NFTs, Explained

NFTs, Explained

 

 

– Now to the latest trend that’s sweeping the internet. – So called NFT. – [Reporter] They’re now selling for huge bucks. 69 million dollars. – So what’s behind this latest craze?

– That is the question to ask. – Okay, so there’s some super strange stuff happening online right now, and I need to tell you about it. First, look at this tweet. The first tweet ever tweeted in the history of Twitter. The tweet was by Jack Dorsey.

– I’m one of the co-founders of Twitter. – And this tweet was somehow just purchased for $2,915,835.47. – (laughing) You serious? – And it’s not just a tweet.

Just last month a single jpeg sold for 69 million dollars.

 

The NBA is selling little moments of basketball games for hundreds of thousands of dollars. This is all sorts of digital things that people are purchasing a version of them for lots of money. There are three simple letters that you need to understand to understand what’s going on here. Those letters are NFT.

– Now to the latest trend that’s sweeping the internet. – What is exactly is an NFT? – So called NFT. – Do you all in the chat understand what an NFT is? – Does that stand for not safe for work?

What does this mean? – Why would you pay for an NFT when you can look at it for free? – Is this a gigantic bubble just waiting to burst? – I believe in this space with my whole heart.

 

– I’m just fascinated by it, all of it.

– This story is much bigger than a $600,000 cat gif. Or a three million dollar tweet. It’s a story about human psychology and how the way we value things is shifting because of technology. A technology that some people think may revolutionize our society, while at the same time accelerating the climate disaster. It’s really nuts, it’s all of these things together and I wanna explain it to you, so let’s do this.

♪ Now what the hells an NFT ♪ ♪ Apparently cryptocurrency ♪ ♪ Everyone’s making some money ♪ – [Announcer] Oh that was insane officially insane Lebron James. – NFT stands for non fungible token. Okay, there it is, that’s the explanation. Non fungible token, makes sense right? The video’s over now.

No, one of my issues with this topic is that people throw around things like blockchain, crypto art, ledger, NFT, and they just expect me to understand what they’re talking about, and I didn’t.

 

Okay, I’m gonna talk about a Tesla for a second. Customized by Unplugged Performance to be the most unique and high quality Tesla there is. Oh and it’s not just a Tesla, it’s also $20,000. You can enter for a chance to win the Tesla and $20,000 by going to Omaze.

com/JohnnyHarris. When you donate $10 or more, your donation goes to support two non-profits. 501C3 is the first one. They are an organization that seeks to mobilize the next generation to fight climate change by creating a global community that embraces low carbon culture. The other one is called Give Power which seeks to give clean drinkable water to the 2.

2 billion people around the world who do not have safe access to clean water. The non-profit uses its deep solar expertise to power and provide clean water, food security, and light to regions around the world. So to potentially win a Tesla and $20,000, and to support these organizations go to Omaze.com/JohnnyHarris to find out more. So, fungible, let’s talk about the word fungible.

It’s this very specific word that economists use, it has a very precise definition.

 

I wanna use a different word for fungible for a second. Let’s just use the word replaceable. Non-fungible means non-replaceable, you can’t replace it, there’s only one of them, it’s unique. Non fungible.

Let me give you an example of something I feel very strongly about. Let’s say you want to buy an orange jacket. This is really absurd, I’ve actually never counted these before. – Stop it, get some help.

 

– You wanna buy an orange jacket from Uni Qlo.

You go on the internet, and a jacket costs $39. If you purchase one of these jackets for $39, you don’t care what specific jacket they send to you, they’re gonna make thousands of jackets in your size, send them to stores, send them to people, and they will send one to you, you don’t care which one it is. The jacket is fungible, it’s replaceable. As long as you get one that’s identical to the rest, it’s worth the same to you, they’re interchangeable. However, let’s talk about one Uni Qlo orange jacket that has been with me for a very long time.

This is the original, and for those of you who don’t know I sort of have a strange attachment to this jacket. I just love it, I love the color, I feel like an identity with this thing.

 

And it’s sort of starting to disintegrate, but I love it. And I kind of fell in love. This jacket is not replaceable.

If I went onto the website and paid $39 for a Uni Qlo orange jacket that was this exact same model, it would not be this jacket. This jacket is non-fungible. It is the only one on the planet that exists. It has emotional value. It has significance.

It is a very valuable thing because it is scarce. There is only one of them, it’s valuable to me at least. And I kind of fell in love. Okay, we can put these down for a second. Everything in our economy is one or the other, fungible or non-fungible.

A sack or rice is fungible, you just want a sack of rice, you don’t care which one it is.

 

The Mona Lisa, non-fungible, there’s only one. Unsurprisingly, non-fungible things are way more valuable than fungible things. To that’s the NF in NFT, non-fungible. Now let’s talk about the T, which is token.

This is a very internet-y word. And to explain this, I have to explain something I have avoided explaining for a very long time, the blockchain. Luckily, there’s a way to understand this, and I’m going to make it as painless as possible. Let’s say I want to buy three slices of pizza from my friend Anna. She charges me six dollars for these three slices.

I don’t use cash anymore, so I pull out my debit card, my bank card, and I swipe on her little terminal. As soon as I swipe this card a message is sent to my bank and it says hey, Johnny, who has an account at your bank wants to spend six dollars on pizza, and that money needs to go to Anna’s bank.

 

This is like the bread and butter of what a bank does, all day, they document every transaction that comes in from all their customers, they send out money to the other banks, and at the end of the day they have a tally of all the money that went out of your account and into your account and they can give you a number. They can say based on all of these transactions, you have $50 in your bank account. And so when that request comes in as I swipe my card my bank is like okay, based on all of your transactions you have $50 in your account, I can send six dollars to Anna’s bank, approved.

And they approve the transaction. Once that money comes into Anna’s bank, Anna’s bank is doing the same thing. They’re like oh cool, she had $80 and now she has $86, and they add it to her record. More and more your money is just a number on a screen. It’s the result of a bunch of transactions.

You don’t barter with physical things, you don’t use cash as much. So the bank keeping meticulous records of every transaction becomes really important.

 

We trust the bank to do this correctly. So thank you banks. Banks and other middle men have been keeping stuff like this running smoothly for centuries.

I mean kind of smoothly. – [Reporter] The NASDAQ, everything and more has been completely wiped out. – [Reporter] It was the worst day on Wall Street. – What in the world is happening on Wall Street? – There have been a few bumps in the road.

 

With the rise of the internet, people started to wonder. Is there a way that we could do this same thing, coordinate this same transaction of transfer of money between two people without the bank? The result is a very clever concept called the blockchain. The blockchain. The blockchain fulfills the same thing the bank was doing, but instead of doing this privately on my bank account and talking to Anna’s bank, all of the transactions are actually recorded publicly on the internet.

 

 

♪ You’re going surfing on the internet ♪ So let’s redo this example in a crypto world. Anna charges me six crypto coins for my three slices of pizza. I go to swipe my proverbial bank card to say yes, I want to pay you six coins. Instead of the bank seeing that request for a transaction and trying to validate it, it goes on to this public record where a bunch of people’s computers all around the world are keeping track of every single transaction of everyone always. If I don’t indeed have the six coins in my account to pay Anna, all of the people’s computers who are keeping track of every single transaction will notice that there’s a discrepancy.

They’ll be like whoa whoa whoa dude, you don’t have six coins. We’re looking at every transaction ever and you don’t have six coins. Your transaction is rejected. If I do have six coins, all of the computers looking at the public record will see that request for a transaction and they’ll be like yep, approved.

 

You have six coins and now Anna has six coins.

And they’ll write that transaction into the public record. Now Anna having those six extra coins is now the business of everybody, everybody now knows that. The point here is that the group verifies the legitimacy of every transaction by keeping an eye on every transaction to make sure that it adds up. Okay I’m getting hot at this point, so I’m taking off my orange jacket. Okay, so you’re wondering what does the blockchain and this public record have anything to do with cat gifs that sell for $600,000?

Well I’m about to tell you. So in my pizza example we talked about blockchain as a way to verify currency transaction. I pay you this much, you pay me this much and everybody knows how much everybody has because it’s all public. But this is where it starts to bend my mind a little bit, what if we apply this to something that isn’t money or currency? Let’s say one day you’re just looking at the ledger and the ledger’s like Johnny wants to give Anna six coins.

 

 

Okay he’s got six coins, approved. And then a transaction comes up that’s like a Malaysian businessman wants to give three million dollars worth of coins to Jack Dorsey in exchange for a little token, or digital certificate that says that the tweet is now somehow owned by the Malaysian businessman. The only thing that the blockchain cares about is does the Malaysian businessman have three million dollars worth of coins? And so a bunch of computers all around the world look at the whole entire list of transactions and say like yeah, this guy has more than three million dollars worth of coins, approved. They approve the transaction, and now it is written in a public record that is unalterable that says that this Malaysian businessman owns this tweet.

The token has been transferred to somebody new, non-fungible token, NFT. And if there’s anything that gets human psychology to value something, it’s if an entire group validates that it’s real and that there’s only one of them. There are tens of thousands of NFTs of all kinds. Some music is being given tokens, lots of art is being minted as tokens and being bought and sold, and then of course there’s.

 

– NBA Top Shot.

– Who’s taking advantage of this. – These highlight moments, these Top Shot moments from your favorite NBA players have been turned into non-fungible tokens. – Jesse made headlines the other day when he paid $208,000 for a Lebron James Top Shot. – It’s the weirdest thing. As soon as humans have enough abundance to have their basic needs met, food, shelter, warmth, et cetera, the next frontier is to create value in things that have no inherent value.

 

 

The value turns into psychological hype. Excitement around a certain thing. We’ve been doing that forever, I mean the whole art industry is based on the idea of a bunch of people deciding that this painting, this little bit of canvas and wood and paint is valuable, and thus it is valuable. The only different about now is we now have the technology to do this in a non-physical way using this very sophisticated internet technology that is maturing very quickly. Okay, so this is a lot of hype, and I know you’re thinking like cool, there’s a bunch of rich people online buying and trading digital art, and there’s millions of dollars worth of cards, I thought you said that this was gonna have the potential to change the world.

 

 

And I’m getting there, but first I need to talk about the crazy flip side to the NFT fad. The reality is that the technology that is the backbone for all of this, the blockchain stuff that we’ve been talking about relies on the public ledger thing that I talked about. That is the sort of heart and soul conceptually, but mechanically, like physically what it relies on is computers doing a bunch of little calculations all day and night forever. These computers aren’t real computers, they don’t have any memory, or screens, or anything. All they do is just make little micro-calculations all day, all night.

Most NFTs are stored on a blockchain called Ethereum. And as of now, in early April 2021 when I’m filming this, the Ethereum blockchain is using 33 terawatt hours of electricity. And you’re like what’s a terawatt hour of electricity? That’s the same amount of power as the country of Serbia. A reminder that generating electricity usually comes from power plants that are burning fossil-fuels, that are putting carbon into the atmosphere which is a big freaking problem.

 

 

– [Narrator] Facing a manmade disaster on a global scale. – The power consumption of the Ethereum blockchain is exploding, it quadrupled in the like eight months, and it is showing no sign of slowing down. It is a lot of energy. And to think that that much energy is not being used to like, move people around or produce things, it’s used to crunch numbers in a weird computer warehouse somewhere so that somebody can buy a fake token of a thing that we only, oh man, I can’t, it’s mind blowing. It’s such an ironic moment where it’s like this is all digital, it’s all fake, it’s not real, but it’s having deeply real world effects.

 

 

I just wanna finish this video now, talking about what this might mean for our world going forward. This is definitely hype, and that’s the whole point. I mean these speculation markets are all about hype. We see this all the time with new technologies and new things that people get excited about. And they swarm it with their investments and the price goes up, and then something happens, for example.

– Come on Uncle Phil, this is the ’90s man. – What’s a web page, something ducks walk on? – How nice of you to join us.

 

– On equal value, so cash in on today’s new economy. – It’s the ’90s, it’s hammer time.

– In the ’90s the internet was taking off and people were just realizing that you could make money on the internet. You could make big businesses on the internet. The stock market was surging, 400% in five years mainly fueled by so much hype and excitement around these new internet companies. – [Reporter] Break the record as America’s longest boom. – The new economy, is a boom without end?

– This rise peaked in March of 2000, and then the bubble burst, and a lot of these companies either went under or completely lost all of this excitement valuation that they had. – Saw it didn’t you, it was down some.

 

– But, did that mean that the internet went away? Did that mean that internet businesses didn’t come back? No, companies went on to reshape our world.

Right now I think we are probably in that stage of NFTs. It’s hype, it’s novel, it’s exciting, but what it’s doing is it’s pushing our minds to think differently about how we validate and verify things. If I buy a house, there is a whole thick stack of paperwork and a bunch of middlemen to make sure that it is very clear who owns the house, and how that money gets transferred from one person to another.

 

It is a nightmare of an experience. If suddenly technology existed that took away the centralized middle man and made transactions between people able to be authenticated, verifiable, and much smoother, that could change our world.

I’m not here to say if the bubble’s gonna burst, or whatever, I don’t know. I just know that this is a crazy moment where we’re getting our heads around a new technology and what it means, and eventually will adapt. This won’t be crazy, this won’t be novel anymore, prices will go down, but the technology that allowed it all to happen will probably stick around. (soft music).

 

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