META This! Series Ep. 2 - Attorney Stefan Guttensohn Demystifies the Metaverse and Web 3.0 with Will Wong, Partner at DAP Capital and NFT Investment Fund.
Illustration by @max_gps
META This! Series Ep. 2 Transcript:
Series Open
Welcome to Nolan Heimann's LOOK.legal podcast. This the first episode of our Meta This! Series. At the time of this recording, it’s estimated there are over 470 million people who are using metaverse platforms monthly. Roblox alone has over 200 million monthly active users. The global metaverse market is estimated at over $40B and growing rapidly. This presents a new and unique opportunity for both creators and brands to engage with their customers, if they can figure out how.
Podcast Transcript:
Stefan:
Hello, I'm Stefan Guttensohn and you're listening to the META This Podcast. This episode is more or less an introduction to the basic concepts and ideas that make up the new technologies, that are changing the ways we engage in commerce, we invest, interact, and entertain. Today's episode, we will focus on the big picture, the transformation of the internet into Web 3.0 and what it portends for the future. Today, I'm joined by Will Wong. Will's a serial entrepreneur and the general partner of DAP Capital and NFT Investment Fund. He began his career as a software engineer in Silicon Valley and has since founded a number of technology-related startups. In 2013, Will jumped into the world of cryptocurrency. I can't think of a better person to guide us through these concepts. Hi, Will, welcome to META This. It's great to have you.
Will Wong:
Hi Stefan. Thanks for having me.
Stefan:
Before we dive in, I just want to ask you a few questions about your experience. It's just fascinating.
Will Wong:
Sure.
Stefan:
What startups did you found?
Will Wong:
Well, in 2009, that was when I first started looking into starting my own startup. I worked at a startup previously and I had a mission of innovating in the arts with technology, creating immersive experiences. So, the first startup I started was taking a physical record store called Satellite Records Digital and launching it as an online digital download store. It evolved into an app when social apps became a thing in 2009, 2010. It was renamed as Flight and its goal was to bring together the dance music community. So we're focused on bringing the dance music community together and growing it in India. We were partnered with Viacom in order to do that. Then since then, I exited that in 2013 and since then I've been advisor to various projects in the crypto space, ranging from Devi to NFTs, and now I run my own NFT investment fund.
Stefan:
So what was the allure? What brought you into crypto?
Will Wong:
I think it was new. In 2013, it just was a fascinating technology and it wasn't something that was just incrementally different. It was vastly different, and I really enjoyed talking to people that had ideas that were just brand new, people, big thinkers, a different network of people then I was used to interacting with. So that's how I started in 2013. Since then, the industry I feel, has continued to grow at a very fast pace. So there's always something new to learn, and also the community has been fascinating. I think some of the smartest people work in crypto.
Stefan:
So you founded DAP Capital to focus specifically on crypto, and I think specifically NFTs.
Will Wong:
Right.
Stefan:
What does DAP Capital do?
Will Wong:
At DAP Capital, we're structured as a hedge fund, so we can do any type of investment. We're focused on NFTs. So what we're buying is we're investing in digital art. So what we believe in is that digital art will be here to stay. There are new genres of digital art that have surfaced with blockchain technology, such as generative art. So we believe that this is here to stay and we want to be investors in the early pieces, which we feel are going to be the most valuable in the future as the industry grows.
Stefan:
Yeah, I get a sense that FOMO is a significant driver in this. I recognize the novel aspect of it, but I think one of the questions that's coming out is whether or not there is a future for NFT, whether it's a flash in the pan or whether it's going to amount to something down the road. Actually, before we get into that, let's start with the very big picture. In order to understand what Web3 means, I think it would be helpful to get an understanding of where we've been and where we are right now.
So that first generation of the internet, I think, is fairly straightforward. The read-only sites. So more or less static information, a little bit of interactivity through chat rooms, email, I think was the main source of being able to communicate, of interacting, but it was pretty much static. So how would you characterize that first generation?
Will Wong:
Yeah, I think the first generation, I think where we're headed is towards a more visually rich environment where people can be more expressive and the experiences are more immersive. So if you think of it at the beginning, even before browsers, right? Web 1.0, let's just call it, there was email, which was text-based, and it was very rudimentary interfaces. Then we moved to the browser, which changed the game in terms of being able to experience different types of content in one place. There was text, there was images, you could load a webpage, you could load pages from different protocols.
Then Web2, we became even more visually expressive with social media, being able to upload videos, being able to interact through social media. So I think that's where the progression is going, and with Web3, I think where the tools enabling people to express themselves would become more rich, and then the experiences even more immersive than we have right now in Web2.
Stefan:
When we're talking about all of these technologies, they're all part of the development of the internet, and we keep on hearing this word bandied about Web 3.0.
Will Wong:
Right. I think Web 3.0 is really a concept right now. To me it refers to the next version of the internet, and that version of the internet is going to provide freedom of choice via decentralization, which is at the front and center of blockchain. Maybe I can give you few examples to demonstrate what I mean by freedom of choice through decentralization. So if we look at Meta right now, which is a centralized social media application, you create a profile on Meta, they own your profile. You cannot just take your profile and move it to a different platform. You post content that brings eyeballs to Meta and they monetize that through advertising.
So everything is done through their platform and they own it. In a Web3 world where you have freedom of choice, you would own your own profile, you would own the data that you create, you could monetize it as you wish, and you could pick up your profile and just plug it into a different social media platform. So that I think is the vision of what Web3 has to offer. Just to give you another example, is finance. Today when we want to send money to somebody, we have an account at a bank, we need to show our ID; we need to do full KYC. But in the Web3 world, we're going to be able to send money to anybody anywhere in the world without needing to get permission from any centralized authority. So those are a couple of examples of some of the things that will be possible with Web3.
Stefan:
So what you're saying is, correct me if I'm wrong, Web3 will introduce this sense of portability. I mean, the personal information is our own information. So this goes beyond just personal information. You're talking about icons, avatars.
Will Wong:
Right.
Stefan:
You're talking about information that's created on one site, or that's collated somehow on one site, can then be moved to other sites or other infrastructure, is that what you're referring to?
Will Wong:
Right. Correct. Yeah. Right. It's not just our profile information. Of course, our personal information is our personal information. But just imagine all the posts that you do on Meta, any images you upload, any articles that you write, all that could be picked up and just plugged into a different social media platform. Of course, this is a very theoretical idea, but that is the concept, and including your avatar, let me just get into that. A lot of Web3 and the metaverse is about creating your own persona, maybe your real world persona, and maybe an alternate persona. So that's up to you.
But as you build that persona, whether it's an image, an avatar, and all the content associated with that persona can be picked up and moved to a different platform and can be used across... Let's just not say pick up and move. It can be used as your persona across different platforms. Even if you chose to stay, leave your content, one platform, you would be known as this new persona across other Web3 platforms as well.
Stefan:
So the industry trend is towards user ownership of their own information. I think that does suggest a massive shift from what we've seen, because if I think about where we are right now with the internet, we have these major companies that are relying on the information that users are inputting in order to generate profit. They're selling the information through information collected by cookies or directly inputted, and they're essentially controlling it. So what I'm gathering from what you're saying is the control will shift to the user as opposed to these companies.
Will Wong:
Yeah, that's the idea with Web3. I think some of these entities have grown so large and they control such a large part of the flow of information within the internet that it's just at a point where it's gotten too big and people want their control back. So I think that is a big part of Web3.
Stefan:
If we're looking at Web 2.0, we are looking at a period in which we have improved graphics. Part of the beginning, there's some increased interactivity, but subject to major companies, the control of major companies. There are certain issues that have arisen more recently, and I guess it's a question of whether or not Web 3.0 will resolve those issues, and when I think about what are the major legal issues out there, I think it's mostly centering around privacy. We have targeted advertising, et cetera. Will Web 3.0 change that?
Will Wong:
I think advertising specifically, there's different monetization models for Web3 that are not necessarily the same as Web2. So advertising is definitely something Web3 platforms are avoiding right now. So there'll be different ways to monetize. Yes, I mean, the idea is for people to own their data and have access to it and have no central authority. If we get into the blockchain, the central key concept with the blockchain, is that data that lives on a blockchain is not owned by anybody.
If we're talking about public blockchains, decentralization means that the blockchain is governed by a community and it's transparent so that we know exactly who owns the data, where the data resides. We're all free to access the data. So I think at the heart of the blockchain is transparency, which facilitates this kind of ability to own your own data and to be able to remove this veil that's been cast over data and what's going on with their data at these centralized companies.
Stefan:
What I gather is that there are two significant changes taking place, and the first one is decentralization, and you mentioned, greater access to data transparency. I'm trying to understand what this means for the average user or what it could potentially mean for the average user.
Will Wong:
I think for the average user, it goes back to freedom of choice. I think of to freedom of choice I don't think. I think of decentralization or Web3 as necessarily a replacement of Web2. It offers advantages to Web2, which include freedom of choice. But with freedom of choice comes greater responsibility. So you would need to manage your own content, you would need to manage your own keys, your own wallet.
So you hear these stories where people have Bitcoin or some form of crypto on their wallet. And yes, they own it. They're free to send it where they want. But if you lose that key, the money is gone forever. And there's no one safeguarding you from saying, "Don't send it here, because this could be potentially a bad actor." And if you send it's gone. It's not like a credit card where you can say, "Ooh, this was fraudulent activity. I want a refund." There's pros and cons to the freedom of choice. Some people can handle it, and then some people may not want it, because they want that centralized authority being a layer of security for them. So I think that's how I look at it.
Stefan:
There is a strong possibility that we're going to be entering into a period of caveat emptor, where the individual is going to be much more responsible for maintaining or protecting their own information.
Will Wong:
Right. If they choose to, they can definitely do that. And if they choose to monetize it themselves, they can do that. But while that may sound good, not everybody may want to do it. So I think there's going to be some people that choose to do it, and then some people that choose to not do it.
Stefan:
Okay. And you also mentioned that another characteristic of Web 3.0 is the quality of the experience. We're going to be entering into what I suspect will be a more interactive experience.
Will Wong:
Correct.
Stefan:
Where reality and a virtual landscape will merge.
Will Wong:
Right. So I think that's where the term metaverse comes from. I think our experiences will be much more immersive. I think the metaverse is a concept at this point in time. There's no such thing as the metaverse, even though some people may see the metaverse as something comparable to Ready Player One. I think we're not there yet. I think with VR and with, let's just call it XR, which covers AR and VR and all other types of reality, it's creating a different experience for us that is more immersive. So whether that comes in the form of a virtual world, or we're just playing a game, or me and you are just collaborating on something over a VR headset, I think that's the concept of metaverse and what Web3 can provide in terms of more immersive experiences.
Stefan:
Could you define metaverse in perhaps one to two sentences?
Will Wong:
Yeah. I think to me, what the metaverse means is a more immersive experience. Where people are able to use a different persona, whether they choose to or not, they could become somebody else. I think that is kind of the vision of a metaverse, where we can take on a different persona that we've always wanted to be. So we can see that manifesting itself in these virtual avatars that are musicians, and they can play 24/7. We're free to create these avatars or personas how we envision maybe ourselves, how we want it to be, or how we would live an alternate life. So to me, the metaverse enables that, and it doesn't necessarily mean that it's a virtual world. People use these personas for their Twitter profiles. They use it when they do interviews. So I think we're kind of touching the edge of some of these experiences now, but we're very early in terms of defining what's capable in the metaverse to create these immersive experiences.
Stefan:
When you were discussing Web3, you mentioned creating this virtual identity and being able to cross platforms with that virtual identity. I get the impression that the metaverse is very much about that ability to cross platforms and enter to say, different games with your avatar. I do wonder what this means for reality itself. For example, concerts. What does this mean for a concert? Can you attend virtually? Can you run into people? Can you meet people if you're there virtually, but they're there physically?
Will Wong:
Yeah, I think we're very early on, so the different possibilities are endless. I think right now they're having concerts in what they call the metaverse, where your virtual avatars gather to listen to a concert. But there's not a mix between virtual and in real life type of experience, it's all virtual or it's augmented reality. So I think augmented reality, where you superimpose some virtual elements into a physical space to create a richer experience, that's probably something that will come more quickly than people just jumping into a virtual world to experience a concert. So I think when we speak about metaverse and your example here, concerts, I think they're in the very near future, augmented reality can create some deeper experiences in just having physical, in real life concerts and not necessarily going into a virtual world.
Stefan:
Do we need some device to help us appreciate or participate in this augmented reality? You know what I'm thinking of specifically? I'm thinking about VR headsets. It's going to be a must. Or do you see this as just being one of the types of applications, one of the types of means of experiencing the metaverse?
Will Wong:
Yeah. Some of these virtual worlds such as Decentraland you and The Sandbox you can go into with your laptop. But I will say, using a headset to go into some of these virtual worlds definitely creates a more immersive experience, and I think that's where we're headed. But the headsets, they're expensive. So I think the barrier to entry, and it'll take some time before the headsets will become mainstream. But I think that's what Meta is banking on, is that the headset will become something essential to fully experience what the metaverse has to offer.
Stefan:
When we look at e-commerce, I mean, there seems to be a lot of potential here. What role will, say, brands play in the metaverse?
Will Wong:
I think the brands are looking to see how to reinvent themselves in the metaverse. Some of the big brands and fashion such as Gucci and Tiffany, they've launched their own NFTs. Some of them are using it as a loyalty program to reward their top tier customers.
Stefan:
Like an airline.
Will Wong:
Right, to give them extra value. And then some of the brands are using it to actually create digital wearables, such as accessories, clothes, shoes in the metaverse, which you can buy and accessorize and clothe your avatar. So while that may sound outrageous, with NFTs, it's possible to uniquely identify something you bought from a brand as authentic, even more so than it is in real life. So it's similar to in real life, it's a way for people to express their identity. So I think some of the brands are going there as just a natural extension to what they're doing in the physical world. But we're right at the beginning. So brands are creative. They'll come up with new things to leverage NFT technology and how to engage their loyal customers to give them more value. So I think we're just getting started on that front.
Stefan:
So this goes beyond marketing. Brands can essentially expand their goods offerings.
Will Wong:
Yeah. I think that they will find new revenue streams, new ways to reward their customers. And we're speaking primarily right now of obvious things that extend what they currently do. But there may be things, I'm sure there will be, that brands come up with that we've never even seen before, that draw no parallel to the physical world.
Stefan:
And how will this affect our conventional entertainment industries? And I'm thinking specifically film, television, and music. Music in particular.
Will Wong:
Right. Speaking at a high level, what NFTs allow us to do now is to put a tangible value onto something that was traditionally not as easy to encapsulate, right? So digital art is a good example. Previously, there was no way to identify uniquely a piece of digital art. Same with music. That's what happened with the proliferation of illegal downloading, because there was no way... You can still copy a digital song, but there was no way to identify what was authentic, what was original. So the days when people were collecting records kind of disappeared with the advent of digital files and digital streaming and digital MP3s. But with NFTs, that kind of comes back, because now we can uniquely identify a fixed set of digital assets that people can collect. So I think from music, from the art, the collecting of digital versions of that have become doable again.
And then from an entertainment perspective, a lot of artists have used NFTs to provide additional benefit to their fans. For instance, a music group can create an NFT that will give you a copy, original copy of their songs, but attached to it maybe a backstage pass when they tour the US. You're free to sell that to another fan if you don't want to attend a backstage event at one of the cities that you don't want to go to. So I think the NFTs and the transferability of the NFT and its ability to encapsulate and experience provides artists with a new way to provide value to their fans.
Stefan:
This discussion has really opened a number of doors for me. I'm looking at the metaverse slightly differently now. When I think about, let's say, musical artists, I wonder if this could go beyond simply providing some additional profit streams for artists. But it could go beyond to creating artists that are virtual. And perhaps the artist is relegated to their voice because they're represented by an avatar. And I'm just wondering if there is potential there, for example, for labels to just, if they're using virtual artists, then they can hold concerts regularly. What does that mean, for example, a famous artist that's in a residence in Las Vegas? Are they limited by the people in Las Vegas? Will they be able to expand access? Will that artist be competing with a virtual artist?
Will Wong:
Yeah, quite possibly. I think being an avatar has the advantage of, you could define it however you want. So in the music industry right now, there are great writers, there are great producers, there are great performers. And not everybody can be everything because due to certain limitations or whatever it may be. But I think with a virtual avatar, you can be everything. I mean, if you're a great songwriter and you have an idea of how you want it to be performed and you have an idea of what the avatar should look like, I mean, you could do that all on your own. There's no need to have all these different layers if you don't want it. We should also ask ourselves if labels are really needed. Labels traditionally provided this distribution and the ability to access their network, their connections to help grow the artists. A lot of that artists may be able to do that on their own.
And then as for whether artists will be competing with physical artists, I think the advantage of an avatar and a virtual artist is that they could perform 24/7 in multiple locations at once. So that's definitely an advantage. Multiple locations at once. So that's definitely an advantage that physical artists don't have. If it's done correctly and the experience is good, I don't see why a virtual avatar can't be just as good as a physical in-person entertainer. This is already happening. There are virtual pop stars, let's call them, that are being created that are building a name for themselves as we speak.
Stefan:
I keep thinking about Bruce Willis and how he sold his identity. So he will live on forever through future movies. Obviously the potential is there.
Will Wong:
Yeah, that's true. I mean, yeah, you can create an avatar that represents who you want to be, and yeah, it could live forever.
Stefan:
So before we leave the Metaverse, I do want to ask you one thing we keep hearing about gamification and how that's going to change the Metaverse. Do you have any thoughts on that?
Will Wong:
Yeah. I think a lot of crypto and NFTs and the Metaverse, and even our regular day lives, gamification is a big part of what gets us engaged, right? So I think that will become something that's critical, whether it's obvious or not, that leads us to enter the Metaverse and engage. Right now I think that is the problem some of these virtual worlds have is that there is no compelling reason to log in every day and explore these virtual worlds. They're just sparse and there're just no gamification to make it fun all the time.
Stefan:
Well, could you explain gamification?
Will Wong:
Yeah. To me, gamification means providing incentive or some sort of game, for lack of a better term, but incentive for somebody to participate. So crypto has been heavily driven by gamification, by incentivizing collectors or fans. They're incentivized to constantly engage because they're promised new things, new experiences. They want to get in early because they don't want to miss out on something coming down the road. So it truly is sort of an art to create this FOMO, if you want to call it, that leads people to keep engaging, especially as this industry matures, there's going to be more and more platforms and NFTs and different ways to engage.
So in order to differentiate, they're going to have to get creative in terms of how do you keep people engaged. Because I think, more than anything else, the NFT world is a game of attracting attention. There's just so many things going on. The attention span that somebody has on a particular project is so short. So the real challenge for any project in the Metaverse or in the NFT space is how do you retain the attention of the community so that it continues to grow. So gamification I think is really the key to that.
Stefan:
I want to take us away now from this big picture about Web 3.0 and the Metaverse and just go down to some of the basic concepts that we have mentioned or some that we haven't mentioned that are applicable. The first one I think that's usually considered critical from a lawyer's perspective is the term digital assets. Now, that's something that's not used a lot in the industry itself, but it's more of a collective term. But I would like to get your thoughts on how to best describe or your summary of what a digital asset is.
Will Wong:
I can describe it with an example. Imagine you go to your bank and all banks have a room or a vault with safety deposit boxes, right? So you go into this room and there's a wall of safety deposit boxes. Each one has a number. If you own one of these, you have a key to open one of these. So to me, that's a good physical analogy to what the blockchain is, right? So the blockchain is basically a digital safety deposit room where there's these different safety deposit boxes and everybody has a key. So you have a key that enables you to open one of these safety deposit boxes, which would be equivalent to an address or a wallet on the blockchain.
So you open this safety deposit box, and then within the safety deposit box, you can have maybe another key. You can have money, you can have jewelry. So to me, what I would consider a digital asset is the contents within the wallet on a blockchain. So within the blockchain, of course, everything is digital. Within a digital wallet, we could have keys to other wallets. We could have texts. We could have links to images, to text that live on another blockchain or on IPFS. So that's a file system. But to me, a digital asset is anything that lives within the wallet within a blockchain.
Stefan:
So it's essentially the information that's swirling around in the internet. We're talking, as you mentioned, text, images, obviously addresses. So it's essentially the building blocks, isn't it?
Will Wong:
Yeah. But then with the blockchain and with NFTs, everything has a unique address. So when you have a wallet address that points you to a specific safety deposit box, and when you open the safety deposit box, there may be another key in there, which is a unique address to another wallet. Or if you have an image in there or code, it's uniquely identified by that address. So I think what this has enabled is us to compartmentalize digital files in the internet and then assign an address to them so that they can be uniquely identified.
So that's why I think this opportunity is so massive because we deal with digital files every day. There's digital representation of a lot of things that we're not able to uniquely identify because you can just what they call right click save and then make a copy of it. So it's not possible previous to NFTs to really identify what was the original and who owns the original.
Stefan:
All right. Before we go on this concept of what NFT is, I just want to start at the most basic. What is cryptocurrency?
Will Wong:
So we did go over what blockchain is. So cryptocurrency is the native currency for a blockchain. So back to the analogy of the safety deposit box, if we opened up the safety deposit box, we could have money in there. So in the digital form, that would be cryptocurrencies. Bitcoin is or Ethereum is the native currency for those blockchains. What the blockchain does, in addition to just keeping track of where all the coins reside, also keeps track of all the transfers and all the transactions that go between the wallets.
Stefan:
So blockchain is essentially is part of the coding of the cryptocurrency, and it's there to facilitate the transfer of the cryptocurrency from one holder to another.
Will Wong:
Yeah. So the beauty of the blockchain, it sounds simple, the safety deposit box and the holding of cryptocurrency and the transfer of cryptocurrency doesn't sound complicated, but the beauty of it really lies in the fact that for public blockchains, nobody owns it. So Ethereum or Bitcoin, which is the most decentralized cryptocurrency, is managed by a community. The transactions and the balances are all managed through a beautifully designed system that self-manages. So nobody like a bank needs to be involved in order to facilitate the management of the balances or facilitate the transfer of any of the cryptocurrency within that blockchain.
Stefan:
So this goes to the heart of decentralization.
Will Wong:
Right.
Stefan:
What does it mean to have a manager-less process? What I gather from what you're saying, we have a system by which information is spread throughout the internet. So you have these different nodes that have or are acting as ledgers. They're collecting that information and they're keeping it. So you don't have one central authority, you have it spread throughout the internet.
Will Wong:
Right, exactly. So with Bitcoin, there are many nodes that have a copy of the ledgers. So they have a copy of all the transaction and the balances so that there's a mechanism to validate the balances and transactions across the nodes so that everything remains consistent. It's decentralized from the point of view that all these nodes have a copy and there's no one node that controls the only copy. Then there's a mechanism which they call consensus mechanism in which new transactions are written to the ledger and then copied to all the different nodes.
Stefan:
Aside from the transfer of cryptocurrency, what other uses do you envision? I shouldn't say envision because I recognize that blockchain is now being used for a number of other purposes. But when we look at Web 3.0, I understand that there's huge potential out there in exploiting blockchain. So I'd like to get your thoughts on what potential uses are out there.
Will Wong:
Yeah. So the development that has led to the ability to create new use cases on the blockchain is what we call smart contracts, right? So smart contracts allow code to be executed on the blockchain without somebody running it. So that has led to different various types of smart contract standards or protocols that have been written that define NFTs and other protocols. So that is really where things start. So NFTs was born from creating a different type of token off of a smart contract. In the future, I don't know, there will be people that come up with different use cases for NFTs and different tokens.
But right now I think there's been a number of different types of tokens that are built upon the blockchain that are used for, we can get into it for DeFi, for NFTs. There are tokens that are used to tokenize physical assets as well. So there are platforms out there that allow say a house to be fractionalized and represented by a token, and then the token would represent your equity in a house and could be transferred to a different owner. So those are just some of the applications that people have come up with using blockchain and using and building their own tokens with smart contracts. But with smart contracts, that is really the creative platform that people can use to create new use cases that I'm sure many more will come in the next few years.
Stefan:
What is the token?
Will Wong:
So we went over what a cryptocurrency is. Cryptocurrency is a coin. A coin and a token from a technology perspective, there is no difference. A cryptocurrency is the native token for blockchain such as Bitcoin and Ethereum. A token is people generally refer to it as an address of an asset built on top of a blockchain. So we talked a little bit about smart contracts and how we can build different types of tokens, NFTs. We could build tokens that represent real world assets. Those would be called tokens that are built on top of a blockchain that are not native tokens. So we could build an NFT in Ethereum that we would call a token, but Ethereum would be the native coin or token for the Ethereum blockchain.
Stefan:
There are a lot of articles that discuss equity tokens and utility tokens. Could you differentiate those?
Will Wong:
A utility token, I'm thinking you're referring to the fungible utility tokens, also referred to as alt coins. Equity tokens, in the example I gave with the house would be an example where we could use a token to fractionize a house so that each token owner is a part owner of the house. So that's an example of an equity token. Utility tokens are generally used to incentivize usage within a platform. So there are many, many of these tokens. These are built on top of a blockchain and used to incentivize the usage of a platform. So if we imagine a community, community may create a token to incentivize usage. So for example, you may want to create a Stephan token, and then anybody that wants to use Stephan token to pay for your services, they would get 10% off. So that's an example of tokenomics and somebody creating a token to incentivize the usage of the token to potentially incentivize people to use your service because they would get a discount if they use the token. A utility token is one example of how somebody would use a utility token or why somebody would create one.
Stefan:
I want to get onto NFTs. We've talked about that a lot today, and right now, it is the token that I think is getting the most attention in the marketplace. Could you describe what an NFT is?
Will Wong:
An NFT is actually a token as well, but it's a non-fungible token. So some of the tokens we mentioned before were fungible tokens. Fungible means that every token within that collection are the same. So Bitcoin is a fungible token. If I have one Bitcoin, it's one Bitcoin, it doesn't matter which Bitcoin I have. So with NFTs, they're non-fungible tokens. So non-fungible means we can't just swap one token for another, they won't be the same. An example is if we had an NFT collection that represents a sporting event, everybody has a token, an NFT, that represents a seat that they have at the event, people could not just swap their token for another token because that would mean you get a different seat. So with NFTs, the non-fungible aspect, that's what it means, is that each token is unique and cannot be just swapped for another token within the same collection and represent the same thing.
Stefan:
So essentially we could just call it a unique token or one of a kind token.
Will Wong:
Yeah. Right. Exactly. That's a good way to put it.
Stefan:
You're currently investing in NFTs.
Will Wong:
Right.
Stefan:
Why?
Will Wong:
Good question. We're investing in NFT art primarily. We feel that the art industry has an established collector base of art. People have been collecting art for a long time. NFTs have allowed the ability to extend this to digital art. Previously, digital art was just a file. There was no way to uniquely identify it, so there was no scarcity. If you had a file, you could just right click save and make as many copies as you want, and there would be no way to restrict or to identify which ones were the original. So we feel that NFTs have allowed us to do that, and combined with the existing art industry and the desire for people to collect art because it evokes emotion, we feel that was a good use case. Or maybe the first real use case in cryptocurrency or tokens that really brought in the mainstream, people understand collecting collectibles and collecting art. So to us, that was what was attractive, that it was a use case that people could relate to, there was an existing audience for it, and we feel that subsection of NFTs is here to stay, and that's why we focus on that.
Stefan:
I understand that NFTs can include static images, moving images, audio, but all of those can be viewed by any party. At the end of the day, if you own a particular, let's say it's a static image, say it's a picture of an ape, you can own it, but other people can look at it. And I recognize that you mentioned that we're past the point of somebody being able to right click and save and enjoy the work whenever they want. We might be past that, but can't any user on the internet simply view or enjoy whatever unique aspect of the NFT that's out there when they go on their computers?
Will Wong:
Yeah, that's the great part of NFTs versus physical art, is anybody can download the art and enjoy it and see it in its full glory, that it's not restricted in any way if you were to just download a copy. Whereas if I owned a Van Gogh, a physical piece of art, it resides on a wall somewhere, and in order to see it, you would have to physically go to the location to see it. So I think that is one of the advantages of digital art, is that anybody can enjoy it if they have a computer. And I think a lot of people ask, "Well, doesn't that diminish its value because somebody could just right click save it, so everybody has it?" I think it comes down to social acceptance. People want to know that they own the original, and the NFT allows them to prove that they own it. And buyers are buying things that people can identify with an NFT. I think it hasn't diminished the value at all because people are okay with buying an NFT, even though people can right click save it. I don't think that that has diminished the collector base from paying a lot of money for some of these pieces.
Stefan:
So the allure of acquiring an NFT is not being able to access the NFT itself at any time, it's the bragging rights. It's being able to indicate that you have either ownership or exclusive license or whatever over that particular unique aspect of the NFT.
Will Wong:
Yeah, correct. So no different than one of the reasons people buy physical art, what they call flexing, is the bragging rights to say you own a piece of a rare piece of art. And now we can say that in the NFT world, even though you can right click save, you can say you own a scarce piece of a collection or a piece of art that is unique. And I think that's the allure of a lot of these avatars as well. If you look at the Bored Apes and the CryptoPunks, that's why people want them as their Twitter profiles, even though you can right click save, but if you can verify that somebody owns a particular Bored Ape or a CryptoPunk, that's bragging rights, and that's why people use it as their Twitter profiles or whatever profile pictures that they have on social media.
Stefan:
So when you're acquiring digital art, aside from the art itself, what else are you concerned about? What are you looking for?
Will Wong:
From my investment point of view, we're not necessarily looking to buy and hold art forever, we're looking to buy at a good price and potentially sell when a good price comes about. So we're looking for liquidity. We want to know there's a market for the art. We may love something, but if there's no liquidity for it, then we're not going to buy it. Because it is digital art, provenance has a big part on valuation. So there's platforms out there that are known as blue chip platforms, and the value of the art that gets curated or produced on those platforms are generally more liquid, they hold their value better, they're priced higher. So that's something we also look for. And we also look for, there's definitely artists that have built a brand for themselves, so we want to invest in artists that are considered early to the game in terms of generative art, AI art. So we're looking for the pioneers or OGs and their various genres, because we feel those are going to be the most valuable pieces of art for years to come.
Stefan:
And you mentioned providence. What I wanted to do was just mention how in classical art, that is the recorded history of the artwork to demonstrate authenticity. But essentially we're doing that here with blockchain, right?
Will Wong:
Yeah. Traditionally, it's the history of the transactions for a piece of art, in physical art. So that is true within digital art, we can see all that, it's all transparent, so we can see the history of the transactions for a particular piece of art. But also, it's important where the art is first launched or minted. For generative art, Art Blocks is the blue chip platform, it was kind of the pioneer that launched generative art. So artists may create something that's generative art, but there's a big difference in the price of that piece of art if it's on Art Blocks versus some other platform or self-published. So that's what provenance also means in digital art is just how it came to the market.
Stefan:
So the portal that you use can significantly impact the value, especially if someone's self-publishing.
Will Wong:
Yeah. Why it affects the value is some of these platforms are respected for the art that they curate. So the art that comes out through these platforms are curated by the platforms and selected, so their curation is respected, and that gives a higher value to art coming through these platforms. It's not available to all artists, so it's selective. They select the art that they want to publish through their platform. So some of the platforms like Art Blocks, they, they've been around and known as the blue chip platform where the best generative artists will get published.
Stefan:
Well, Will, thank you for your time today. The information was very thought-provoking and really does highlight the opportunities that are abound with Web3. I think the discussion today really demonstrates that there are a lot of implications with the technologies as they are developing right now, and they will have a profound effect on how we engage in eCommerce, how we interact with each other, how we are entertained, and how we entertain others, and how we invest. So from a legal perspective, there are a lot of topics to cover. Hopefully today's episode provided everyone with an understanding of what these basic concepts are and where things may be going. In future episodes, we will be discussing the implications from a legal perspective. And on that note, I bid you all farewell.