CHAPTER 10
Non‐fungible tokens (NFTs) have a bright future, not just because digital art is a massively underappreciated asset class poised to dominate the art market (although we think this is true); rather, NFTs have a bright future because they’re providing a bridge to digital economies that will touch everyone in the future (and even in some cases, today).
Looking at NFTs solely as a speculative art asset is narrow‐minded and misses the multitude of future uses of NFTs. We’re soon likely to see the NFT‐ification of everything from NBA season tickets to rare Mercedes Benzes.
With that being said, there are three distinct areas within the future of NFTs on which you should focus your attention:
· The metaverse
· Nonbankable assets
· Digital wallets
In this chapter, we’ll explore each area in detail, showing you the role of NFTs in these multitrillion‐dollar futures.
The Metaverse
The Internet has evolved to the point where we can share and communicate almost anything that we want across space and time. We find love through apps. We trust our digital neighbors to give us the best suggestions for food and housing. We place our most precious photographic memories in the hands of digital giants to protect for eternity.
The Internet has become this expansive, virtual, shared space for almost anything you can imagine. We rely heavily on others who share this space to keep us informed, write funny tweets, make interesting content, and much more. But this isn’t the best version of the Internet. Like any form of existence, it must continue to grow and evolve.
So, what’s next?
The evolution of the Internet is the metaverse—a culmination of the shared Internet and the boundless possibilities in augmented and virtual reality technologies. The Internet has done a lot of the grunt work in bringing information, services, and experiences online. But there are more efficient ways to deliver, discover, and interact with everyone and everything that exists on the Internet.
Types of Metaverses
The most common comparable for the metaverse is The Oasis in the movie Ready Player One. The Oasis is an online world accessible through virtual reality headsets. Kids go to school in The Oasis. Entrepreneurs build businesses in The Oasis. Generally speaking, everything takes place in The Oasis.
In reality, we may not reach this level of the metaverse for decades, if ever. Online games like Second Life have built toward this, allowing users to host concerts, connect with friends, and create revenue streams in their “second life.” But the idea of a one‐stop shop for the metaverse is entirely ambitious.
Instead, the metaverse is being built in many different siloes.
Video Game Metaverses.
Video games are probably the closest real‐world comparable we have to a thriving metaverse with its own economies. Many of the following games allow players to exist in a fictional world and express themselves in competitive and original ways.
NBA 2K21 gives players a lot of freedom to interact with other players and explore The City—a virtual world with outdoor courts, casinos, training gyms, parks, and lots more. For an avatar to walk from one end of The City to the other would take upward of 45 minutes. So, it’s a rather large virtual world.
Fortnite is remarkable, not just because more than 350 million people have played the game, but it’s also proven to be flush with ancillary opportunities. Travis Scott and Marshmello have both held virtual concerts in the game. Samsung created a Galaxy skin for Fortnite avatars to promote their Samsung Galaxy Note 9. (Even Louis Vuitton designed an avatar skin for League of Legends.)
There are loads of metaverses being built in the form of video games—League of Legends, Minecraft, Grand Theft Auto Online, Red Dead Online—the list goes on. Many of these video game metaverses even have their own currency with which to transact different in‐game items.
Video games are further along than anyone when it comes to building metaverses. Still, they’re not entirely free‐form in what you can do. Within the lines of the game, they give players a lot of freedom to roam and express themselves.
Livestream Metaverses.
Aside from the virtual world aspect of metaverses, another equally important quality is the community. Are people engaging in this virtual space simultaneously and concurrently?
Behind the Super Bowl and award shows like The Grammys, streamers on Twitch, YouTube, Clubhouse, and Discord are some of the most well‐versed individuals and groups at getting people to tune in live. Kitboga, for example, streams to hundreds of thousands of people on Twitch while he pranks scam callers. Thousands of people tune in live to “NYU Girls Roasting Tech Guys” on Clubhouse. These are metaverses! Live streamers show how possible it is for people to spend time together voluntarily in an online world around some shared interest.
Sometimes these streamers build up their following by tapping into a shared interest and ask the community to participate. At other times, people tune in just to see the streamer. Regardless, simultaneous experiences are a fundamental part of the metaverse.
Live streaming is missing the immersive component that we see with video games and VR. But these live streamers are just a VR app away from building an immersive metaverse. So, in this sense, they’ve built great foundations for an immersive metaverse in the future.
VR Metaverses.
Naturally, we cannot talk about the metaverse and not cover what’s happening in VR. There are many VR apps built around this idea of a new social experience. AltspaceVR, for example, allows friends and strangers to hang out at live shows, meetups, and classes. OrbusVR provides a unique social VR experience where you can explore the virtual world of Patraeyl, level up your character (as a bard, mage, paladin, shaman, scoundrel, and so on), and connect with other players.
For the time being, most VR metaverses lack scale. There aren’t enough people in them concurrently to be engaging long‐term. And this is only because VR headsets are not yet ubiquitous like smartphones and laptops.
Regardless, as you can see, we have all of the pieces of a metaverse. But bringing them together in one is a challenge. So, for the time being, metaverses will exist in siloes. However, that doesn’t mean that each of these won’t grow economically and provide more extensive opportunities for participants.
NFTs in the Metaverse
The more time that you spend in an environment, the more likely you are to come around to purchasing something there. Many people in the Chicagoland area scoff at a $10 Miller Lite, but when you’re at a Cubs game, you’re bound to cave and buy one. This sentiment is even more true for environments you choose to be in—video games especially.
As we touched on in Chapter 2, “What Are NFTs?” the demand for in‐game items is massive. Gamers spent a collective $380 billion in 2020 on in‐game digital assets. From avatar skins to weapons to extra lives, in‐game items are a booming economy. There’s no reason that many of these in‐game items can’t be NFTs, allowing users who’ve spent money in the game to resell their used or rarefied items.
Take the aforementioned Galaxy skin in Fortnite. The skin was released for only two weeks in August 2018. None have been created since then. By owning one, your clout (social credibility) instantly skyrockets among other players. While it’s a rare item, the opportunities to capitalize on it are minimal. One day, a Fortnite marketplace might exist where owners of the Galaxy skin could resell this rare skin. And the NFT back‐end would ensure that the skin was legitimate and not a fake. Who knows what it could fetch on the resale market? $10? $10,000? More?
What must be understood about shared metaverses is that people are there for a reason. They all have either a shared interest or a shared goal. As a result, there are hierarchies of participants within these communities. One factor that propels a player’s rank in the game’s hierarchy is their avatar’s equipment. That’s why people spend money on Fortnite skins that have no impact on actual gameplay. It’s only natural that players in the future will truly own their items and have the ability to collect, buy, and sell them with other players.
A real‐world example of this is SneakerCon. The sneaker collecting market is one of the more well‐known and established collectible markets of the last decade. SneakerCon was created as a place where thousands of sneakerheads can convene in person to show off their sneakers. Some are looking to sell their sneakers. Some are looking to buy. Others even have stalls set up to sell shoe cleaning kits, sneaker artwork, and other businesses related to sneakers. But no matter who you are, if you’re not showing up in your swaggiest pair of sneakers, then others won’t take you seriously. SneakerCon is the physical equivalent of a metaverse for sneakerheads. People from all over go to SneakerCon to meet others with the same interest as them, make money, and build clout.
Another reason NFTs fit the metaverse is that many people are beginning to accumulate these digital assets. And that means these same people want to be able to show off their purchases. For instance, MetaKoven, the person who purchased Beeple’s “Everydays: The First 5,000 Days” for more than $69 million, is turning the NFTs into a digital art gallery that can be viewed in metaverses like Decentraland.
As we’ve discussed, people collect for a variety of reasons. But there’s one constant among all collectors: they want to display their collections.
Digital assets should be displayed in digital environments. Whether it’s a virtual art gallery, an online video game, your very own virtual basement hangout, or some other virtual space that we cannot yet imagine, the metaverse is where we’ll show off our NFTs.
And then there’s the utility of NFTs in the metaverse.
Buying a Meebit NFT today gives you some clout, and it will go a long way 10 years from now when it’s astonishing to own something that is hardly available. But Meebits are much more than simply cute collectibles. As mentioned in Chapter 6, “Creating and Minting NFTs,” Meebits come with an OBJ file, so you have free reign to use your Meebit for whatever you’d like in any 3D environment.
We’re not far away from some of these hit video games adding an open source element to the game where you can upload your own 3D‐modeled items. We can envision NBA 2K gamers uploading their Meebits into the game and using them as their players.
This brings us to The Sandbox (and their comparables Decentraland, Somnium Space, and Axie Infinity), which is a living, breathing version of NFTs meets the metaverse. The Ethereum‐based virtual world allows players to explore, interact, and play games, among other activities. Most notably, plots of LAND are bought and sold as NFTs on various marketplaces. Once you own LAND, you can develop it however you want––whether that’s a house, a marketplace, or an application. You can lease the LAND, which is what WhaleShark (one of the largest LAND owners in The Sandbox) plans to do—leasing his LAND to artists and designers to build more value for other users in the game.
In many ways, The Sandbox is similar to Minecraft in its open nature of play. However, it differs in that it has its own in‐game currency, $SAND, which can be traded on cryptocurrency exchanges, and you can actually own items in the game as NFTs. While it doesn’t have the broad user appeal of a battle game like League of Legends or Fortnite, The Sandbox nailed down the in‐game economy element of the metaverse, which is highly fascinating.
Look how much our behaviors have changed in the past decade, thanks to smartphones. The average person spends upward of 5–6 hours a day on their phone. Then if you group in the time we spend on our laptops, smart TVs, or streaming services, it becomes a lot easier to count the hours that we don’t spend interacting with the Internet.
The Internet is our collective livelihood, and the evolution of the Internet is the metaverse. The same communities and areas where we spend our time on the Internet today will have a virtual component in the near future, if not already. And with these metaverses will come in‐metaverse items that we want to own as NFTs.
It won’t be absurd in the next 5–10 years to see an esports champion auction off NFTs of the weapons or items they used to win the title, in the same way that we auction off game‐worn jerseys and game balls.
Non‐bankable Assets
What are nonbankable assets? Assets such as rare collectibles (fine art, antiques, classic cars, jewelry, and the like), real estate, and intellectual property (copyrights, patents, and trademarks) are considered nonbankable. The reason these types of assets are nonbankable is that they’re illiquid (there’s no readily available market of buyers and sellers), usually require high investment capital, and often require intermediaries, either to buy or sell an asset and/or determine its value.
When we look 10–20 years into the future, the most widespread use of NFTs likely won’t have anything to do with digital art. It will be the tokenization of physical items and intellectual property, made possible by an NFT’s smart contract. This will lead to fractional ownership of things, thus increasing the pool of buyers and creating liquidity for a traditionally nonbankable asset.
Similar to what Uniswap did for small market cap cryptocurrency tokens, NFTs can do for nonbankable assets. Uniswap is one of the leading decentralized cryptocurrency exchanges, as opposed to a centralized exchange.
At centralized exchanges, such as Coinbase Pro or Binance, sellers post a price (usually in Bitcoin or Ethereum) at which they are willing to sell a particular cryptocurrency, together with an amount. This is the ask price. Similarly, buyers post a price at which they are willing to buy that cryptocurrency, together with an amount. This is the bid price. When the bid and ask match, the exchange of one cryptocurrency for the other takes place.
At decentralized exchanges, such as Uniswap, trades are drawn from pools of tokens. For example, if you wanted to buy AMP tokens, you would send Ethereum to the pool of Ethereum on Uniswap, and you would receive AMP from the pool of AMP tokens on Uniswap. The liquidity pools are provided by people who stake their tokens on Uniswap. Staking is like lending, and it allows Uniswap to use the staked tokens for trades. These pooled resources create the markets.
In return, those who staked their tokens receive a percentage of the trading fees that Uniswap charges. This provides an income stream opportunity for token holders, especially ones who planned to hold the token for months or years anyway.
Uniswap’s protocols, which seamlessly handle all of these complexities, have created liquidity for tokens of all sizes, many of which are not on centralized exchanges, which generally focus only on high volume cryptocurrencies.
This same concept of creating liquidity for coins can be applied to the $78 trillion of nonbankable assets globally (as estimated by Accenture), the vast majority of which are highly illiquid. For example, unsurprisingly, there aren’t many buyers out there for a $4.5 million 1955 Mercedes 300SL Gullwing or an expensive wine collection. They’re illiquid assets.
But you can create liquidity for these higher‐priced nonbankable assets by tokenizing them and thus fractionalizing the ownership. What does this mean? Let’s take that $4.5 million 1955 Mercedes 300SL Gullwing. Are there a lot of people who would love to own this rare car? Probably millions. How many of those millions of people can afford it? Maybe a handful.
However, you can create one million NFTs, which would not only be collectibles, but each of which would represent 1/1,000,000 of that Mercedes valued at an initial price of $4.50. And now, anyone with five dollars can own part of that car. It’s like a million of your closest friends pooling their money together to buy something nice. And all of a sudden, an illiquid asset becomes liquid.
This is what tokenizing a physical asset does. It opens up the market for more people to get involved in something that they cannot afford. Maybe on the opening day, all 1 million tokens are snatched up. Perhaps someone bought 500,000 of the tokens and hoarded them. As the number of people demanding that token (and wanting a slice of that Mercedes) goes up, so does the price of a token. Maybe a week later that Mercedes is now worth $5 million. A year later, it’s $10 million. (Sounds a little like the stock market, right?)
What’s interesting for assets like cars and real estate that get tokenized is that revenue streams can be tokenized as well. Let’s say that 21st Century Fox is producing a heist movie and wants the stars to drive off into the sunset in the 1955 Mercedes 300SL Gullwing. The cost of renting that Mercedes is $100,000 for the day, which spread across the 1 million tokens grants $0.10 to every token you hold (or an immediate 2 percent return on your investment for the day). This model of additional revenue streams is especially appealing for fractionalized real estate.
The problem with nonbankable assets, as outlined by Accenture, is that:
“Historically, it has been difficult to exploit the embedded value of non‐bankable assets outside their traditional markets, limiting their role as collateral. The lack of consistent documentation, low trust, and pricing transparency as well as their high transactional costs and illiquidity have all tempered the interest of financial firms to include them as portfolio assets.”
No matter what the nonbankable asset is, it can be “NFT‐ed.” And this opens up a huge opportunity for high net worth individuals to create liquidity for these assets that they have trouble using as collateral for a loan or selling off.
Why would people want to purchase nonbankable asset NFTs? According to Obrium research:
“Value appreciation in passion investments has consistently outperformed the global equity markets over the past 15 years, growing 65% faster than the MSCI World index over that period.”
Unfortunately, realizing this value is currently impossible until you sell the asset. By creating fractionalized ownership for the asset, you create liquidity. More people can buy and sell a part of that asset and drive the value upward if it’s a desirable asset. And because there’s now a liquid market for the NFTs that correlate to their asset, the owner no longer needs to find one buyer that would agree to the $4.5 million price tag of that Mercedes. The owner effectively found 1 million buyers who would collectively put up $5 million (or more) for the car.
When tokenizing a nonbankable asset, the owner isn’t required to give up control of it. Suppose Mark Cuban wanted to fractionalize the ownership of the Dallas Mavericks. Theoretically, he could create 10,000 NFTs and now have a market to liquefy the value of all or a portion of the team.
Speed Bumps
There may be a speed bump on the road to fractionalizing nonbankable assets with NFTs. As we touched on in the previous chapter, fractionalizing assets with NFTs may cause the NFTs to be deemed securities by the SEC. They are akin to investments, after all. Such NFT drops may need to be registered with the SEC, which requires time, red tape, and legal costs. Or the NFT drop could potentially be done under one of the exceptions, such as Regulation D or Regulation A. Ideally, these processes would be streamlined in the future.
Additionally, securities can be traded only on securities exchanges that are registered with the SEC. So, current NFT marketplaces may need to register with the SEC to trade such NFTs, or new marketplaces that are registered with the SEC may need to come online.
NFTs representing real estate come with a different set of issues. Generally, deeds are recorded in a local county clerk’s office. And deeds cannot be transferred unless state and local transfer taxes and fees are paid at the closing. A potential technical solution could be that real estate NFTs be held in multi‐signature wallets, which are wallets where all parties must sign in order to approve transfers. The local governing authority could be an additional required signatory for any transfer of a real estate NFT.
Although the road to asset‐backed NFTs may start out bumpy, we’re optimistic that it will smooth out over time.
Digital Wallets
Your digital wallet is the new address and phone number for marketers, the new banking information for all payments, the new invoicing software for entrepreneurs, and much more. Knowing someone’s digital wallet address is perhaps the single most valuable piece of information that you can have about a person in 2021 and beyond. Why? Digital wallets are the most effective way to connect directly with someone on many different levels. We just haven’t realized it yet.
Gifts That Delight
If we wanted to connect with Mark Cuban to hear our business idea, we could tweet at him and hope he sees it. We could find him on Cyber Dust and try to get his attention. We could work our way up his chain of command through countless conversations with his associates. Or we could send him a thoughtful NFT directly to his digital wallet. And if the NFT delights him, he’ll likely get in contact with us.
Knowing someone’s digital wallet address gives you direct access to where they collect, where they bank, or where they do business. It’s the new phone number, address, banking information, and so forth for savvy marketers.
We’re not far away from seeing the first marketing campaign delivered entirely as NFTs.
For example, say Taco Bell is debuting a new food item. Instead of blasting the message out on Facebook ads or during TV commercial breaks, they could take a different approach. They could design a piece of digital artwork featuring the new food item, mint it as an NFT, add some perks around owning the NFT, and then send the promotional NFT directly to thousands of people’s digital wallets.
Granted, the cost of gas fees for sending out thousands of “digital ads” would be far more expensive than the cost of delivering a Facebook ad to the same number of people. But if executed correctly, the press and buzz it creates in the crypto and NFT communities, along with the guarantee of mainstream media covering this absurdity, would far outweigh the cost.
The previous example is theoretical, of course. But it’s not that crazy when you think of a digital wallet as a very personal asset holder for individuals. It’s a direct connection to a person’s finances and their collection of holdings.
And so, whether you’re looking to connect with someone you could never get a hold of through traditional means or you are looking for a new and refreshing way to delight someone with gifts, the digital wallet is the way to go.
The downside to this could be when gas fees are significantly reduced or become virtually nonexistent. As we discussed in Chapter 3, “Why NFTs Have Value,” Ethereum will be switching over to proof of stake, which will significantly reduce gas fees. And transaction fees on WAX and other proof‐of‐stake blockchains are already minimal. So, why are low gas fees a downside? One word: spam. Just like those unsolicited, annoying marketing emails that clog up your inbox, we, unfortunately, see the same for NFTs.
Many cryptocurrencies have been airdropping their tokens to digital wallets for years now. NFTs won’t be any different. But it will likely be a minor nuisance like spam email is today. Similar to email spam blockers, NFT spam blockers will be developed as well.
The Future of Payments
Undoubtedly, Cash App, Venmo, PayPal, Zelle, and countless other peer‐to‐peer payment apps are practical and accessible. Creating invoices and billing people through QuickBooks or FreshBooks is familiar and trusted. But these are centralized. As you may recall in Chapter 3, we discussed the advantages of making payments via a decentralized system such as a blockchain.
Now, remembering someone’s 42‐character digital wallet address is trickier than finding their Venmo username. However, with blockchain domain names, you can simplify the way of reaching someone’s digital wallet. For example, when you want to send crypto to a digital wallet, in the field where you would put their wallet address, you can type in QuHarrison.eth , and it will autopopulate Qu’s address. A URL is now the new way of sending money back and forth.
When you couple peer‐to‐peer digital wallet payments with NFTs, we effectively have an entirely new way for businesses to offer services and charge customers.
As you may recall from Chapter 6, Gary Vaynerchuk’s VeeFriends NFTs provide a new means of selling his consulting and other services. There’s no reason that agencies, ranging from PR services to growth consulting, cannot adopt this same model. Agencies of the future will forgo all need for a bank and expensive billing software, using NFT smart contracts and digital wallets to transact directly with their customers.
This vision, of course, makes sense only if everyone has a digital wallet, which is a lot closer than you think, given that Big Tech already has their hands in the pie.
Apple, Google, and Samsung all have mobile wallets loaded natively on their smartphones—not in the sense of a cryptocurrency digital wallet, but rather the digitization of credit cards, boarding passes, gift cards, and anything you might find in your wallet (aside from your ID). The idea is that the smartphone has already replaced hundreds of other technologies, so why not our wallets too?
While paying for things with your phone was a hard pill to swallow for many at first, COVID‐19 drastically accelerated the adoption of mobile payments. Go to an airport and count the number of people who have their boarding pass in their Apple Wallet. It’s more than the number of people who print out a ticket. Mobile wallets are a bridge to the world of crypto and NFT wallets. Quite literally, Apple Wallet is a couple of integrations away from being the largest NFT wallet out there.
The Unwritten Future of NFTs
The beauty of NFTs is that their future isn’t chiseled in stone. Nobody knows what will become the most prominent use of NFTs. Essentially, risk‐takers are writing the future of NFTs—the ones who are trying new things, coming up with radical applications for NFTs, taking NFTs to places we haven’t thought of, or simply executing a sound strategy better than everyone else.
The NFT‐ification of everything will take place over the next decade. And anyone can participate. The future of NFTs is being written as we speak.
Let’s write it together.