The Future of NFTs

3.5.2021 | Fred Ehrsam

The future of NFTs and what that means for creators, developers, and communities. With Blake Robbins and Reed Duchscher (manager of MrBeast).

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Transcript

Reed: [00:00:00] Hey! Welcome back to Creator Economics! Our next guest is a good friend of Blake & I — Fred Ehrsam. Fred is one of the most brilliant minds in all of crypto. Fred is best known for being the co-founder of a company called: Coinbase. He is also the co-founder and Managing Partner at a venture firm called: Paradigm.

Fred: [00:00:37] Pleasure to be here! I would talk to you two even if this wasn’t some kind of a show, so I feel like this is the best kind of thing to do.

Reed: [00:00:46] I touched on it briefly, but can you give us a little bit about your background and how you got to where you are today.

Fred: [00:00:55] Yeah, sure! Like most people, I grew up playing way too many video games as a kid. I was a semi-professional gamer in high school. This was back in like 2005 before esports was a thing. So I went to school (Duke), and I did computer science because I kind of grew up on the internet. After school, I got what I thought was the intersection of a job that seemed like playing a video game and a legitimate career. The overlap of those two things, in my mind, was being a trader at Goldman. I ended up at Goldman Sachs in New York, where I was trading foreign exchange. It turns out that game wasn’t quite as much fun as I thought it would be. Most of the territory on the map was already explored.  I was sitting there bored on the nights and weekends. One night, I discovered crypto on a Georgetown professor’s blog. I started trading crypto around at work, in the bathroom, on my phone. I eventually got bored at Goldman Sachs and decided to move out to California. After moving out, I met my future co-founder for Coinbase on Reddit (2012). A few years later, we have Coinbase. Three years ago, I started Paradigm, which is an investment firm that just does crypto.

Blake: [00:02:20] That’s crazy. I never knew that you met Brian (co-founder of Coinbase) on Reddit. I have so many questions, but…first, what games were you playing in 2005?

Fred: [00:02:30] There were three big games for me. The first was this obscure first person shooter called America’s Army. I was on the best team in the world at that game. The next was Call of Duty Modern Warfare. I’d scrim with pros in that. I also played way too much world of Warcraft. Literally. Probably spent three or four thousand in World of Warcraft and then another three or four thousand hours playing the first person shooters. Candidly, I think gaming helped me understand crypto a lot better. In games there are virtual items and virtual currencies in these games. When you live in the metaverse as a kid, the prospect that everybody might do something like that one day starts to seem a lot less weird.

Blake: [00:03:12] Yeah. I’m similar. I was born and raised on the internet. I also play way too many games. You and I have talked about this countless times too. Specifically, Counter-Strike skins and how that feels like a foreshadow into this world. I’m curious though. Did you find your co-founder for Coinbase (Brian) on the Bitcoin subreddit? Did you just post: “Hey, I’m looking for other interesting in people that are spending time in crypto?”

Fred: [00:03:44] Yeah, if you roll the clock back to 2011, Bitcoin was the only cryptocurrency that existed. It was only talked about in two places. One place was a really old school PHP forum called Bitcointalk.org. That’s actually where the HODL meme came from — a drunk guy, randomly posted HODL on that forum way back in the day. And then the other place was the Bitcoin subreddit. The reality at the time was probably 80 to 90% of people on there were crypto anarchists and had no idea what was going on. However, 10 to 20% of the people on the subreddit potentially saw the future. Brian and I met in that context. I remember going to the first Bitcoin meet-ups in San Francisco. For context, this was early 2012 and they were in a furniture showroom that opened up at night for extra cash. No exaggeration, I think roughly a third of the people who showed up were homeless. They just wanted the free food and booze. Bitcoin and cryptocurrency was very non-obvious at the time. That’s the magic of the internet though, right? You can meet people who are very intelligent and have these very disparate or non-mainstream points of view and and start to create something special with them. For example, that’s how Blake and I met. We met on Twitter, and we were originally Twitter friends. I had a mutual friend of ours, Jackson, stay at my house for the last week who I met through you as a Twitter friend. I think a lot of people underrate how important the internet is for forming connections in the physical world nowadays.

Reed: [00:05:45] Completely agree. I’ve met some of my closest friends on Twitter. And now actually from League of Legends, you get in these random lobbies with another friend and they have their friends playing with you. All of a sudden, two years later, you’re like, wow, I’m still talking to this person who I’ve never physically met, but we’ve have played over a hundred games of League of Legends together. I want to piggyback on a few different questions about crypto. I think right now it’s an interesting time for crypto. As we are having this conversation, I think Bitcoin’s at 49,000 as of today, where do you think we are in like the crypto lifecycle? Are we still incredibly early?

Fred: [00:06:32] I increasingly have thought about crypto in three stages of development. The first is a new digital money. The second is a new financial system. The third is a new broad internet application platform. If I had to guess, and these are highly speculative because with any new foundational technology, it is very hard to predict the future and where you are on the trend. But…if I had to guess: We’re probably order of magnitude 10% into a new digital money. We’re maybe one tenth of 1% into a new financial system. And we are effectively at zero on a new internet application platform. It’s super early.

Blake: [00:07:19] I’m curious…you’ve been through so many ups and downs over the past 10 years in crypto. I imagine there’s still going to be rocky waters moving forward and all of that, but what gave you the conviction to devote your professional career to crypto back in 2011 or 2012? Has that come through? Or are you still like: “Okay. We’re not even at that point that I believed was going to happen.”

Fred: [00:08:00] I’ll say two things. As time has gone on, my conviction is crypto working and the scope of what I think that means have gone up substantially. I think that’s a very cool phenomenon that exists for any huge fundamental technological breakthrough. At the beginning of any technological breakthrough, it is very hard to predict all of the first, second or third order effects. In the context of crypto — I thought it was just going to be Bitcoin and it was just going to be digital money. I thought we’d be doing some cool internet payments. It’s hard to imagine building a new financial system from the ground up or building a whole new internet application platform. We’re at like 0% on some of these trends. We’re just seeing the tip of these things. The other thing I would say is I’ve been in crypto for 10 years now. I’ve experienced some pretty intense ups and downs. At times, crypto has felt stratospheric at many times. Other times, everybody thought it was dead. There’s something very cool about going through that kind of volatility and experience. Brian and I use the analogy that: It’s as if you’re a rubber band and at some point you just get stretched so many times that things tend to not phase you anymore. It’s, it’s been very, very gut wrenching, but I also wouldn’t trade the experience for anything.

Blake: [00:09:50] Yeah. I literally can’t imagine. I watched a lot of this from the sidelines, but there were some real moments of: “This is going to the absolute moon.” And then there was some moments where it felt like everyone was just kicked in the stomach, and people were stuck questioning: “How do we recover from this?” It’s been amazing to watch. I respect the hell out of you and everyone else that’s worked so hard to continue to push this forward. It feels like we’re finally in this moment right now where Bitcoin is now a thing and at the very least is a store of value. It took 10 years to get her though. I’m curious how long it will take for these other stages of crypto to develop?

Fred: [00:10:42] That’s a good question. I started an investment firm premised on the idea that crypto would be the most important technological trend of the next 30 years. I think it will play out, at least over that timeframe. We are probably 25 years into a mainstream internet and it feels like we’re just getting started there in many ways. I think it’s going to take a long time. The crypto maximalist world view is: Crypto in retrospect is obvious as a mainstream digital money and store of value. Of course, we want an open standard for digital money in a digital world. Why would we not? I think that thought might seem crazy to some today, and it’s certainly seemed crazy to almost everybody four years ago. However, it might seem extremely obvious in retrospect. This is the thing about crypto and any new foundational technology. Generally speaking, you have to accept the initial premise of the new technology for your mind to be able to get to all the steps after that kind of foundational layer. For example, let’s say we are living in a world where there’s a new digital money in the world: People probably want to do stuff with their new digital money like they do in the current financial system with their regular money. That also means we probably want a financial system that is built on top of the new digital money and interacts with it natively. That’s the beginning of what we see in DeFi and crypto today. I think DeFi has a cute and somewhat obfuscating name for what’s actually occurring there. DeFi has gone from zero to almost $50 billion in user assets in the last two and a half years. It looks like a classic product market fit graph. It’s exponential. Up and to the right. I think people still may not grasp the magnitude of what that could mean in 20 years. I think the crypto money thing will take 20-30 years more to play out, easily. The new financial system will take the same amount of time. And the new application platform, will take at least 20-30 years. We are just starting to see the canaries in the coal mine: TikTok almost got censored across nation state borders, or the President got de-platformed, not only from every major social site, but also Amazon Web Services. I say this independent of political view. The takeaway from looking at all of that is if you want to build a truly global application, crypto might be the only way you can do that now. That doesn’t even touch all the power that crypto has, where you can build economics directly into apps. You can own all sorts of things, including digital money and digital items like NFTs. If you’ are picturing a world where we are living in a Ready Player One Metaverse, you definitely want it to be on some neutral platform where you can own all your own stuff. I don’t think we want to live in like Facebook town — if it’s our whole life and they could delete your character amongst other things. In any case, it’s super early. The more that crypto develops, the more clear it is to me that crypto is the open standard we’re going to use for money, information, any digital items. For example, NFTs are part of the tip of that spear.

Reed: [00:14:46] Let’s transition into NFTs. This is a question that I’ve gotten every hour of every day for the last two weeks from other individuals. We are now seeing creators like Logan Paul create NFTs. I think he used Bondly. We are also seeing Nifty Gateway be used. If you’re a creator, should you be pushing into NFTs right now? If so, what do you think that looks like? Is it on an individualized item or are you selling a lot of units? I think Logan sold 4,000 units of that trading card. If you’re a creator watching, listening, or reading this: what do you think they should start out with?

Fred: [00:14:13] It’s a good question. NFTs are just at the start. This period in time will be looked back on as a lot of short term irrational exuberance. This is similar to the beginning bubbles of crypto, where there were a million coins that ended up not mattering. Yet, the trend, is a paradigm shift in terms of how we think about media on the internet and it will be long and enduring. The nature of these sorts of innovations is that people try a whole bunch of stuff at the beginning, not knowing exactly what to do with the new form factor. They throw spaghetti at the wall. Most of it falls off, but there’s one or two things that ended up working and sticking. We are that beginning phase today. To answer your question directly of: if I’m a creator, what do I do? The first step is trying to understand why are NFTs powerful? What’s the nature of the new medium, because I suspect the most powerful applications of NFTs will be the ones that are uniquely enabled. It could be helpful for us to talk about what that looks. A lot of the stuff being created today won’t matter in a couple of years. For that reason, it can be dangerous to release an edition of a thousand for a piece of art. I think that’s probably going to be irrelevant for the most part absent of a few idiosyncratic exceptions. The really powerful stuff will be people using NFTs as a new digital medium and building things that wouldn’t be possible without this technology.

Blake: [00:17:40] Taking a step back, how do you think about NFTs right now?

Fred: [00:17:53] There have been a thousand thinkfluencer pieces over the last week alone about NFTs. And it’s unclear, what even is this thing? Here’s the way I think about NFTs: If Bitcoin changed the world by showing everybody that there could be an open standard for digital money, NFTs might change the world by showing everybody that it’s an open standard for any digital items. We are just at the beginning of what that means. If you look back in history, there’s always been a paradox in creating or capturing value around digital items. If you look at songs, even pre-internet, you need a song to proliferate in the world and get really popular for it to have value. You’ve gotta play it over the radio. People would copy the song off the radio onto a cassette and make bootlegs. In the internet age that went bananas with Napster. And there’s this weird inherent tension in there. Right? If you’re a creator, you want your work to spread really, really widely. That’s what makes it so valuable. At the same time, if it spreads like digital media where you can copy it infinitely for free then how do you capture any value? It seems paradoxical. It’s funny because our solution to that so far has been to try to let it proliferate to a certain extent, but to also try to restrict it. You have DMCA copyright laws or put it in a walled garden, like YouTube or Spotify or Apple Music. The end result is kinda messy. And of course there’s a lot of negative externalities to having these centralized gatekeepers of digital media. You guys work with these creators all day, so you know, the story much better than I do. My rudimentary understanding of these centralized platforms is that they are the modern feudal Lords of the internet. You pay them for protection so that they keep your digital media safe and put a garden around it that you can extract value from. At the same time, you become beholden to them. Your work can’t really leave their walls, your following can’t really leave their walls. It’s just kind of anti internet. You can’t build on top of it either. NFTs might solve that paradox. It might be that a piece of digital media can be used by anybody, anyone can build on top of it, it can get copied infinitely, etc. and that’s great…but there is still is just one owner. And that’s a way for the creators to capture value. We are very early in that trend because, just like early crypto, people have to care about NFTs in order for people to build broader platforms around them. It will take a number of years for this idea to catch on and it will seem like a toy at first. NFTs had to matter before a developer was going to come along and build the future Instagram or Spotify on top of them. That will take a couple of years. I think that’s what is going to happen over the next five years. Zooming way out, I think you can think of NFTs as internet native property rights. Where you get the best of both worlds: your digital media can spread like wildfire AND you can still be the original creator of it. You can still sell it to somebody. There will be all sorts of nuances layered on top of that, but that’s the core nuggets.

Reed: [00:22:05] I have so many questions. What do you think YouTube in 10 years looks like based on that premise? Like what do you think YouTube looks like in 10 years? Is there a situation where Mr. Beast could potentially sell channel by channel instead of YouTube the advertising rights to that video.

Fred: [00:22:29] The creator community has a good a view into this, so I’d be curious to hear what you guys think. In broad strokes, here’s what I think is going to happen: Now that NFTs work. You have a business model for creators to sell any of their digital work online. The next logical step from that in my mind is those digital works will ultimately flow up into a creator token. We’ve all talked about this a bit. Blake and I have been in a side chat for a year and a half musing about how could a Mr. Beast coin get created. We always suspected it would happen, but we didn’t know quite how. Now there is a straight line between NFTs and what gives a creator token value. For example: Let’s say that a creator can keep a 10% cut of any NFT that they sell. That 10% cut can just flow up into the value of a creator token. All of a sudden you now have an asset that represents you as a creator. That asset is also native to the internet.  That is really important because I think that is the beginning of disintermediating the need for a central platform around a creator. You won’t need Twitter or YouTube to amass all your followers. It’s like using crypto wallets. If you imagine that every user on YouTube are represented by a crypto wallet, as is the creator. All the followers are just the crypto wallets following the address of the crypto creator. You won’t need a central platform for the social graph anymore. I think that’s where we are heading. It’s an economic model and it’s a way to directly own your community and following. The crazy thing about this paradigm is all the media is open, so people are going to try to build a million different platforms around it. Who knows? I couldn’t tell you what the future YouTube looks like. My brain isn’t big enough for that. I do know …or one thing I will say is this new architecture and the power of it — is something that I have high conviction in.

Blake: [00:25:00] Do you think there is a world where Mr. Beast makes a video and he actually turns that video into an NFT. Maybe it gets posted on all of these random sites and maybe the marketplace just become the place where you consume it? Maybe you are watching it on Nifty Gateway or Zora? And, he can sell the rights to that, or maybe he just doesn’t even sell it? But, there is a piece where the video itself has an NFT. And if you buy a chunk of that, then you get access into the Beast token and then you can get into his private community. That’s at least one idea that immediately came to mind when you were talking about this. And I think right now we’re seeing NFTs as just pure static art. But I think there is something around maybe just make the whole video an NFT.

Fred: [00:25:57] Yeah, I think that’s spot on Blake. A number of things that you’re saying are really important. One is that marketplaces and platforms are getting smashed into one. Crypto embeds economics in everything, so I think that’s very right. I would also say it’s just, it’s so unpredictable what these platforms are gonna are going to look like. One thing that Mr. Beast has proven to be really powerful is: if you have a highly aligned community behind a creator they love that can create some really powerful businesses. Mr. Beast Burger is super innovative in this dimension. The reason why I think this is going to get really crazy is because the NFT model makes it so that the consumers of the product are also part owners of the product. What if all of Mr. Beast followers owned a piece of the Mr. Beast Burger business and it was digitally native? I think that’s where we’re kind of heading.

Reed: [00:27:20] You could completely tokenize a creator and every business they start in their career. Right? Could you actually just create a token associated with that creator? They wouldn’t even need to potentially do sponsorships on a per video basis because as the value of that creator goes up, the value of that token rises.

Fred: [00:27:50] That’s right. We are going to get all sorts of new behaviors out of these highly aligned creators and their communities that we could never have predicted. I think there’s little spots on the internet today of this. If you look at things like Twitch Plays Pokemon, or Mr. Beast Burger, or even Wall Street Bets. These are sort of the canaries in the coal mine of how much people find purpose in these communities. These are the very early signs of the potential economic power that exists behind these highly aligned communities and how crazy/creative they can get together. The thing that we haven’t really had yet — Wall Street Bets was the first kind of outcropping of this — was some economic alignment behind the community where if it worked, they all benefited. I think one could take a pejorative view of Wall Street Bets and say: “Oh, this is kind of like a short term, zero sum game.”  Which may be true, may not be true. But what I do know is… It demonstrated that on the internet, a highly aligned group of people with a shared purpose community and mission is really powerful. The opportunity for creators is to harness that kind of alignment and power through a crypto token. That’s where we’re headed.

Blake: [00:29:20] We have talked about this a bit offline, but it feels like social tokens are the next wave of all of this. You will finally have this incentive, where you are staking or betting on the upside in their career. You can imagine that if Reed started a YouTube channel tomorrow and created a Reed token. People would buy-in. They are going to be far more aligned because they’re going to have upside in that moving forward. I think we’re going to see these new creators emerge that are very Wall Street Bets-esque where the community is like: “Hey, we own like 50% of their upside — let’s go and make sure this person is like the biggest creator of all time.” I think there’s going to be some really interesting ripple effects that happen around that.

Fred: [00:30:12] Yeah, it’s a shared mission. The thing hat crypto on social media has shown in a comical and almost cringe-worthy way is once people are economically aligned, they become your distribution. One thing that I thought was funny, I was scrolling through Elon Musk’s twitter feed the other day. And if you look at the engagement on his tweets, the most common response by far is Dogecoin memes. I would bet that if anybody with a large online following just tweeted the word “Bitcoin” alone. That’s it. That’s the tweet. It will get more engagement than any other thing they’ve ever done on social media. It just shows the power of what happens when there is economic alignment with the community behind these things. I think that force could extend could extend quite far. It might be the way these new kind of digital companies or collectives get started. Perhaps it starts with a creator launching some kind of community, and it grows into this big, weird, amorphous kind of decentralized company. Almost like a subreddit where they start the fire, but just like any company — they might be the minority of what actually pushes it forward over time.

Reed: [00:32:03] Yeah. You and I talked about this a little bit and I think the interesting thing about Elon is like people can invest in Tesla. I think people are really looking for a way to invest in these individual creators. It’s also goes with my thesis. That was why I started Night Media. I think that loyalty to brands is ending and now it’s loyalty to the individual. And creators are kind of at the forefront of that.  So this is all really interesting to think about. Social tokens is incentivizing fans to feel invested. Like they have that deeper loyalty. And that’s like, where I see this whole industry going. There are probably 10 to 15 creators that are kind of sitting at the top that have massive communities. Now they need to start figuring out like how they turn these into real businesses or how they allow their fans to get deeper involvement.

Fred: [00:33:03] Yeah, that is spot on. I think you’re right that people want to feel invested. The one thing that Wall Street Bets showed is that people are seeking purpose increasingly through the internet. Wall Street Bets is a mix of economics (a way to make money) and finding community (purpose in life more generally). The same is true of what you’re saying — where brands feel corporate now, but creators feel authentic. And that’s sort of your thesis with Night Media. You said: “Feel bought in.” I think the interesting thing about crypto is that they actually are bought in. It’s real economic alignment. That is the rocket fuel that has been shown to be really powerful in crypto. And I think the same thing could start to be true of these creators and their communities.

Blake: [00:34:13] I’m curious if, if we go back to NFTs as a concept. Right now, the people who are skeptical are saying: “Oh, I can just copy and paste this image, or I can go and copy and paste this video or whatever.” Right? Obviously that’s very lazy, but I’m curious from your side how you would respond to that. You touched on it a little bit of how people will do it with cassette tapes and music back in the day and that music or that artists still succeeded. I’m curious how you view it just in general with NFTs today, because that is, I think the very simple view that some people are taking on it.

Fred: [00:34:52] Look, it took me a while to get over that same hurdle. It goes back to the paradox of digital media. The whole point of anything digital is that you can replicate it for zero marginal costs. At the same time, anybody who spent time in digital worlds knows that digital scarcity works. Bitcoin showed that. It has been shown to work in video games too with skins. Ultimately, I think it works in the art market too. For example, let’s say there was an original Picasso painting. And then there were a bunch of replica Picasso paintings, but only one was actually created by the real Picasso. I think we all have an intuitive answer as to like what accrues value. I think the same thing is going to exist in the digital world. There’s going to be only one or a series of works that are minted truly by a creator, whether it’s a blog post, a piece of music, album art, a 3d character to be played in a video game, etc. People will look at that and say, this actually was made by the creator. That will be the schelling point for attention. That’s the thing everybody’s going to say is real. And there’s a mental leap there. I also think it’s really early. I’m not sure if NFTs will be a panacea for everything. One way to think about NFTs is that it’s more akin to a patronage model. e.g. As somebody who loves this piece of work, I’m going to buy it. And perhaps that’s less mainstream than everybody paying for music on iTunes through a subscription service that’s enforced by copyright law. I do suspect it will go further than that though. And here’s why … We’ve seen with video games that people like to play games. They like to enforce rules around reality to make things fun. Imagine playing a video game or a board game where there were no rules, it would just suck. I think that dynamic occurs again and again in gaming and, and just sort of in life broadly. And I think that will happen here too. We will get the best of both worlds where people will allow these open standards to exist. Anybody can freely build anything. At the same time, I do think people will enforce standards just to create great digital experiences. I think the challenge to all this, which you can infer based on what I’m saying is: it’s going to take a while for all of these platforms to get built to give the NFTs more fundamental value. It’s just like Bitcoin in 2012. Some people own it. You can’t really do anything with it. It seems like a novelty. Everybody’s asking where is the utility. The answer is like there kind of isn’t any, except that there’s this future idea that these cool collectibles could be used fro a lot (including store of value or whatever). NFTs will seem like a novelty at first. However, over the next 5 to 10 years, people will build these apps. There’s going be games or the next version of Spotify or YouTube. Those platforms will start giving the NFTs value. And then the two enter a self-reinforcing feedback loop. The platforms will inform what types of NFTs makes sense and will give them value. And now that the NFTs have utility value and have a form factor that makes sense with the platforms, more people will build platforms for them. And off we go…

Reed: [00:39:05] What platforms should creators be looking at right now? What’s the easiest point of access, if they would like to mint an NFT?

Fred: [00:39:20] Here’s what I would say. If you believe that NFTs are extremely important and versatile building blocks that will be used and remixed to get put into all sorts of different applications and potentially your own creator token then… The most important thing is that you own your NFTs. You need to mint them yourself. If you don’t do that, you can’t roll them up into some future token that you own because you don’t own the original NFTs. To the extent that they’re not just simple, basic building blocks that exist for anybody to import into a new app, then future applications that import NFTs, aren’t gonna be able to use your stuff either. That would suck as a creator. Since all this NFT stuff is new, most creators don’t grasp how important it is that these are open and neutral building blocks for those reasons. My most important piece of advice is to mint and own your NFTs yourself. Some platforms let you do that. Others don’t. We are in a weird stage right now where people don’t understand that. I also think that it’s sort of like the service Coinbase offered with Bitcoin. People are conflating the open standard for the asset with the platform itself. There are platforms where they mint your works for you. That’s convenient, but you don’t own it anymore. That’s great for some because the platform is super user-friendly for both the creators and the marketplace users on it. To get more specific about this, I am very biased here. I think the best platform out there is: Zora* which is made by an ex-Coinbase designer and a couple of other ex-Coinbase people. The reason that I really like their approach is because it’s a protocol where you mint the NFT from your Ethereum account, which means you own it forever. If you want to do other stuff with it later, you can. And the other powerful thing about Zora is that it embeds the market for the NFT directly into the NFT… The reason that is important is because that means that there’s this marketplace for your NFT, that just exists on the blockchain. You don’t need any central marketplace to give it value. This creates wild dynamics. You can go look at any NFT minted on Zora and you can see who’s bidding on it. As a creator you can choose who buys it. Let’s say I’m some random creator and Virgil Abloh bids on my NFT. I probably want to sell it to Virgil, not random XYZ person. To summarize, Zora is an open standard for creating NFTs yourself and it’s an open standard for the markets around them. In my opinion, that’s the most interesting. It’s early as it’s an open protocol. The interfaces that are built on top of it are still being built. Over time, I think there’ll be like a thousand interfaces. And of course, there are other great players out there. Other marketplaces have been crushing it too, such as Nifty Gateway or Foundation. Again, I can’t emphasize enough how important it is to mint and own your own NFT

Reed: [00:43:10] Is Nifty Gateway, allowing creators to mint their own NFTs, or is it being minted by them?

Fred: [00:43:18] My understanding is that, today, Nifty Gateway is actually the one that’s doing the minting from their Ethereum accounts. This is great for convenience. I think it’s problematic for eventual, true artists ownerships — which is where I think we are going.

Reed: [00:43:37] Yeah. I think that’s a really important point. If you’re a creator listening, try to really understand who is actually minting and owning these NFTs before you jump in a relationship because you want to get something into market. I hope everyone actually takes their time and does their research to really understand the ecosystem.

Fred: [00:43:52] The other thing I would say is there is a lot of NFT mania today. I would really advise creators to not just go mint a hundred or a thousand of some random image. I think you’re going to end up with a bunch of community members who might think today, like: “Oh, this is going to be super valuable.” And then in six months to a year, it could be like meaningless and you have a lot of community members who are kind of pissed. The thing I would really encourage creators to do is to experiment in small ways, don’t go bananas. Try to get really creative with it. What is it that you can do with NFTs as a new medium? That could be really cool or is building towards something bigger. The best internet creators have a mind for that naturally. And then it’s just a matter of that developing over the course of the next couple of years as people try these little experiments.

Blake: [00:45:03] Yeah. I think it gets really interesting around like social tokens and membership products. Like if you have X number of these tokens or X, Y, and Z creators tokens, and you can get access to a private community and or maybe there’s gated content behind that. I think those pieces get really really interesting. I think it’s just another reason of why you need to be minting the NFT because if you’re not, then you might not have the control or freedom to do that moving forward.

Fred: [00:45:32] Totally. And the wild thing about these things is they take on a life of their own. For people who aren’t familiar. There’s this thing called Unisocks in the DeFi ecosystem. They are literally are pairs of socks. There were 500 created by the designer of, what is now one of the largest DeFi apps in Ethereum, Uniswap. Uniswap is a decentralized exchange. The point is that the the designer of Uniswap made these socks. 500 pairs, and then he created a token that’s attached to every pair. He launches the thing out there. It’s sort of like a joke or novelty at first. Guess how much one pair of socks of tokenized socks is going for right now?

Blake: [00:46:30] I know the answer at this point.

Reed: [00:46:32] Same yeah, I know because you just asked this. I I’m guessing it’s went up since we talked, but I think he was at like $166,000 last time. You and I looked.

Fred: [00:46:40] Yeah, it’s $125,000 right now.

Reed: [00:46:42] Okay. So it’s went down a little, I guess it was a different one. Maybe one sold yesterday.

Fred: [00:46:46] Yeah. In any case, I think the point is on. What we’ve seen with the Chinese version of StockX and the whole sneakerhead community is people love thinking about these collectibles as something that just represents a piece of their fandom. If you look at the sneakerhead community, there’s this whole keep it deadstock thing — where you never actually wear the shoes. It turns out the sneakers are actually traded synthetically more than people actually take physical delivery of the sneakers. It wouldn’t surprise me if we see the same thing happen with some of these creator tokens. For example, imagine if you create 10 tokens to have a 10 minute FaceTime call with me. Three people might use their tokens the first week after it’s launched. You can imagine being three years down the line and there’s like two of these tokens left and people might just like shove it under the mattress and view it as a store value. In the same way, that someone might collect a rare coin that the US mint made a hundred years ago. I think that’s another odd dynamic of what’s occurring here.

Blake: [00:48:10] Yeah, I think that’s spot on as far as just like the things that have gotten me the most interested. Especially Unisocks and that dynamic of where if you redeem it, then it destroyed on the supply side. And now there’s only 350 pairs that are actually left to be redeemed. I think it gets really interesting in the FaceTime example as well. Or maybe you can redeem the token to be in a video or I’ll fly you out for a fan experience. You can imagine those things happening. Those cashing in for a large, large amount of money. And again, it sort of indexes on how big this creator is or how big this collective is. And as a ‘buyer’ of these tokens you view it as “I know that Mr. Beast is going to continue to go up. And so this will only become more valuable to want to be in one of his videos” You’re either going to hold that, or maybe you’re just going to cash it in because you know this is a once in a lifetime opportunity. I think those pieces are just super interesting to think about.

Fred: [00:49:03] Yeah. Another funny form factor of this that I saw yesterday was on The Bored Elon Musk twitter account. They are selling a token that will allow whoever purchases the token to write the next tweet on their account. That was kind of taking off. I don’t know where it settled. I should probably look at it today.

Blake: [00:49:25] Wow. That’s super interesting to think about as NFTs or social tokens becoming a redemption mechanism. If you have this collectible, then it can be transformed into: you’re now in this elite group of collectors and being in this elite group of collectors, you have access to X, Y, and Z. I think that piece feels like the next wave.

Fred: [00:49:57] Yeah. And the level of community engagement that can come behind that is super powerful. Like one example that I found very interesting last week was seeing Nadeshot, the CEO of 100 Thieves, tweet that if you guys retweet this a hundred thousand times I’ll get a tattoo. That’s pretty extreme though. It’s basically like community gets to decide how I alter my body as a creator. And that was without any economics tied to it. So I can only imagine how far this might go, if you throw economics in the soup there.

Blake: [00:50:40] Oh, imagine in some very futuristic world, where someone bids for the spot of where he does it or what the message is of the tattoo. Right? I can imagine there’s a world where someone says I’m actually going to just sell this spot of my body or, and be like: “do you want to buy the tattoo placement?” I imagine you will have these companies or people bidding for that. There’s so many different pieces of this.

Fred: [00:51:05] Right. And like /r/place for those who remember that Reddit experiment is sort of like a primitive, really digitally native version of that. Or like Twitch Plays Pokemon is sort of in this vein too. It’s just all been for the lols so far. The interesting question is if you put a real economic engine behind it — could that do real substantive things.

Reed: [00:51:38] Well, Fred, we appreciate you coming on! I know we’re closing in on an hour.  Every time I talk to you, I feel like I just gained a wealth of knowledge. So hopefully everyone listening feels the same way, but we appreciate you coming on.

Fred: [00:51:48] It’s always good to talk to you guys.

Blake: [00:51:50] Yeah, this is, this was super informative. Definitely check out Fred’s blog and follow Fred on Twitter, but he’s brilliant. And I’m super thankful that he came on to talk about this.

Fred: [00:52:00] The thing that’s great about this is I feel like there’s so many good ideas in the minds of the creators and the communities that follow them. When you grow up on the internet, you see it all over the place. If you ever read Reddit, it feels like a lot of the smartest people in the world and the best ideas come from there. There is a reason that a lot of the best memes and cultural artifacts start on 4chan. There is: “How do we better unearth that?” And I think this might be how it gets done. This might be the future business model for creators and these broad decentralized communities. The cool thing about it is that you two are the ones that have been studying these communities, pilot them, and are members of them. I’m really looking forward to continuing to jam with people like you to figure out exactly how it was going to play out.

Reed: [00:53:00] Thanks everyone.

Written by:

Fred Ehrsam

Fred Ehrsam is co-founder and Managing Partner at Paradigm. Previously, Fred co-founded Coinbase, the largest cryptocurrency company in the US, and held the role of President from 2012 to 2017. [→]

Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors and is not made on behalf of Paradigm or its affiliates and does not necessarily reflect the opinions of Paradigm, its affiliates or individuals associated with Paradigm. The opinions reflected herein are subject 
to change without being updated.