Tag Archives: cryptocurrency

Creativity and NFT’s

I think by now everyone has heard of NFT’s.

NFTs (or “non-fungible tokens”) are a special kind of cryptoasset in which each token is unique — as opposed to “fungible” assets like Bitcoin and dollar bills, which are all worth exactly the same amount. Because every NFT is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate or pets. – Coinbase

Right now I think many people see this as a fad, and there are all kinds of tokens being created and sold for ridiculously high prices, which both make the news, and seem like a silly waste of money. But there is something here that is pretty special in two different ways. And when the dust settles and the fad-y-ness goes away, it is creatives who will benefit from these tokens.

1. Re-sale of art.

When an artist sells an original, they get the sale price and then they don’t benefit if the art is resold. Often an artist will take years to get popular (much less famous) and their early work is essentially given away compared to their later work when they become known. With NFT’s, artists can get a percentage of the resale value. The token can be tracked and if sold on an NFT market (rather than a private transaction) then the artist can keep a commission.

2. Tokens tied to real world rewards.

There is a DJ named 3LAU (Justin David Blau) who sold NFT’s of his work in an auction,

“The way 3LAU structured his auction was very cutting edge and the mechanics of the auction should be noted. There were 33 available winning slots in total for the auction. Slot #1 was the Platinum Tier, slots #2 – 6 was for the Gold Tier, and slots #7 – 33 was the Silver Tier. Each tier contained digital artwork, music, and physical goods (Vinyl) connected with the project. The winner of the Platinum Tier also won a custom song created by 3LAU with the winner’s creative direction, tokenized as a 1 of 1 NFT.” ~ Dennis Martin

In another auction, the top tier included lifetime tickets to every concert he does. And since this is an NFT that can trade hands, it can be sold if the buyer no longer wants this.

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So while you’ll read things like, A Rare CryptoPunk Ape NFT Was Sold for $10 Million USD in Ethereum, and wonder why? Or how this can be sustained? Or if this is just a fad? NFT’s will have value desired by others. Yes, there will be silly collectables selling for way too much. But there will also be the ability to play games and earn items of value that can be traded rather than just hoarded. And that is another way NFT’s will be used to trade items people will want to pay for.

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Collectables and video games aside, NFT’s will be a game changer for artists and creatives. And in a world where automation is making items better, cheaper, and faster; and where jobs themselves are becoming more automated, there will be more time and space for artists to hone their crafts as a way of making a living. NFT’s will be part of that future where artists can sell their work, provide experiences for their fans, and benefit from the resale of their work as their popularity grows.

NFT’s might seem like a fad to you, but they are here to stay, and some time in the near future you’ll end up owning one if you attend a live show, or buy a piece of art, or maybe even choose to pay for a song of artist you love to listen to.

Market volatility

Three years ago I put a little bit of money into cryptocurrency and then the market took a huge dive. It was hard to watch this ‘investment’ dive to 25-30% of what I put in. But it wasn’t like I put in more than I could afford to lose, and I didn’t panic and sell at the bottom. I held on… or as they say in crypto, HODL (a term started with the word HOLD being written with a typo, and now standing for Hold On for Dear Life).

Late last year my investment jumped back up to break even, and then soared, and I learned my first lesson about investing, and that is dollar cost averaging. If I had not put the investment in all at once, but instead had put money in monthly, I would have done so much better. The reality is that this strategy works better than 90-95% of investment strategies. So, unless investing is the thing you do, your best strategy is to put a small amount of money in every month, no matter what the market does. The volatility works to your advantage, and no one knows when the market is going to dip.

Last night was one of those dips. Wham, 20-25% down! It’s sad, but I bet many new investors lost a lot of money and sold out when they felt the pain of watching their investment sink. For me, I’ve seen this before, and my small investment is doing better than if I had put that money into an RRSP or Tax Free Savings Account. But I’ll be honest and say that for a couple years, it didn’t seem like this.

What’s interesting is that adoption of cryptocurrency is growing, the use-cases for them are incredible. Smart contracts (that cut out expensive bank and lawyer fees), back-end tracking of supply chains, and decentralized borrowing are a few places that blockchain technology are literally ‘taking over’. Also, while many people struggle with the idea of NFT’s (Non Fungible Tokens) these are revolutionary in the way an artist or creator can gain profit from the resale of their work. And the Metaverse is something that will grow and holds amazing potential… and huge profits in the multi-billion dollar gaming market.

What’s really going to change the crypto market is the speed of adoption. If you own cryptocurrency now, you are about 2-3% of the world’s population. It took about 12 years to get to this percentage. It will probably take less than 2 more to get to 5%. Three years ago I had to drive into Vancouver to put money into crypto, and because my investment was quite small, I had to pay a premium at over 5%. Now I use Netcoins, (full disclosure, that’s a referral link), and it’s a simple e-transfer, and a 1.5% premium on the purchase. Easy. And everyone has seen adds for Crypto.com, where you can buy, stake (lock in and earn interest), and even spend (with a prepay visa) crypto.

Both the interest and access have opened up dramatically, and the adoption of cryptocurrencies is about to explode. But with this comes even more volatility. With this comes the high speculation gambles and the fear selling when the market does what it did last night. And cryptocurrency is risky. It’s not a normal thing to watch the volatility of 10-25% rises and dips and think, ‘easy come, easy go’. But I enjoy looking into the projects and investing a little bit in them. I’m not planning on taking any profits out until after I retire, and I’m not putting enough in to make a difference in my day to day living and spending habits. So the volatility isn’t much more than entertainment. Though I will admit, the appeal to put a bit more money in when I see a big dip like this is pretty strong.

One thing that I fear is that a lot of younger people, with less disposable income are jumping into meme coins (popularized coins that only serve to be traded with little other purpose). These are high risk, and susceptible to ‘pump and dump‘ schemes where they simultaneously buy causing a jump in price, and get people excited to catch the ride up, then those behind the scheme dump their coins on the market taking massive profits at the top, and leaving everyone else holding the coin at a much lower value.

A 20-year old thinking long term and dollar cost averaging, will do well. A similar person seeking massive profits will end up losing their investment 4 out of 5 times, but they will know someone who was the 1 out of 5 profit-maker and think that they can do the same. Betting on short term market volatility is risky and will cause a lot of people pain. Where as, knowing that market volatility is profitable over the long term and dollar cost averaging is what smart investors do.

It’s a simple formula where risk over a shorter time can lead to greater profits but will more likely lead to greater losses, and risk over a longer time might not get the huge gains, but it will reduce the risk of loss: Invest a small amount, repeat, and HODL. The next lesson is when to take profits… I have a strategy, but I’m still trying to learn more from people a lot smarter than me.

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(Disclaimer: I’m not a financial advisor and I don’t play one on the internet… this is not financial advice.)

The future is on the blockchain

I know that there is a lot of FUD (Fear, Uncertainty, and Doubt) about the future of cryptocurrencies, but the reality is that the future will be recorded on blockchains.

Here are 3 ways that transactions will be tracked ‘on chain’:

1. Smart contracts.

When you make large purchases like a house, that includes a loan, the paperwork needs to be handled by lawyers or a notary, because the handing over of debt has to handled correctly or the transaction could leave both the seller and new owner holding the same debt at the same time, or the debt not being owned by either. Smart contracts recorded on the blockchain eliminate this by having the necessary transactions happen simultaneously only after all parties agree.

2. Decentralized finance.

If you have collateral for a loan, you won’t need a bank to borrow. These loans will provide opportunities for people who tend to only be able to access high interest loans to find more appropriate financing. And, the door will be open for loans slightly larger than micro loans, in many countries where this is currently challenging. When finance becomes decentralized regulations become a challenge, and the limits of borders and centralized control break down. There will be a Robin Hood effect where people with small amounts of equity can be both lenders and borrowers, taking the the decision-making and profit-making out of the exclusive hands of the rich.

3. Artists profit.

NFT’s – Non Fungible Tokens are baffling to many people and there are a lot of uses cases that seem silly. But usually when an artist sells a piece of work, they don’t get any value in the resale. NFT’s allow an artist to get a percentage of resale value. This is a game changer for creative people and NFT’s will be a way to track both digital and physical works of art in the future.

There are many other reasons to record transactions on a blockchain, but I think these three uses will be paramount.

Digital currency

In five to ten years a crisp, mint condition 50 or 100 dollar bill from the ‘late 1900’s’ will be a collector’s item. No one will be paying for anything with paper bills or coins. No one. It’s not just that we will be using credit cards and bank cards instead of cash, there won’t be any form of money that won’t be digital.

The Canadian and American dollar, and currencies from all over the world, will be digital cryptocurrencies. They won’t be like Bitcoin where every account address is public. When you pay, no one will be able to look into your account, but the money will be verified as real at the point of transaction. You will be able to instantly change currencies from one country’s currency to another, without a bank. You will also be able switch to another cryptocurrency or Visa, or MasterCard, or some form of smart contract IOU, that is staked against something you own (at a pre-determined interest rate).

Paper money will be nothing more than collectables like Magic the Gathering or Pokémon cards that are no longer printed.

It might seem crazy to think this will happen as soon as 5 years from now, but North America won’t be first. There are countries with incredible inflation that need to print larger and larger bills, making smaller bills useless. In countries like this, the cost of printing the money is hardly worth the effort. Imagine having to carry around seven to ten $50,000 bills to buy a loaf of bread! These economies will move to digital first.

But then the transition will grow exponentially. Within 10 years every nation will have a digital currency and paper money will be a thing of the past. Have any mint condition bills and coins? Keep them, they will be worth a lot more than face value for your grandchildren.

Digital, collectible assets

Bitcoin and other cryptocurrencies are assets that have value because they have a finite number in existence, and people see value in them. Like money Bitcoins are fungible meaning just like a $20 bill can be replaced with any other $20, a Bitcoin (or 1/20th or 1/50th of a Bitcoin) can be swapped out with another Bitcoin (or portion there of). Some people say Bitcoin will continue to rise in value, and become the gold standard of currencies, because unlike other paper/non-digital currencies where more bills can be printed by governments, Bitcoin has a finite number of coins that, while equal in value to each other, can not be duplicated or added to.

There are other kinds of digital assets that we will start to see emerge, and these are Non Fungible Tokens (NFT’s).

A NFT (non-fungible token) is a special cryptographically-generated token that uses blockchain technology to link with a unique digital asset that cannot be replicated. 

Non-fungible tokens differ from popular cryptocurrencies such as Ether (ETH), Bitcoin (BTC) and Monero (XMR), which are fungible; for example, you can exchange one Bitcoin for any other Bitcoin. ~ CoinMarketCap.com

One of the first popular examples of this was a craze over CryptoKitties. One-of-a-kind digital cartoon cats, that can be bred to create more new individual CryptoKitties, but no individual CryptoKitties could be duplicated. This one key thing is what makes them non-fungible, they are unique and not interchangeable. Essentially they are like an original piece of art. I can find a replication of the Mona Lisa, but there is only one original. NFT’s are each originals, and even though they are digital, they are unique and more originals can not be made… they have a specific fingerprint in a blockchain that can prove they are the original.

While CryptoKitties were a silly craze in 2017, they were also an excellent proof of concept that essentially showed that digital collectables can have and hold value, if you can prove that they are unique. NFT’s allow artists to create art that holds a digital signature to say, ‘this one is an original’. Besides art, this will be useful in:

• Gaming – imagine being able to trade a unique tool or weapon outside of an online game, without any chance that this rare object can be duplicated.

• Concert tickets – counterfeit tickets are made and sold, ripping off potential customers, but if a concert ticket is an NFT, it’s easy to confirm it is the original that you are buying.

• Identification – from credentialing to medical information, you can be in control of your own data and take it with you.

Unique digital assets are something that will have many valuable use cases and we will see them rise in popularity. And while some people will laugh and scoff at the idea of CryptoKitties of any kind holding any real value, non fungible Tokens and digital assists are something that will both hold value, and grow significantly in real use cases in the very near future.