them on your Twitter feed or your reclusive cousin who's really into crypto has been telling you about them. These are all NFTs and they are hot right now. And as you mentioned, NFTs are having a bit of a moment right now. Yeah, NFTs, my favorite new topic.

I'm so obsessed too. Christie is set to become the first major auction house. Grimes is coming to Nifty Gateway. The Kings of Leon are set to release their album. Is what I say to a lot of people, like, why would I buy this? Status. They're very popular and I am already confused. So I am going to need for you to explain this to me today. And maybe we could start with the very basic question here of, you know, NFT non-fungible token.

What does non-fungible even mean? So fungible is sort of like a $10 word for what's really a very simple concept. Fungible is something that can be traded for something else like it. So like the best example of a fungible asset would be something like money. I can trade you $1 for four quarters, you know, whether you get $5 in a bill or $5 via an email money transfer or $5 on your credit card, they're all worth basically saying you can loan me $5 and I can pay you back $5 later in some other form. So that would be a fungible asset. It's a thing that I could trade and exchange for different versions of itself. So by extension, something non-fungible

can't be traded for something like it because there is nothing like it. It's this like unique thing that can't be compared to something else. So in the real world, an example of something non-fungible might be something like, I don't know, like your car or like your couch or something like you can't really find a good way of sort of measuring that beyond selling that for money and then buying something else with it. Like maybe you could trade your couch for something else, but like functionally speaking, non-fungible things are things that are unique. So they don't have something else

that they can be sort of compared with or exchanged for. They need the mechanism of some sort of currency or valuation to trade them. So on that note, explain to me what exactly a non-fungible token is and how it relates to those three things that we just watched. Yeah.

So the token part of NFTs is a very, very digital thing right now. So basically the main one of them that's sort of blowing up right now would be these digital art forms, things like, you know, GIFs or videos or songs or photos, or even sort of rights to exclusive content from artists. Like that would be something where it's worth money, obviously. It's sort of like an artistic endeavor that someone wants to buy. There's only one of these. Like there's only one Mona Lisa.

There's only one York out in your house. And there's a market building up online for basically trading them and sort of investing them either for your own benefit because you like them or because you want to make money off of them. Okay, but I need to stop you here because I think this is where I'm having trouble kind of wrapping my head around this. Like I just watched those clips. I imagine that I could copy them and put them on my desktop.

So what makes them so original? These like digital GIFs or digital clips or digital pieces of artwork so you absolutely could copy those things and use them i mean things like gifs like the sort of nyan cat goes everywhere like no one's gonna you know if you put it on twitter no one's gonna come sue you and give you like a cease and desist order and try to take you down like you're sharing music files on napster back in the day what you're getting for that nft is is basically sort of like proof of ownership. So like other people can look at this.

People can go on YouTube and watch that LeBron dunk. But basically, it will be yours. And there's no disputing that. Anyone who wants to look that up says, yes, Jamie paid $208,000 for this for some reason. So it's hers. Go ahead and put it on your sort of SportsCenter show. Go ahead and put it on your own website. But it's hers. Go ahead and put it on your sort of SportsCenter show. Go ahead and put it on your own website, but it's hers. Huh. But I'm just trying to think about this in the same way that I would think about a painting, like the Mona Lisa, for example. So if you could buy the Mona

Lisa and if I had like all the money in the world and I bought the Mona Lisa for like 45 million bucks, the Mona Lisa would be sitting in my living room and I would have it. But why would I want to own something and pay that much money for something that other people can have the exact same copy of with the exact same quality? I can also have a copy of LeBron James's dunk. It's like not of diminished quality. The Mona Lisa is interesting because, you know, there's only one. There's images of it.

You can probably get like a phone case that looks like the Mona Lisa. You can put it as your Twitter avatar. You could go into the sort of the gift shop and museum and then like buy a print for your wall. Right. But it would be worse than having the Mona Lisa. And the reason for that is because we all agree that there is one Mona Lisa and it is sitting on the wall of the Louvre. And if you go there,

you're gonna have to fight your way through 200 tourists just to get up to the front of it to see it. But that doesn't mean the fact that doesn't, you know, like there's one Mona Lisa and it might be fun to look at on your wall to have a version of it. But it's obviously, we all accept that it's different to own like the actual Mona Lisa and have that be sort of unimpeachably known to be yours.

And no one can dispute it. Okay, so and I just want to make sure I understand this, even though other people can have the same quality of this gif or, you know, a video sitting on their desktop or, you know, on their phone or as their Twitter avatar, there is still interest and value that people have in owning the first version of it, like the first original manifestation of it. Right. It's basically proving ownership over something that is being used in a wide variety of ways. It's just like this is a digital way of proving that this thing here,

this is mine. Right. It's a very expensive way of showing this thing here is mine. You mentioned, you talked earlier about how, you know, they're trading and people are paying way more for them. So I'm assuming that people see this as an investment, right? Yeah. I mean, it's still kind of a niche thing right now. I mean, basically, they've been around for a few years. They didn't trade very much for the first few years. And then in the last sort of three to six months or so, they've really blown up, mainly between people who are already in this digital world to begin with. It's people who are sort of like living in the sort of crypto space,

who are now trying to find ways of using their, you know, their crypto millions to actually either buy things to invest in to make more money, or even just, you know, in the classic way of rich people anywhere, just buying toys to abuse themselves. And you mentioned this world of crypto. Like, tell me how this connects. So basically, all of these, all these NFTs get traded and transferred on something called the blockchain. Now, I know that's the sort of word that gets passed around a lot.

But I mean, functionally, a blockchain is just like a ledger. So if you think of the chain as being sort of like links in a chain, like, you know, like a never ending like chain that someone just keeps adding sort of links to the end of it just goes on and on and on and on. But instead of being a metal chain, that's just basically data. And that data in this case would be something like proving, yes, you know, on this date, Jamie bought this video of a LeBron dunk for this money from this person and it's hers and it's out there. OK. It can't be like sort of duplicated. It can't be stolen. It can't be sort of faked. Now, there's a bunch of different blockchains. And the one that most of these ones are being traded on

is called Ethereum. You're probably more familiar with the sort of the more hype cousin called Bitcoin. But there's this other network called Ethereum that has its own version of the currency called Ethereum. And the transactions are happening on the Ethereum blockchain. And the way that that's happening is people are paying for it through that blockchain's currency, which is Ether. Right. How exactly would you be able to verify ownership? Like if you own one of these things, could I find out that you, Pete Evans, owned one of these things? Like how would I be able to see your blockchain ownership, the data, I guess, that tells you that you own it? Yeah, exactly. So like this blockchain is only going to be relevant for people who are in that world. But unlike a sort of conventional

ledger that you might find in, let's say, like in a bank or like maybe like the local corner shop, if their cash machine goes down, they start writing down transactions. They say, you know, Jamie bought six eggs and gave us $2 and this guy bought bread and put this out. It's all written down there on their ledgers so they know what they have and how they paid for it. So the problem with that is that it's obviously physically located in that store. It can be stolen. It can be faked. You could write something out. You could say, no, I didn't buy six eggs. I bought 12 eggs. It's sort of vulnerable to being lost or faked or stolen or abused. So this blockchain is useful in that it's all public.

So people like you and I aren't going to necessarily be easily be able to check it. But for anyone in that space, it's very easy. It's all done out in public. It's all done out in the open. Anyone who cares to look can go look up, hey, this asset here, who owns it? So if someone else in some corner of the internet like decides to claim that like no i'm the guy who actually owns the lebron dunk it's like unimpeachably no jamie bought it jamie owns it there it is for all to see

right right it's like a very as you just said an unimpeachable way of owning something i just want to be clear about one thing, Pete. We're talking about how much some of these NFTs have sold for in dollars. Could you buy them in dollars or do you just have to buy them in cryptocurrency? You also mentioned that this is how people are spending their crypto. I mean, at this point for the NFTs we're talking about, they only live in this cryptocurrency world. So yes, if you want to start to get into trading these sports video highlights and things like that, you're going to need to get your hands on some Ethereum or some

Bitcoin. Now you could use your dollars to go buy those things, but you have to be sort of halfway there already by having access to things like sort of Bitcoin and Ethereum, because that's the sort of language of these marketplaces. And that's the way these networks work. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you.

Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. vision together. To listen to this podcast, just search for Money for Cops. Pete, you mentioned before that the rise of these NFTs has really taken off recently. And why? Like, why are they becoming so popular? So it's a bit of a sort of digital boom in all sort of assets that are happening online, whether it's sort of like tech stocks. Basically, we've all been sort of cooped up at home under COVID for the better part of a year.

Some people have made a lot of money in the past year and they're finding new ways since we're all moving online for everything to spend their time and spend their money. I mean, like you and I talked a few weeks ago about the whole GameStop saga. And that's the same sort of thing where like people who predominantly live online started getting involved into this asset class that didn't really used to exist. And they bid it up to some sort of crazy level. This is like sort of the same thing. Right, right. And okay, so I just want to go back to this idea that I could like copy and paste one of these things. And it strikes me here that what is happening is that the value isn't being placed on the object, right? The value is being placed on the code, on the data that tells you that you own it.

Right. Maybe another analogy for this is that you're not paying a million bucks for the product, for the apple. You're paying a million bucks for the product for the apple you're paying a million bucks for the receipt of that apple yeah i don't think anyone who bought any of these digital art things is going to enjoy the art more or less because they own it i guessed like what you're really getting for your money here is is basically proof of ownership so interesting okay i want to talk to you about another example last Last week, the band Kings of Leon was the first to release an album as an NFT. So like people can buy sort of a limited number of these NFTs, right? And the tokens for sale included things like front row seats to

future concerts and limited edition vinyl. And I know that there are other artists who have tried out NFTs. And I'm curious, is this a good thing for music? I mean, I would hesitate to say that it would be a bad thing for music. I mean, a band like Kings of Leon was doing fine before. Like, you know, they were ones who had managed to get to the top of the music industry because they had a product people liked and they had the right marketing and they had the right agents and it worked out for them. By and large, the folks who are really excited about this are sort of people in the art world who are very excited about the ability to sort of monetize

and get their art out there in a more efficient way. Instead of having to deal with like a label, you just put your stuff on YouTube and saying, listen, I made this new track, check it out, download it here. It's yours. Instead of saying,

Hey, please go to Spotify and I'm going to get one penny for every play. You can say, if you're a big fan of mine, I will give you this. And now you are the owner. It's like saying, you know,

it's like saying Taylor Swift made a song just for you. It's yours. Other people can maybe listen to it, but, but that's valuable to you. If you're a fan of that artist by saying it's a status symbol, right? Right. Right.

Even though other people can listen and download the same tracks. Are people criticizing these NFTs? Could they go wrong? Is there a potential downside here beyond people just buying these status symbols? There are criticisms of these things. I think I'm at the stage with anything sort of crypto where I do see that there is a real benefit to things like sort of proof of ownership and the blockchain, finding a way to sort of make things more efficient. But the major criticism that we're already seeing of this stuff is the same one we've heard about Bitcoin. Now, one of the big criticisms there is, of course, the environmental impact.

We've all seen the stories about Bitcoin mining uses more energy than Iceland. Right. And this is because they're kept on all of these computers. They just use so much energy. Right. The amount of work to make every link in the blockchain becomes harder and more work to build. So the level of work that goes into it is going up and up and up. And that's why the price, generally speaking, is going up and up and up to make it worth people's while. So it's not just some harmless thing where, you know, my thinking like, you know, hey, if some rich guy wants to spend his money, waste his money, you know, buying expensive scotch, what's the harm in it? So the harm in it here is that like

the advantage is going to people who got in on the ground floor of this and are now sort of like reaping all the rewards. But the folks paying for it could be all of us. The average Ethereum transaction right now uses more power than you would take power your own house for about two days. Wow. Wow. Right. So now, you know, so like, that's not a sort of harmless bit of fun. Like there's a real cost to that. And, you know, people in the space say things like we're going to fix it. Like, you know, renewable energy, renewable power, all this stuff. That's great. That might be coming, but it's still like, we're still using electricity that we wouldn't otherwise be using. Look, Pete, like I imagine people listening to this, this might feel like a little bit removed from their day to day lives, right? Because we're

probably not, you know, dabbling in this world of like millionaire cryptocurrency investors buying LeBron James as his dunk, right? But where is this headed? Right, I mean, you know, in terms of NFTs are just one thing that sort of goes along the blockchain. The blockchain, generally speaking, sort of writ large is not gonna go away. It's not hard to imagine a very near future in which we're doing things like voting

or logging inventory for our small business, where we're sort of transferring money from one part of the world to the next in a much easier way than we currently do. Like, you know, banks are getting into it. So like, these are things that are definitely going to affect our life as we move forward. In terms of where NFTs are going, the problem is I don't think they're going to go anywhere because the way the system is set up, there's an inherent sort of vested interest in making it continue. The thing I'm learning about the crypto space is that the people who have the sort of loudest opinions on why these things are good are invariably the folks who've been in it from

the start. So, you know, these are the ones who, you know, they were buying up Bitcoin because it sounded like a cool idea when it was a dollar in 2015. And now they're zillionaires, right? So like they might be right that there are these benefits to it happening, but it's hard to ignore the fact they have an interest in making sure this continues to be a thing. I'm not sure we'd like we'd accept that level of journalistic rigor on any other beat if, you know, if a bank came and said, hey, let me tell you why this type of banking is going to be good. You'd be like, oh, yeah, bank, thanks. You know what's best for me. You have all the money. I'm sure that's right. Like, you know, we don't sort

of accept that. It's a real, real conflict of interest there. Right. Whereas, yeah, invariably people in the crypto space have either sort of gotten rich doing this or they hope to. OK, Pete Evans, that was really interesting thank you very much see you out there in cyberspace yeah yeah twitter's all i can deal with right now All right, so that is all for today. Before I go, some news in Canadian media. HuffPost Canada will no longer be publishing any content. The news was announced on Tuesday. All HuffPost Canada staffers have been let go,

according to the union that represents employees. HuffPost was recently bought by BuzzFeed, and U.S. layoffs were also announced. I'm Jamie Poisson. Thanks so much for listening to FrontBurner. Talk to you tomorrow.