(Editor’s note: transcript edited for clarity.)
A New Appreciation: An NFT Primer to Fine Art, Real Estate, Music and More
Hi, and welcome to Pillsbury’s Industry Insights Podcast, where we discuss current legal and practical issues in finance and related sectors. I’m Joel Simon, a finance partner at the international law firm Pillsbury Winthrop Shaw Pittman. Our guest today is Cydney Tune, the leader of Pillsbury’s copyrights practice group and the media and entertainment industry team. Cydney’s practice includes a wide variety of intellectual property issues including copyrights and trademarks, as well as a broader array of entertainment, licensing, and ecommerce matters. She represents clients across many different industries and chairs PLIs, technology and entertainment convergences annual technotainment all-day program, which draws multiple hundreds of attendees. Welcome to our podcast, Cydney!
Cydney Tune: Thank you! It’s great to be here with you today.
Joel Simon: Our discussion today is going to touch on a number of things that are a mystery to a lot of people. We’ll focus on non-fungible tokens, known as NFTs, and in the process, can’t help but mention blockchain and cryptocurrencies. Cydney, I read recently that the technology for an NFT has existed since 2010. They went mainstream in 2017, and this year, NFTs have already generated more than $2 billion in sales. So this is definitely a topic that people should get up to speed on. Let’s start with the most basic question: What is an NFT?
Tune: In essence, an NFT is a digital asset that represents something of unique value. If you can digitize it, you can turn it into an NFT.
Simon: With NFTs being digital assets, how do people keep track of who owns them?
Tune: An NFT is stored on a digital ledger known as the blockchain. This gives it the ability to maintain a record of ownership and also acts as a certificate of authenticity.
Simon: I think I know just enough to introduce what comes next, and then turn it over to you. People buy and sell NFTs on NFT marketplaces using cryptocurrency and then the transactions are on platforms that are on the blockchain. Without going down a rabbit hole, for those listeners who might not have encountered any of this before, can you give us a quick explanation of what all that means.
Tune: Sure. You’re going to need to know a little bit about blockchains, cryptocurrency, cryptocurrency chains platforms and the online marketplace where people buy and sell NFTs in order to put it in context. In its simplest terms, a blockchain is a system of recording information in a way that makes it difficult to change, hack or cheat the system because it’s essentially a system in which there’s a digital record of transactions that are duplicated and distributed across an entire network of computer systems on the blockchain. It’s a form of peer-to-peer file-sharing network, but focused on cryptocurrency exchanges. As for a cryptocurrency exchange platform, that’s a platform that facilitates the trading of cryptocurrencies for other assets, including digital currencies such as bitcoin for example and fiat money. In effect, the cryptocurrency exchange acts as an intermediary between the buyer and the seller and makes its money through commissions and transactions. Now listeners might be wondering what the heck is “fiat money.” It’s a government-issued currency not backed by a commodity such as gold. Fiat currencies have been in the United States since 1971—and modern paper currencies are fiat currencies. For NFTs, Ethereum is the exchange platform that is used most actively. (There are also Coinbase, Ripple and others.)
Simon: To clarify, the U.S. dollar became a fiat currency in 1971 when it came off the gold standard?
Tune: That’s right.
Simon: Great, thank you. Thanks for all that Cydney on the background. Now we get to the good part of the discussion which is the transactions and the markets.
Tune: Yeah, there’s been a lot going on, a lot of excitement, and as usual when the money gets big, people start taking notice. As you mentioned earlier Joel, NFT sales have topped two billion dollars. In the first quarter of 2021 alone according to nonfungible.com. And although the sales and prices have been dropping from their highs in February, $2 billion in a quarter is a lot of money. In fact, this is more than 20 times greater than was achieved in the prior quarter. As far as what the motivation is, the CEO of SuperRare has said that buyers are motivated because NFTs provide a unique connection to the creator that doesn’t exist in other artforms.
Simon: What industries in particular have been involved with NFTs so far?
Tune: Lets start with visual art. There was a sale recently at Christie’s. Beeple is the name of the digital artist. He sold an NFT called Everydays: the First 5000 Days for $69 million. It was a first-of-its-kind auction at Christie’s. On the other hand, it’s a lot of work—it’s a collage of, as the title suggests, 5,000 days of work.
There is José Delbo, an artist who started selling Wonder Woman NFTs. He was an illustrator for the comic books in the ’70s and ’80s and recently sold $1.85 million worth of Wonder Woman NFTs. NFTs have been very popular in music, as well. The estate of MF Doom, who passed away in October 2020, recently sold one-off editions of augmented reality versions of his signature mask. (MF Doom was an early adopter of NFTs.) And they sold between $18,000 and $857,000 each. Shawn Mendes has a genies collection of NFT. Genies are actually official avatars for the world’s biggest icons, and they use them to bring “real world utilities” to the NFTs—you can buy Genie wearables for you to use to adorn your Genies. You could get a Shawn Mendes genie and then you can buy NFTs that allow you to provide him with outfits and such. The band Kings of Leon did a very interesting NFT offering recently in March, where they offered their newest album as a NFT and they dropped three different types of tokens as part of that effort. One of them was a special album package, so it has certain extra visuals and what-not. The second was a golden ticket. They sold two of them with live-show perks that come with buying the album, including guaranteed front row seats to one show of every headline tour for life. One week after these were offered, they had generated $2 million.
Simon: I know that there has also been activity in the sports world. Maybe you could give a couple of examples there?
Tune: Sports is another area where it has really exploded. LeBron James is in on the action. NBA Top Shots are digital, like a digital sports collectible card, but it’s actually a little video clip of a particularly memorable shot in a NBA game. LeBron has sold one of his Top Shots—a dunk where he was emulating Kobe Bryant’s reverse windmill dunk—for nearly $400,000. Tops, one of the main offeror of baseball cards, will start selling official blockchain-based versions of classic Tops baseball cards which of course has some traditional collectors concerned. And then one of my favorites, there are digital horses, are the talk of the crypto world. Horse racing meets NFT mania. There is a digital horse racing platform. Owners pay a modest fee to enter their NFT horses to compete, and they compete in one event every hour all the time, seven days a week. It’s really interesting to me because these are what they call a breathing NFT. By that they mean that each NFT has its own unique DNA. It can breed, it has a life of its own, it races, it has genes it passes on. It lives in an algorithm, so no two horses are the same and owners can breed their NFT horses on the hosted stud farm.
Simon: Wow that sounds like the NFT version of the Sims video game. Really interesting.
Tune: Yeah, then there are some “odd NFTs” (my categorization). They are not a particular industry necessarily, but they are kind of interesting. Jack Dorsey, the founder of Twitter sold his first tweet ever as an NFT for over $2.9 million. His first says and I quote, “Just setting up my Twitter.” There is a fellow in San Francisco who is planning to offer NFTs of leases for rooms in his co-living community, starting at $300,000. There was a couple in California I know in March that exchanged virtual rings on their smartphones. There was a cat meme called Mayan Cat meme, I don’t know if you’ve ever seen it Joel, it’s very primitive looking, pixelated. It’s now become an NFT that the creator sold for $580,000 in February. And then finally, one of the more interesting ones, when the lockdown started last March, there was a Brooklyn filmmaker and four of his friends who were kind of bored. So, they decided to send audio recordings of their farts to one another. One year later, the filmmaker decided to auction 52 minutes of audio flatulence as an NFT called “One Calendar Year of Recorded Farts” later selling it for a whopping $500.
Simon: Wow, I guess that last item shows that no matter how advanced the technology, there will always be a bottom end of the market to contrast with the higher end items. Cydney thank you for a really enlightening discussion on a topic that is sure to continue to make headlines in the world of digital assets and finance. It’s been great having you on the podcast today.
Tune: Thanks Joel, it’s been fun talking to you today and its really quite an interesting topic to keep an eye on.
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