What are non-fungible tokens (NFTs) and why have they been selling for millions of dollars online?
What are non-fungible tokens (NFTs) and why have they been selling for millions of dollars online?
In this episode, Jess is joined by returning researcher Associate Professor Vidy Potdar, as well as the Managing Director at Natsoft Consulting, Australia, Srinivas Boyapati, to unpack this mysterious new application of blockchain technology. The two leading experts clarify how NFTs work, why NFTs are being bought for such exorbitant prices and what the future of NFTs holds.
Connect with our guests
Associate Professor Vidyasagar “Vidy” Potdar, Director of the Blockchain Research and Development Lab, Curtin University.
Associate Professor Potdar is helping to build blockchain technology solutions and accelerate development of proof of concepts and minimum viable products based on industry requests. He has secured more than $1.1 million in external research funding.
Srinivas Boyapati, Managing Director, Natsoft Consulting, Australia.
Boyapati has more than 30 years’ experience in industrial control systems, operations technology and process automation. Prior to Natsoft, he worked with companies like IBM and Deloitte to successfully execute large ICT projects. He is currently helping to build an NFT solution for a client in India.
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Jessica Morrison: 00:00 This is The Future Of, where experts share their vision of the future and how they work is helping shape it for the better.
Jessica Morrison: 00:09 I'm Jessica Morrison. Lately, there's been news of digital artworks and other assets selling for millions of dollars online. The first ever published tweet recently sold for close to AUD$4 million, while a CryptoPunk pixel-artwork recently went for just over AUD$15 million. These are all examples of non-fungible tokens or NFTs, which are traded using the same blockchain technology that cryptocurrencies operate on. As we look towards the future, are these technologies going to increase in popularity or are they waiting to be swept into the digital ether? To discuss this topic with us today is returning guest, Associate Professor Vidy Potdar, as well as the managing director at Natsoft Consulting, Australia, Srinivas Boyapati. Thank you both for coming in today.
Associate Professor Vidy Potdar: 00:55 Thank you very much.
Srinivas Boyapati: 00:55 Thank you for having us.
Jessica Morrison: 00:58 So, Vidy, how do they relate to other applications of blockchain technology?
Associate Professor Vidy Potdar: 01:01 See, blockchain technology, one of the most prominent examples is Bitcoin. I think it crossed AUD$50,000 a few months ago. Bitcoin is considered as a 'fungible token'. And what that means is multiple people can have Bitcoins and the value of the Bitcoin is the same, whatever is the created value. But when we talk about 'non-fungible tokens', it is reverse or it's opposite to that. And by that, we mean, there is only one specific instance of NFT.
Associate Professor Vidy Potdar: 01:34 So, if I have one image, that will have one NFT. So, an NFT proves that I own a specific piece of digital asset. It could be image, it could be text, it could be a tweet, it could be anything, but it gives me the authority or the bragging rights to say that, "I own this. I have paid a hell a lot of money to buy this and I can use it in whichever way I like." But, that doesn't stop people from copying the digital assets, so that's when you know ... NFTs do not prevent you from copying the artwork or copying the digital asset, but it gives you the right of ownership and you can sell that asset further.
Jessica Morrison: 02:18 Relates to my next question, actually.
Associate Professor Vidy Potdar: 02:20 Yeah.
Jessica Morrison: 02:20 So, why would someone buy digital artwork when it could just be copied?
Associate Professor Vidy Potdar: 02:24 Yeah. So, I think you could compare that with owning a real art piece versus owning a–
Jessica Morrison: 02:32 A fake or something?
Associate Professor Vidy Potdar: 02:32 A fake or even a print of the same.
Jessica Morrison: 02:37 Yep.
Associate Professor Vidy Potdar: 02:37 So, it is a matter of who owns it and that is what is valuable. So, we have seen that in the art industry for many years. I think going into the future, as we enter into the digital art space, the ownership of whoever owns a specific digital asset or art will have that value assigned to it. And every time that owner sells that NFT, you can even program it, so that part of the revenue that is generated on each sale gets back to the original creator. So, if you compare that with when we buy or sell a house, every time we sell a house, we had to pay stamp duty. So, same kind of logic can be applied to digital artwork using NFTs.
Srinivas Boyapati: 03:23 Just to add to that, if you relate it in the physical world, it's like having an autograph of a painting. The artist still has IP rights here, but you can claim that you own that autograph, an original autographed version of that particular painting.
Associate Professor Vidy Potdar: 03:42 A digital equivalence of what we see in the physical world, I would say.
Jessica Morrison: 03:46 And the blockchain technology enables people to prove that ownership, doesn't it?
Associate Professor Vidy Potdar: 03:50 That's right.
Srinivas Boyapati: 03:50 Yes.
Jessica Morrison: 03:51 One of the internet's most viewed videos, the YouTube clip of baby Charlie biting his brother's finger, that was recently sold for £500,000, so just over AUD$900,000. It's insane to think that. So, with video sharing platforms, such as TikTok, Facebook and YouTube generating so much video content, what does the relationship between these mediums and NFTs look like going forward? So, will more content be sold as NFTs into the future?
Associate Professor Vidy Potdar: 04:19 To answer your question, I think what is important to understand here is everything can be sold as NFTs, but do you have a buyer who is going to buy that? So, I think it goes back to the point that although you can create content, create videos and try to sell it with NFTs, do you have the brand around it that people would want to buy that? And it, again, goes back to the same thing. Famous artists' paintings go worth millions of dollars, the same thing. Once in a while, it may be that your creation, it goes viral for no matter what reason, but it does go viral and it just creates a hype around it. And you may get lucky and you'll probably be able to sell your creation as an NFT.
Associate Professor Vidy Potdar: 05:02 But looking forward, I mean, thinking about it as a completely new way of selling your digital art or digital content, I think it may be a far-fetched idea as of now because there are existing ways in which such videos or other modes of digital art are sold. So, in case of YouTube, YouTube already has a revenue sharing arrangement with its creators. So, what would be the justification for creators to create an NFT to sell it on their own? These are some questions that need to be thought carefully going into the future.
Jessica Morrison: 05:41 And I suppose it sort of seems from what you've just said then, that the economic principles of demand and supply are still applied, don't they? There needs to be a demand for these things.
Associate Professor Vidy Potdar: 05:49 That's right.
Jessica Morrison: 05:49 So, not everything's going to potentially become an NFT.
Srinivas Boyapati: 05:52 That's right.
Jessica Morrison: 05:55 We're recording this in mid-June of 2021. So, about a month ago, the value of Bitcoin and other cryptocurrencies crashed. Has there been any impact on the sale of NFTs? And do you expect there to be in the future?
Srinivas Boyapati: 06:07 The NFT market has seen a major impact due to the collapse of the cryptocurrency market. So, there's a really direct linkage because a lot of the money that has been earned through cryptocurrency investments have been pumped into NFTs. So, what we could see in the last couple of months, once the cryptocurrencies have tanked and dropped in value, the NFTs also trading has come down drastically. However, again, there is a relationship with cryptocurrency, but moving forward, there could be potentially use cases which could testify and sustain the NFT market.
Associate Professor Vidy Potdar: 06:57 I think I agree with what Srini said that a lot of investment into NFT, first of all, went because a lot of investors made a lot of money by selling their crypto. So, that kind of fueled the purchase of NFTs and the examples that you see floating around, people paying millions of dollars for a piece of art. So, thinking about in the future, like I said earlier on, as long as you create a brand around yourself, or if you go viral for some odd reason, that there could be a potential for small things or funny emojis or videos going viral, and people buying it on that. But I don't see that this would be a sustainable business model for people to just kind of hope that one of their videos goes viral.
Jessica Morrison: 07:46 Bank on that for the future. Do you see a future where people collect NFTs to the same extent as they do original paintings or other sort of collectible items, like collectible cars and, I don't know, sporting memorabilia and things like that?
Srinivas Boyapati: 08:02 I believe that's the key, I can say, driver for the popularity of NFT. One is digital art, but also collectibles primarily driven by gaming industries because a lot of the gaming developers introduced NFTs. So, that in-game, prices could be exchanged. And by tokenisation, you could actually even exchange across the games and be able to trade some of these in-game prizes. And that's driven a lot of interest in the NFT market.
Srinivas Boyapati: 08:38 Another major impact to NFT was when sporting franchises like NBA, how they set up a blockchain platform to be able to sell their gaming cards and also pictures of special moments as NFTs and which were sold on their platform. And there were willing fans who were willing to buy because they were authentic from NBA. So, they had the bragging rights of having those virtual game cards or images. And NBA, actually, were able to recover some of the revenue, which was impacted due to COVID through setting up this blockchain platform and they had around US$250 million revenue.
Associate Professor Vidy Potdar: 09:28 Yeah, I think that's interesting, the way you think how the NFTs kind of started. I'm not sure if you know there's a game called CryptoKitties, where you could buy and breed kittens or cats, and that's how the NFTs started. So, people or the gamers who used to play that game could buy different cats. And that was the origin of NFTs. And then, the whole gaming industry kind of looked at it and like, "Wow." I mean, initially we would only sell subscription to a game to buy for a year or so, but now in-game purchases has opened up a completely new industry or a revenue stream for gamers or for game creators.
Associate Professor Vidy Potdar: 10:14 And I think that is a market that is going to kind of explode going into the future, given the number of gamers that we have all around the world. And many a time, you will see that these awards or the things that they win in the game and the badges or the shields that they can buy, those would be the ones that have the potential to kind of go up in value or rise in value within the game, or like Srini said, across different games, as well.
Jessica Morrison: 10:45 Are there any stories about NFTs that stick out to you both? You sort of mentioned the CryptoKitties, but any other stories?
Srinivas Boyapati: 10:53 Yeah. I just picked up a news item about a girl. She was referred to as a Disaster Girl. So, when she was 12 years old (ERROR: she was four years old), her father took a picture when there was a house burning and she was looking with expression of naughtiness, which went viral. Now, the same girl, who is now a lady of 22 years, realised that this video could be made into an NFT and she converted it in NFT and was able to get someone to bid for it for US$500,000.
Jessica Morrison: 11:34 Wow. That'll set her up for life. I think the-
Srinivas Boyapati: 11:39 That would help her on her education, that's what the plan is.
Jessica Morrison: 11:39 Well, yeah. Interesting you say that because the clip that we just spoke about, the Charlie biting my finger, the article I read about that is that the boys involved in the video are going to use the sale of that NFT towards their education.
Srinivas Boyapati: 11:52 Yes.
Jessica Morrison: 11:52 So, very positive benefits from it, from the economic sort of by-product of it all. It's great. Srini, if you could maybe give us a bit of an overview on the NFT platform that's being developed by your company Natsoft?
Srinivas Boyapati: 12:08 Sure. Yeah, again, Natsoft has been in the blockchain space. And then, we had seen there's a lot of interest now picking up on NFT. So, we partnered with another company to develop a blockchain platform as a marketplace to be able to trade digital assets on this platform. And we wanted that to be a platform where artists, gamers, any user could sign onto the platform and be able to buy or sell digital assets. So, some of the key features we are going to include into this platform, which is currently under development, is we can use the normal Ethereum wallet. So, we don't have to create a completely new ecosystem. Second is, we will also support some of the major wallets, which are sort of available like MetaMask and WalletConnect. So, it gives you the flexibility to use what you already have for the users.
Srinivas Boyapati: 13:11 And we can let the users to be able to create the NFT themselves if they are selling and put it up on the platform to be able to sell it. And we will also provide the feature to be able to arrange for an auction, so that they can even get bits or getting the best bidding price for their NFT. And another feature we are applying to include is to make it compatible and interoperable with other marketplaces. So, users, buyers and sellers can actually transfer NFTs from our platform to another platform. And so, that gives flexibility for the users to be able to select and choose where they want to buy and sell NFTs. And another key feature is we want to create a native token with attached value, which can be used for trading. So, these are some of the features we are looking into incorporating into this platform.
Jessica Morrison: 14:10 And so what does the timeframe for this look like?
Srinivas Boyapati: 14:14 We are currently working on the pilot and we are targeting to complete it in the next two months. And then, we are also looking at reaching out to potential clients. Again, as you are aware, cricket is a very popular game in India and with IPL [Indian Premier League], there's a lot of interest in the fans to have memorabilia related to their favourite teams. And this could be a platform that could enable the fans to be able to buy and sell memorabilia related to their teams.
Jessica Morrison: 14:47 There you go, we'll watch this space by the sounds of it. Finishing up, is this a fad or are NFTs here to stay? After what you've just said, then I'm guessing, you're probably hoping they're here to stay with your digital marketplace you're developing.
Srinivas Boyapati: 14:59 Whether the current craze in NFT, whether it will be sustainable, especially when you're talking about these crazy numbers about how animes and pictures are being sold at huge values, there are still use cases which would ensure that NFTs remain to be relevant. And the second aspect is they are very tightly linked to the cryptocurrency. So, I think they go in tandem and it'll depend on how the cryptocurrency market will evolve. And NFTs could be one of the offerings and give option to investors, look at how they can broaden their investment portfolio.
Jessica Morrison: 15:45 Vidy?
Associate Professor Vidy Potdar: 15:46 I think it's difficult to say. I mean, it is something ... If you've seen in the past, ICOs (Initial Coin Offerings) were a craze in 2017. And now, it has suddenly ... Nobody talks about ICOs. These days we're talking about NFTs. Maybe in five years’ time or three years' time, we'll be talking about something else. But I think what is important to see here is what value do NFTs bring in the current business environment, where people, where businesses think that there would be some value that they can get, which they cannot get otherwise? And so, that is the first question. I would say that would help answer this question.
Associate Professor Vidy Potdar: 16:21 I'm not sure if you have known, but Nike has come up with a new sneakers that they call CryptoKicks. And what they've done is they're taken this attempt of connecting the physical asset and giving it a digital identity. So, each and every pair of shoe, a pair of sneakers, will have an NFT. Right? And what may happen is if this pair of shoes was worn by a world-famous soccer player, and he probably gets a penalty kick, and that leads to a major win in the finals, then that pair of shoes, that pair of sneakers suddenly becomes really valuable. And because now that has an NFT associated with it, it will become much easier to kind of sell that, auction it, to the sports fans. Sending a real shoe may be difficult, but getting access to a digital asset on a blockchain via NFT will be much easier. So, that is just one example of the possibilities that can happen.
Associate Professor Vidy Potdar: 17:25 Another example or another industry that I think I would talk about here is the luxury goods industry. So, say, LVs, Guccis, any of these brands that traditionally have battled a lot with the counterfeit goods. So, you can find a really good looking or perfect match but a counterfeit bag for half the price, or maybe even less. So, these companies or these brands could leverage NFT to a whole new level. And what may happen is when you purchase, say, a genuine handbag, you may get an NFT, a digital representation of the same NFT, which you may put as a wallpaper on your mobile phone. And because you are a genuine owner of the bag, only you will get that and it may be copied, but at least you know that you own it and you can brag about it. You can show it on your phone. "See, this is my NFT. This is on a blockchain. You can go check it out." So, there is a lot of opportunity for creating new business models, new ideas, new ways to engage with customers using NFTs.
Associate Professor Vidy Potdar: 18:36 So, what we're seeing now is kind of just the start of something that may become something really big or may not, but there are opportunities and there are companies who are in this space trying to explore the possibilities. And like my friend, my colleague, Srini, they are already in this space, they are developing a platform for trading NFTs. So, I think the possibilities are endless. It's how well it gets adopted in the industry or in the market or among the consumers. I think that will define how are we going into the future.
Srinivas Boyapati: 19:10 Yes. And there are also challenges, which again, is also related to cryptocurrency in terms of the carbon footprint here, which is a big concern. And second area is also about how do you make sure that NFTS are not being hacked? And that could also undermine that model.
Jessica Morrison: 19:35 In regards to hacking though, is not the use of blockchain technology going to sort of at least protect it against that or is it?
Srinivas Boyapati: 19:44 Again, it's about not the blockchain can be the weak link, but it could be people putting it in wallets and not being able to secure them.
Associate Professor Vidy Potdar: 19:54 Yeah. There could always be some weak links throughout the whole ecosystem. There's a perception that blockchain is secure, it cannot be hacked, but blockchain in itself is only a small component of the whole software that is being built. So, there may be weaknesses or security vulnerabilities somewhere around blockchain, but not in the blockchain, so that, I would say, that that is a possibility to what Srini said in terms of ensuring the safety and the security of these NFTs.
Jessica Morrison: 20:24 Just lastly. When you've spoken about NFTs throughout this conversation, two things that have really stuck out to me are status and accessibility and ensuring that they have that. Am I right in sort of assuming that?
Srinivas Boyapati: 20:39 Yes.
Associate Professor Vidy Potdar: 20:39 That's right. Yeah. Very much, very much because I think the benefits of NFT is a proof that you own something. At the moment, if you own a very expensive bag, there is no way that you can go and show others. I mean, not that you have to, but if you had to, you will probably have to go and look for the receipt when you bought it, but nobody's going to do that. But if you have a digital representation of the same thing as a wallpaper in your phone or something on the website somewhere, it makes it more accessible, like what you said. People can prove the ownership of any asset that they have.
Srinivas Boyapati: 21:11 Yeah. Again, this is where we believe that the marketing places or the platforms will be the enablers to give more access to some of these coveted collectibles, which would not be available normally, unless they're in some exclusive channels of purchase.
Jessica Morrison: 21:33 Absolutely. Well, look, thank you very much Vidy and Srini for sharing your knowledge on this topic. If you'd like to learn more about blockchain technologies, please check out our previous episode on cryptocurrency and blockchain with Vidy. We'll link to that episode in today's show notes. So, thank you both for coming in.
Associate Professor Vidy Potdar: 21:49 Thank you very much. Thanks for having us.
Srinivas Boyapati: 21:51 Thank you.
Jessica Morrison: 21:51 You've been listening to The Future Of, a podcast powered by Curtin University. If you've got something out of this episode, please remember to share it and subscribe to our podcast. Until next time. Bye for now.