Front Burner - Will the NFT boom last?

Episode Date: January 10, 2022

The NFT market is booming in early 2022, with estimates easily surpassing a billion dollars in transactions. But hype from a die-hard community is colliding with concern for the tech’s impact. Celebrities are both boosting digital tokens and laughing at the very concept of NFTs. Projects are providing access to exclusive clubs and selling virtual land, but also scamming buyers and disappearing. Meanwhile, concerns about energy usage by blockchains are causing groups such as BTS fans to erupt in protest. As investors speculate over JPEGs while some struggle for necessities, social media discussions are devolving into class warfare. Today on Front Burner, we look at what's driving the hype and the hate. Andrew Hayward, senior writer for crypto-focused news site Decrypt, explains how NFT culture has grown and changed, and why we can expect the tech to have a more mundane — but more useful — future.

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. Hi, I'm Jamie Poisson. Did you guys see the Matrix NFT thing that they did for Resurrections just a couple days ago? No. This is Keanu Reeves in an interview with The Verge in December.

As the interviewer explains how the site selling the NFTs broke because of demand, Reeves' reaction is one that we've been hearing a lot lately. And so like when you think about the concept of digital scarcity and things that are, you know, they can't be copied, that are easily reproduced. But they're not the same, right? it's not fake version of you nfts can be a hard idea to entertain i mean at a time when people are struggling to get the physical things that they need some people are putting down stacks to prove they own something you can screenshot the list of people trying to hype up nft seems endless but look i think nfts are going to be um bigger than bitcoin i'm

hoping that more and more women in particular kind of get on board with nfts and her up and get on down into that nft thing nft never forget to pass it so here we are just days into 2022. there's already been estimated billions, billions in transactions in this red hot market, a market that barely existed less than a year ago. And it feels like the backlash is everywhere. Every explanation of NFTs is like, it's not a scam if we all believe it. For $63 million, I'll destroy part of the environment. You can own the Mona Lisa yourself, eh? People seriously pay hundreds of dollars to own a digital JPEG that anyone can screenshot. Manufacturing digital scarcity on the internet for means of making rich people even richer is just gross.

So today we're looking at the hype and the hate and at where NFTs go from here. Andrew Hayward is a senior writer for the crypto-focused news site Decrypt.co. Hi, Andrew. Thank you so much for making the time today. Hey, thanks for having me. It's such a pleasure. So last time we the time today. Hey, thanks for having me. It's such a pleasure. So last time we checked in on NFTs, it was in March on this show. And since then, I know they've gotten so big that instead of recapping what NFTs are myself, I can actually just get a bunch of celebrities to explain it. So here is Paris Hilton, Our Lady Peace singer, Ray Maida, and Ellen DeGeneres.

A non-fungible token. Non-fungible. Which is basically a digital contract that's on the blockchain. So you can basically sell anything from art to music. And it does that by giving you a digital hash or a fingerprint of that asset, which verifies that that asset is unique and uniquely yours. Non-fungible means it's unique and can't be replaced with anything else. Think of it like this. It's like art. Anyone can own a print of a painting, but only one person can own the original. Oh, man.

Paris Hilton was definitely the best one there. Okay, okay. So there is these digital ledgers out there, they're called blockchains. And if I buy a digital picture as an NFT, that ledger holds up a receipt that tells everyone that I own that exact copy of that picture. And so, Andrew, is that like a decent explanation of the basics here? Yeah, you don't even need me. You've got celebrities.

We've got Paris Hilton. So we can just end this interview right here. Thanks for having me. So since March, I think we've probably all heard about the giant NFT sales at auction houses. Actually, the day after our last episode, Beeple watched his piece, the first 5,000 Days Become the Biggest Ever NFT Sale. It sold for 69 million bucks US. 25 million, 250,000. It's crazy, man. Jesus Christ, what the f***? Oh my god!

It's just 250 million! A Crypto Punk, which was an early series of characters made by a couple of Canadian software developers, went for almost 12 million bucks. But broadly, just how big has the NFT market gotten since then? Yeah, the market exploded. I mean, it got hot early last year around the time that you did your last show about it. There was about two and a half billion dollars of trading volume in the first half of the year, split pretty evenly between the two quarters. And then it got kind of quiet for a while. I think the hype kind of died down. People were questioning whether it was worth it. The cryptocurrency

market was also down, so people didn't really want to spend their money at the time. But then in August, the market just soared to crazy new heights. For the year, it's an estimated $22 billion of trading volume, according to Dapp Radar. And that's compared to in 2020, it was about 100 million. So just an astronomical ascent from there. I think a lot of the backlash has been at this idea that people think they can own and profit from images that like I can just right click and copy. And do you know, like how much are NFT owners trying to stop other people from copying their images? So we see that sometimes on Twitter, like somebody will tweet something like, hey, that's my image. What are you using it for? Take it down.

And those get kind of screenshotted and widely shared. But I don't really think that's like a big portion of people who own NFTs. I think most people understand that it's not like you own the image and nobody else can ever use it. It's more about kind of having the rights to the image. Some projects you can commercialize your image and use it in certain ways. And then there are some people, especially like Alexis Ohanian, the Reddit co-founder, who will tell people, please use my image over and over and over again. It only accrues the value back to me, the owner of the NFT, because the more famous and more popular it becomes, the more valuable it can be if I want to use it in the future

for something. Right. Because if you think about some of these that have sold for huge amounts of money, they were everywhere, right? They had become memes. Like, I guess that is helping the value. I would say the more enlightened people see that there's sort of a benefit to the meme culture around NFTs. And if an image becomes very popular or a project becomes more popular, more people may want to buy it and may be willing to spend more money for it, or you can use it in other ways. Last week, Ozzy Osbourne, which is weird, put up a bizarre video launching his NFT line called Crypto Bats.

Their mission was to create an NFT project that wasn't another celebrity rug pull. I think it'll help itself. They wanted to build something wonderful. Come on. Something. They wanted to build something wonderful. Come on. And in it, Sharon Osbourne talks about Ozzy collecting NFTs and going after one called Bored Ape. Ozzy wanted a Bored Ape for his birthday, but I told him the floor was just too high. And I wonder if you could explain this phenomenon to me. What is Bored Ape Yacht Club?

And does Ozzy want into this? What is this? Yeah, the Bored Ape Yacht Club is one of the biggest NFT projects going right now. It launched last April. It wasn't very buzzy at first. It just kind of launched and was quiet for a couple months. And then it started to pick up steam, especially when the market blew up in August again. So the Bored Ape Yacht Club is a collection of avatars. There's

10,000 in the original collection. They all look like disinterested apes, their illustrations, each one is a little bit different from the others. So none are exactly alike. And over time, more and more celebrities and big name people have come in and buy them. There's Jimmy Fallon. There's the NBA player Steph Curry, Shaquille O'Neal, Post Malone. There's a bunch of celebrities and people in entertainment that are buying them. And it's just boosting the value of the others as well. about the Board Ape Yacht Club is that it represents itself as a membership club. So your board ape is like your pass to the club and membership comes with benefits. They've given out exclusive merchandise. They've given out additional NFTs to the holders. And those have also been very valuable. They had a concert in New York with The Strokes and Chris Rock.

And then also with the board appes, you get commercialization rights. So you can use your image that you own for products, services, whatever you want to use it for. And the music producer Timbaland and Universal Music Group have launched separate virtual bands, sort of like the NFT version of Gorillaz,

where they're going to release music using the images that they own. So like the disinterested looking apes are playing in a band and they're playing original Timbaland music? Yeah, that's the goal. Cool. Is it fair to say that projects like this are changing what people expect from NFTs? Yeah, there's definitely been a shift towards utility and perks. Like people tend not to just want to spend a bunch of money and get a picture and that's the end of it. Whether it's usability in the metaverse and upcoming crypto games that are coming out. So there's definitely a shift towards, I'm not just buying

something and that's done. It's I'm buying into this future, this community, this roadmap of things that are just going to keep benefiting me as long as I hold it. I'm going to go. 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. Can you tell me a little bit more about how NFTs are sort of pushing the envelope or what we're seeing now that are pushing what you can do with NFTs. You mentioned games, gaming. Yeah. So NFTs and games seem like it's going to be a huge use case for NFTs. Axie Infinity is currently the leading game. It is a monster battling game, sort of akin to Pokemon. And you need three of the Axie monster NFTs to compete. And you can play online against other players and battle and you earn tokens, like

crypto tokens as a reward. And those can be exchanged for real money. There are some players in mostly developing countries, Philippines, India, that actually are playing the game as a full-time job. Huh. I wonder if you could tell me a bit about Decentraland and the sandbox. I understand that people are buying like virtual plots of land and one player paid almost like half a million bucks to be Snoop Dogg's neighbor. Yeah, that's in the sandbox. The sandbox and Decentraland are basically virtual world games. They are sort of the first taste of the metaverse to come, which Facebook and a lot of other companies are hoping to build a big footprint in. These games, they let you buy a plot of land and then it's yours in the game world that everyone can explore. But you can

then customize your plot of land, you can build game experiences on it, and you can even monetize it. You could create experiences that cost money to play. You could rent out your land to other builders who want to use it for a while and they can pay you a cut of whatever they create. So it's sort of like a bet on the future of this online 3D metaverse that Facebook and others are building where you can buy into this land and potentially profit off of it. Wow. Okay. And then there are these brands. I can't believe I'm saying this, but McDonald's, I guess, had a contest for McRib NFTs. So how have we seen big companies trying to get into the space? McDonald's, Coca-Cola, Pepsi, Budweiser, Dolce & Gabbana, Charmin, even White Castle.

Not all of them have been super well received. I know Pepsi's move didn't land very well because the people in the scene, the NFT scene didn't really think it felt authentic. Why? Pepsi released images of microphones with faces on them and people were like, what does this have to do with Pepsi? And like, why would I spend money on this? And it just, it didn't land well. People weren't excited about it. They thought it felt just like Pepsi was taking advantage of this hot market. On the other hand, there's an example like Adidas, which recently launched its own NFT initiative. They partnered with the Bordet Piat Club and with a notable collector in

the space, and they released their own NFT passes that get you exclusive merchandise and other perks in the future. And it really felt like they worked within the community and leading brands in the community instead of bringing their own thing and just being like, hey, this is, you know, we're cool. We're Adidas. This is our NFT. You should buy it. I want to talk about some of the, you know, very legitimate criticisms of NFTs. And we've talked before on the show about the big concern, their impact on the environment. And so I know most trades happen on Ethereum and that blockchain uses as much energy as some entire countries. So when K-pop giants BTS recently announced they'd be making NFTs, it sparked outrage among fans.

Imagine how much greenhouse emissions would be created with a BTS NFT. Like, obviously, there's going to be people that are still going to buy it. But, like, if we don't buy it, it just shows Hive that this is not a good idea, which it very much isn't. Also, like, collecting pieces is so much fun. And look at them. You get to decorate them. You can't do that with online ones. You can't have them in, like, a cute little binder.

ones. You can't have them in like a cute little binder. And in part because BTS spoke to the UN about sustainability a few years back. But is there any prospect of NFTs getting more efficient? Because it doesn't seem like they're going away, right? Yeah, for sure. And Ethereum has a sizable environmental impact. As you suggested, it has an estimated carbon footprint comparable to the entire country of Hungary, according to data from Digiconomist. So the complaints are real, but it doesn't apply to every blockchain network that's out there. There are other blockchains like Solana and Tezos that already use energy efficient technology. And then Ethereum is going to shift to the same sort of technology that's

estimated to use 99% less energy and electricity. It's just still in the works. And it's kind of been on the horizon for months and years. It's believed to launch later this year. It's called a proof of stake network instead of the current energy intensive mining model. But it may be later this year. It might end up being next year. I understand why they want to take their time and get it right. But it's one of those big roadblocks that's stopping further adoption and acceptance of NFTs. Right. 99%. Wow. That's a huge difference. Yeah. It's enormous.

I know that this space is also rife with scams. And so what are some of the ways we're seeing people like basically get gamed out of their money? Yeah, there have been projects that have launched with like a big roadmap of things that they plan to do. And then they sell all the NFTs and the creator disappears with the money. That's one of the big issues of the space being so pseudonymous with people using usernames

and you don't know exactly who it is and where they're from and what their backstory is. We've seen examples of images and artwork that have been stolen from other artists and the NFT creator, in quotes, passes it off as their own creation, especially on open marketplaces like OpenSea. You'll find a lot of stuff that's just been pulled from Google and passed off as somebody's own creation. So there are definitely downsides to a decentralized market like this. And it'll be interesting to see how marketplaces try to come up with ways to fight that. Right, right. I know like last week, this gallery owner got hacked and thieves took like five board apes worth over

two million bucks, although I think some were returned, right? And then he tweeted, I've been hacked, all my apes gone. And then now that tweet is an NFT. Yeah, I believe it. I've seen it all over the place. It's such a bizarre world. You know, I've heard some very vocal critics say NFT is right now or just this very silly speculation because most have nothing physical attached to them. Obviously, the only value is like betting essentially that someone will be dumb enough to pay more for a bunch of pixels than

you did. So how do we know that these prices won't just fall into nothing? Yeah, we don't. We definitely don't. Yeah, speculation is a huge part of the market. And as I said, the market goes up and down very quickly sometimes. It seems unlikely to me that this speculative frenzy will last forever. And if you ask someone like Gary Vaynerchuk, a well-known tech investor and NFT creator, he told Decrypt a couple of months back that he expects an NFT winter ahead. And he thinks that 98% of NFTs will lose significant value. In his view, it's only the big blue chip collections that he thinks are going to last and become these enduring brands. So it's a

bet. And even early this year, with so much trading volume still happening, it's just hard to believe that every collection that is worth a bunch of money now is going to hold up value in a year or two. Right. Speaking of that scene, I suppose like the idea of a bunch of crypto bros using like monkey pictures, eight pictures as like a stock market, it's kind of annoying to a lot of people. But we've also talked about some real potential for this tech today. And how do you think our relationship with NFTs changes, right? Going into the future. Yeah, I feel like eventually NFTs aren't just going to be these big, expensive, valuable things. They're just going to be so commonplace because an NFT is basically like a deed of ownership or a receipt that proves ownership for a digital item and can also be used to verify physical items as well. So in the future, I think they just become ubiquitous.

Like they will just represent all of our digital items and policies that we hold. They could represent artwork and avatars, event tickets, video game items. It could represent your mortgage in the future. I mean, it's a token on an immutable ledger that proves ownership. And it's such a versatile technology that, you know, right now we're seeing this big rush where everyone's just kind of coming to terms with what it is and what it can be used for. And I think eventually we're not even going to think about the term NFT. It's just going to be a token that works like a contract. Yeah. You know, it's interesting. I'm trying to track ownership on this like laneway behind my house and going through historical

documents that date back to like 1890 and all of these different deeds and transfers. And I was thinking to myself this morning, like, man, this would be so much easier if it was just a digital ledger, right? I could use it for something like that. Yeah, if it was on a public blockchain that can't be easily amended, you could just easily pull it up and track it. Yeah, yeah. I've got to say, Andrew, that does seem far off to me, though, right? Because you have to pay for most of these with cryptocurrency. So like, do you not think that there are some pretty big barriers between someone like me buying or creating NFTs and using them in my daily life more? Yeah, for sure. I mean, onboarding to NFTs is not an easy process right now. I mean,

buying and using cryptocurrency isn't very easy. Explaining this to most people is not a very easy process. Yeah, sorry. Sorry. Like if I wanted to buy a board, because if you haven't bought cryptocurrency, you're spending your real money to buy this digital money that you've probably never handled before. And especially if we're talking about large sums for like a board ape, that's like $250,000 or more. It's I mean, it's just it's yeah, it's crazy. Yeah, this is so crazy. This conversation is super interesting. And this thing, this is obviously evolving pretty quickly because a lot has changed even since March.

So I hope that you'll come back again and give us the latest soon. Of course, anytime. Thanks for having me. anytime. Thanks for having me. All right, that to cbc.ca slash podcasts.