My experience with digital assets and NFTs (#10)
How my addiction to Pokémon and Runescape led me to buy the first-ever music copyright NFT
Every Sunday I publish a newsletter featuring the best hacks, tools and insights I discover on my journey as an investor and digital nomad.
Growing up in the 90s, I developed an addiction to games like Pokémon, Runescape and Call of Duty. Playing these games is the closest experience I’ve had to virtual life. My status, my character, my skin, and my in-game assets were extensions of my creative self - they meant everything to me. Naturally then, I see the improvement blockchain technologies bring to a gamer’s user experience. As explained by CES in 2020:
Game developers are continuously expanding the pool of in-game purchases, extending playtime by enticing gamers with the objective of earning these assets. But currently, despite hours of effort to earn these in-game tools and upgrades, gamers still do not own the digital assets. Developers are able to change — or even remove — the assets at their discretion.
Blockchain-enabled developments can transfer ownership to the players. Smart contracts, which are lines of code stored on blockchain that can automatically execute when predetermined conditions are met, allow assets to automatically transfer to the player. The immutability of blockchain data means that with smart contracts, developers cannot take these assets back.
With this development, gamers are therefore able to monetize their skills — selling their game-winning digital assets, exchanging with or even buying from other players to progress in their favourite games.
One aspect of blockchain technologies driving this change are Non-Fungible Tokens (NFTs).
What is a Non-Fungible Token (NFT)?
To understand the concept of NFTs, it’s useful to first distinguish between ‘fungible’ and ‘non-fungible’ items.
Fungible items are things that can be substituted for another item of the same category. For example, you can exchange a £50 note for another £50 note without gaining or losing anything. In the Crypto world, Bitcoin or Ether are fungible tokens - you can substitute them for equivalent amounts of the same token without gain or loss.
Contrastingly, non-fungible items can’t be wholly or partially exchanged. For example, even if they both had the same financial value, you probably wouldn’t exchange your house for your friend’s house. Other factors come into play - location, design and number of floors, bedrooms and bathrooms. In other words, your two houses are unique.
In the Crypto world, non-fungible tokens are Crypto assets that represent a unique or rare digital or real-world item.
NFTs in gaming
Driven by increasing demand for unique in-game items, NFTs are shaping the future of gaming because they enable you to claim full control of your in-game items. Additionally, each item can have a unique identity attached to your account as long as you own them. This allows you to securely store your assets without fear of theft. You can also monetise your assets, value them based on scarcity, and trade them in blockchain marketplaces in exchange for crypto or fiat.
One company driving innovation in NFTs is Dapper Labs. They were responsible for 2018’s CryptoKitties craze where people bought, bred and sold digital cats on the blockchain. Only a few weeks after its launch, fans of CryptoKitties had spent $20M purchasing, feeding, and nurturing them. This Vox video explains ‘Why people were buying cartoon cats on the blockchain’.
A more recent example of gaming NFTs is Sorare, an Ethereum-based fantasy football game. Players collect cards of football players and create a team to challenge other users. In a recent auction, Sorare’s digital card of Kylian Mbappe, the Paris Saint-Germain forward, sold for $65,000.
Investing in the NFT-powered future of gaming
A few weeks ago I invested in Flow, a blockchain built by Dapper Labs to support ecosystems of apps and games. Flow now has 500+ developers and 100+ known projects operating on its blockchain, including Samsung, UFC, Warner Music and NBA. Here’s a detailed Primer explaining how Flow works.
In addition to Flow, I’ve also found a few other cool blockchain projects for the gaming ecosystem that I’ll explore investing in over the coming weeks:
Enjin - a blockchain layer to create decentralised gaming worlds and NFTs
Chaingames - a gaming network that allows for decentralised game of skills contests
SuperFarm - a DeFi protocol that allows users to deploy crypto and NFT farms
OVR - an Ethereum-powered, decentralised, open-source augmented reality platform
I’ve also purchased the NFT of a digital racehorse on ZED, a digital horseracing game. Players can build a stable of racehorses by buying, breeding, and racing digital racehorses. There’s actual money at stake but the process is as transparent and fair as possible because races use blockchain-based algorithms and smart contracts.
NFTs outside of gaming
In enabling digital representations of physical assets and combining this with the benefits of a tamper-resistant blockchain of smart contracts, some proponents of blockchain technology speculate that NFTs could reinvent our entire modern financial system. I’ll highlight a few interesting examples here, but the possibilities for how NFTs can change the way we live outside of gaming are endless!
Market efficiencies. NFTs remove the need for “middle men” in transactions. This allows creators of physical or digital assets to directly transact with their customers, fans and audiences.
Business processes. For example, an NFT for a wine bottle makes it easier for different supply chain actors to interact with it and help track its provenance, production, and sale through the entire process. EY actually developed this solution for a client back in 2019.
Personally, I’m excited to see NFTs democratise investing by fractionalizing physical assets like real estate. It is much easier to divide a digital real estate asset among multiple owners than a physical one.
That tokenisation ethic isn't limited to real estate; it extends to other assets like artwork. Consider a painting like the one above, which sold in 2019 for $110 million. Such investments were previously restricted to the ultra-rich. But, by digitising these assets, NFTs make it much easier to divide them among multiple owners. I could, for example, invest $10K to partially-own that painting and still participate in the financial upside. It’s interesting to think about how such an arrangement may actually increase asset value and revenues.
Another exciting possibility for NFTs lies in the creation of new markets and forms of investment. Consider a real estate asset that's cut into multiple pieces, each with different characteristics and property types. One piece might be by the beach, while another is an entertainment complex, and another is a residential district. Each piece of land is unique, priced differently, and represented with an NFT. Once you’ve purchased your NFT, secondary markets can also exist. Real estate trading, a complex and bureaucratic affair, is simplified by incorporating relevant metadata into each unique NFT.
Decentraland, a virtual reality platform on Ethereum’s blockchain, has already implemented such a concept.
I purchased the first ever music copyright NFT
Last year I co-founded a music production company and I’ve since come to learn about the inequitable business model record labels operate. I used to think their model was like Venture Capital - make lots of small bets on high potential artists, add value to their operations, and hope your bets pay off to reveal the next Drake or Ed Sheeran. In reality, the model’s closer to ‘Vulture Capitalism’ - labels prey on young and financially distressed artists who lack legal and business acumen and are desperate for a quick cheque. This dynamic has set a precedent for labels to take 80% of artist earnings!
Over the last year, my business partner and I have ruminated on a variety of alternative models for the music industry. When NFTs came along, we realised their potential to empower artists to bypass labels and directly sell ownership in their music to fans. Equally, for fans, it gives us the opportunity to participate in the financial success of our favourite artists.🙏
That’s why we jumped on the opportunity to purchase the first ever music copyright NFT through Bluebox. It gives us the chance to be part of something potentially transformational. The NFT gives us ownership of 1% of the Sound Recording of ‘Run In Place’ by Taylor Bennett, a rapper with 50M+ streams on Spotify, as well as the chance to be part of something transformational and historic.
I’d love to hear from you
Much of my concern around NFTs is on the legal side of things. Here’s a few articles I’ve found useful in learning more about legal risks and intellectual property law. How do you feel about all the hype around NFTs? Do you have any concerns? Which use-cases and applications are you most excited by?
Nomad News This Week
🛩️ The State of Cheap Flights in 2021. This report looks at how consumers are spending on travel, how they choose flights, where they’re going, how much they’re spending to get there, and how the coronavirus pandemic has affected their plans both in the past year and for 2021. (4,400 words).
📙 Microsoft published its first annual work trend index. Significant because of the size of their dataset (30,000 people in 31 countries) their solution is hybrid-remote. Personally, I feel this might be a temporary fix rather than a permanent solution. (3,300 words).
💬 WhatsApp for work: Slack is turning into a full-on messaging app. Forget email. The final frontier for Slack, as it tries to reimagine the way millions of people communicate at work, is the text message. Starting on Wednesday, any Slack user will be able to direct message any other Slack user. (1,850 words).
What I’ve Been Reading
💰 Ethereum’s primer on Decentralized Finance (DeFi). This is probably the best beginner’s DeFi primer I’ve come across - an excellent place to start for anyone interested in blockchain, cryptocurrencies or DeFi. (3,300 words).
🔮 Notes on Technology in the 2020s. A review of key industries primed for growth and innovation including biotech, energy, transport, space, AR, VR and crypto. This got me excited for the future! (5,600 words).
🌳 The Environmental Cost of CryptoArt. The average NFT has a footprint of around 211kg CO2 equivalent - the same as an EU resident's electric power consumption for more than a month, driving for 1000km, or a return flight from London to Rome! (1,500 words).
🌐 A Brief History of the Hedge Fund. Having worked at two hedge funds, I’ve been on the inside - and this article was a fascinating insight into how capital allocators have historically adjusted their models (and continue to fall short!). It’s a topic that’s been on my mind more in light of WallStreetBets, (2,200 words).
🙊 NFTs Are a Pyramid Scheme and People Are Already Losing Money. “Digital artists, photographers and filmmakers are falling over themselves to mint NFTs in a get-rich-quick scheme that will do little beyond transferring wealth from artists to tech billionaires…. This bubble will burst; it’s just a matter of when.” (1,800 words).
What I’ve Been Listening To
🤑 First Money In Podcast discuss the new rules and increasing popularity for crowdfunding, the future for no-code and low-code tools, and supporting the Asian-American community in the US. (1h 11m 31s).
🏗️ GGV Capital interview the Founders of Arevo - who went from MIT Labs to Print Farms in Vietnam. Arevo develops technology to enable direct digital additive manufacturing parts for end-use applications in high volume. (1h 8m 32s).
📱 Harry Stebbing interviews Tony Fadell, “The Father of the iPod”, on mentors, money, self-doubt, vulnerability, coaching entrepreneurs, and why the first trillionaire will innovate around climate change. (49m 07s)
🇦🇲 Anthony Pompliano interviews Narek Gevorgyan, Founder of Coin Stats and fellow Armenian, on managing your crypto portfolio. Coin Stats is a super useful tool to centralise all your cryptos holding across various wallets and exchange, and Narek offers useful crypto insights on this podcast. (34m 25s)
The Tools I’ve Discovered
💎 Arbeitnow is a free job board that helps you find the best remote work jobs, globally.
🚅 Mini Tokyo 3D is a real-time 3D digital map of Tokyo's public transport system. You can click on a train and follow its journey through the megalopolis.
🐦 Excerpts From The Twitterverse
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