At the 2022 Avalanche Summit, Casey Wagner (Blockworks) moderates a discussion where noted industry pros Calvin Chan, Jonathan Padilla, and Harold Eytan examine the topic of Beyond the JPEG: What’s Next for NFTs. Their discussion addresses whether NFTs are in a ‘bubble,’ use cases in NFTs, authenticity and digital ownership, how to attract non-crypto companies to the NFT space, and other issues.
TL:DR Couple key takeaway from the video
- Most people assume blockchain is great for privacy, it’s really not unless you’re doing some sort of zero knowledge proof player, but it is great for ownership.
- In retail products today, anti-counterfeit is one of the use cases in that NFT can be the solution for supply chain and transparency.
- Every product that you can hold in your hand is non-fungible at the end of the day, whether it’s a pair of shoes, coins, wallet, or whatever. At the end of the day, they’ll unlock an entirely new ecosystem for products that you know. It’s everything around us is non-fungible, and we just need to kind of share that experience with the end customers.
Full Transcript of this conversation: What’s Next for NFTs?
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Casey Wagner: Hi, I’m Casey Wagner, I’m a senior reporter at Blockworks. And I’m very excited to talk about NFTs. I think we’re missing one person. Maybe they’ll come in. But I’d love to start with a brief introduction, Calvin, if you want to just start just where you are, what you’re working on, and yeah.
Calvin Chan: Thank you. Hey, great to be here, everybody. My name is Calvin, I’m the CEO and founder of Legitimate, we create physical NFTs for luxury brands, and retailers.
Jonathan Padilla: Hey, folks, Jonathan Padilla. I’m the CEO and co founder of Snickerdoodle Labs. We’re focused on NFT data infrastructure, and we’re building the next tool set to have a universal data layer for all web3.
Harold Eytan: Nice to meet you guys. I’m Harold. I’m a CEO of Particle. And we are basically democratizing ownership of physical fine art masterpieces, you know, leveraging the blockchain to do that.
Casey Wagner: Great. So I wanted to start with an overview of where we are in the NFT market today. I know we saw some pretty significant highs in the early fall late summer. Are we going to see that momentum continue? Where do you kind of think we are in terms of NFTs? I’ve heard the word bubble thrown out there, so I’d love to hear your thoughts. Jonathan, did you want to start?
Jonathan Padilla: Yeah, I mean, we’re at a spot right now, where I think there’s a lot of energy and excitement in NFTs. But let’s be very frank, a lot of this stuff is most likely a bubble. But the technology itself is sound and revolutionize a lot of different applications. At Snickerdoodle, we’re very committed to this notion of enterprise applications entities. This goes beyond just Bored Apes and stuff being put out by Dapper. Don’t get me wrong, it’s really, really interesting. But what’s more interesting are things like digital ID, things like tickets, receipts, coupons, licenses. This body of information will transform the way people conceive of their data, how they own it, how they monetize it. And it will be the building blocks for frankly, a web3 social contract that empowers the individual and puts that person, no sovereign in control of their data.
Calvin Chan: Um, I’m going to probably stray away from commenting too much about the general NFT market, I will say, I agree with Jonathan, there are significant real world use cases, as it pertains to retail products today, anti counterfeit being one of them, that you know, we specifically focus a lot on, liquidity and also you know, just supply chain and transparency. So.
Harold Eytan: Yeah, I mean, you know, for me, definitely, you have a, I see a bubble in the kind of PFP project space. But, you know, a lot of them actually have real communities and for me, you know, the NFTs are gonna are, you know, a way to gather and having in a community interact with each other, and in this new way, and, you know, what we’re doing a particle is really bringing this community that lives in this opaque world of fine arts. And that’s very hard to actually penetrate, and actually the people involved in it to interact with each other, bringing that online and bring that to, on the blockchain by ownership. I think the future of NFTs is really where’s that going to lie, it probably in actually, you know, like, you’re doing at Legitimate, you know, bringing the kind of the physical and the digital together, and being able to get these communities much more engaged and much more involved in the projects that they’re passionate about.
Casey Wagner: Yeah, definitely. I think the community aspect really ties into collectibles and that kind of, now, I want to get in more to that. But I want to talk about use cases first. I write a lot about NFT and gaming, I feel like that’s a really big thing that we’re talking about right now. What other use cases are there and how are you all working to get non crypto native companies on boarded into this space? Calvin, did you want to start?
Calvin Chan: Yeah, I think I want to talk a little bit about brands, specifically physical retail brands and kind of their strategy to web3 and NFTs today. A lot of it comes off as inauthentic, and in the sense that you know, for skincare company like Nivea, who did their first NFT drop, they did an excellent job but at the end of the day, it’s hard to convey to consumers why a skincare company would do, you know, digital tokens or digital art, aside from a marketing gimmick or a quick cash grab or whatever. So really, what we’re focusing on, you know, in terms of talking to these retailers, talking to these brands is, hey, how can you actually activate the products that you already sell day to day? Whether it’s sneakers, handbags, sunglasses. How do you activate them as NFTs and use that as a catalyst to create a completely new market for your consumers and your customers?
Jonathan Padilla: You know, I’d say this, let’s take a step back. Brands or businesses, businesses have new web2 and even web3 now, you have to have real metrics, real ability to show ROI, ad secret, or launching some of our core products in the next several weeks. And in conversations with both web3 firms and firms that are enterprising web2. We’ve discovered, people have a real information asymmetry, about how to justify spend. And if you’re talking to Adidas, or you’re talking to any of these big brands that are getting in to web3, the reality is most of them are flying blind. And that’s a problem, you have to report in to a board of directors, you have governance controls, you need basic infrastructure. So getting these use cases, it really starts with one infrastructure that is scalable and accessible. No firm like Adidas or firm like Microsoft’s not going to pay $300 in gas fees on mainline Ethereum. And frankly, it’s even beyond that, showing them where users are. Our core product at Snickerdoodle basically provides dashboards for enterprise users to see where their users are, both in geography and in across multiple chains. And so we’re really showing businesses pure profiles of their users. And once we know that, you can justify real expenditure for marketing budgets. This isn’t an innovation team, this is mainline business taking advantage of this technology. And that’s how you’re gonna get mass adoption for this technology suite.
Casey Wagner: And then just a follow up there. I mean, what are some of the concerns or challenges that some of these industries face? I know, you mentioned, infrastructure is a big problem. What kind of, what questions do these companies have when they’re thinking about entering and NFTs?
Jonathan Padilla: It’s a fair question. In my prior role, I was the Global Head of blockchain strategy at PayPal, had a great team, and one my former colleagues, Liam, who is somewhere here in the audience over there. But the reality is, you know, Liam and I dealt with a lot of enterprises, we had to look at the enterprise’s architecture. How do you, as a blockchain startup, go to a large corporation and say, we want to do XYZ, no matter what it is, is it secure? Is it safe? Is it reliable, these types of conditions may seem less cool, but frankly, the compromise of getting real architecture and real gains done is going to bring in the other 95% of people who aren’t in conferences like this. So it really comes down to understanding where businesses are being willing to hold their hand as they get into this. And you know, making these things frankly, user friendly. Let’s just be candid, a lot of blockchain outside of people in this room, it kind of sucks, it doesn’t really work well, let’s just be super honest with each other. And if we’re honest, and we can admit that we can have the UX UI to frankly, get true products to market.
Harold Eytan: Yeah, and these, you know, these NFT applications they need to have an actual application, it’s not, you know, these brands, often you have, you know, they just want to get into the NFT space just for the sake of it. But, you know, they, you need to have a reason why you’re doing it. And there are many reasons we all know, many of them have what, why you do that, but just doing it, for the sake of it is, you know, is where it was where you fall flat.
Calvin Chan: Yeah, I think, you know, one of the primary concerns that brands have brought up is fundamentally, you know, like you said, they’re in the dark here, right? At the end of the day, we are the pioneers, everybody in this room, and especially for some of these luxury brands that you know, you’re starting to see more and more in house web3 teams pop up, you know, a lot of you know, Puma, Gucci, all the LVMH brands. And at the end of the day, this is an opportunity for us to really come in and say, hey, actually, this is the right way to do it. And, you know, there have been a lot of, you know, half baked attempts at integrating NFTs into retail strategy, into branding strategy. And really, in terms of what we do at Legitimate is we start working with brands from day zero, and we fix it on a very specific, you know, problem that they have. In most cases with luxury brands it’s counterfeit, right? It’s a $400 to $500 billion industry, and we’re saying, hey, with NFTs and with Blockchain, you can actually solve this entire problem and provide your consumers a layer of transparency that’s never been possible before.
Casey Wagner: Yeah, I want to get into that more. How are NFTs changing digital ownership and what does it mean like you said in terms of authenticity and proof of ownership?
Calvin Chan: Yeah, I think you know, in the lens of authenticity today, there are a lot of middlemen. If you think about what it takes to buy and sell, you know, let’s say a pair of sneakers, let’s say a pair of off white Air Jordan ones, you know, you’re really trusting the stock X’s of the world, you’re trusting the eBays of the world with their verified, you know, authentication programs. But you go on YouTube, and you see that there are so many holes in every single step of these programs that more often than not 80% of products that are counterfeit, actually slip through this authentication product. Process. Sorry. So, you know, with NFTs with what we do is we really, you know, start working with brands from the beginning, from manufacturing and say, how can we bake web3, not just into your retail strategy, but into your retail products. And that’s what’s really powerful.
Jonathan Padilla: I mean, I would say this, if we think about the technologies as a whole, most folks assume blockchain is great for privacy, it’s really not unless you’re doing some sort of zero knowledge proof player, but it is great for ownership. And the difference here is frankly, things that were not practical to go to a lawyer and have a whole kind of title and contract. It’s now economically viable to produce something you can have the provenance for a few cents. That’s really the benefit of NFTs. When you think about NFTs the best metaphor I think people can use is this concept of a digital Lego. It’s composable. It’s structurable. If you want to do anything from a retail product to verify that, that Versace suit is actually from Versace, you can do that. But I think more interestingly, is we’ve seen this from the trader economy. People who have been artists their whole lives are now able to basically verify their art and have markets and in the use cases are immense. I mean, Snickerdoodle began with this notion of wine resellers being able to basically show the provenance, the vintage, and those vinters actually benefiting from the increase in value. So yeah, we can talk about I think how this is, this is going to be super, super critical for ownership. I think the true aspect that people haven’t spoken about yet here is the impact it has in digital ID. And it’s not just the ownership, it’s the individual being truly identified, and known to both consumers to brands. So you have curation of these types of activities, and a sense of who you are in web3, might be Metaverse, or it might be some sort of hybrid between the two. But that really underscores a whole ownership layer, you have to start with the individual.
Harold Eytan: Yeah, on a kind of parallel note, I would add that, you know, there’s this concept that ownership enhances the enjoyment of art or an asset. And it’s actually like a chemical reaction in your brain. You know, if you have, in our example, when you have, let’s say you go to the ICA in Chicago, and you see Andy Warhol’s Marilyn Monroe, you’re going to enjoy it just like anybody else in the museum. But Ken Griffin, who owns the work of art, and who loaned it to the museum is going to enjoy it that much more. And you know, these digital artists or in our application a little differently, they have huge fan bases. But you know, it now enables them to enjoy that arts in that, you know, just that much more, which actually makes a whole world of a difference. Yep.
Casey Wagner: What challenges still exist around proof of ownership and security?I know Twitter had a pilot program for verifying profile pictures with NFTs. There was a concern that people could screenshot the NFT minted as a new NFT. And it would still be considered a verified NFT. What other examples of that exist? And you know, what’s the industry doing to combat it?
Jonathan Padilla: It comes down to the friction point that’s endemic across all blockchain. It is the technology advancing at lightspeed and frankly, legal and regulatory issues advancing maybe at the speed of glaciers, that’s generally how government works. Having preference worked in government, so it’s kind of painful. But the reality is, I think once you have adjudication in the courts, now, there’s other types of bodies that can verify this, this is going to be super critical. I spoke to a number of experts from Dapper and a couple others a few weeks ago, at NYU Law School and their sentiment is a lot of the big NFT firms that are representing artists and athletes, they’re hiring more lawyers than engineers. And they’re doing that because the jurisprudence in this space is still completely Terra Nova and has to be worked out.
Calvin Chan: I think that fundamentally, you know, one of the mistakes that I see a lot of projects and designers, product designers whatever had you know head down is projecting web3 technology into web2 experiences. And, you know, going back to the the Twitter, the Twitter profile picture, you know, throughout it’s really kind of taking this notion of, okay, using a, any profile picture as an avatar, that might not be what avatars or NFTs look like in 2, 3 or 5 years, right. And in a similar way, for us specifically, at Legitimate you know, one of the biggest problems are the phishing scams, right, where you have a website that looks exactly the same, like, you know, the actual legitimate website. And at the end of the day, I fundamentally believe that the user experience paradigm for how web3 technologies emerge in the upcoming years will be drastically different than what we’re seeing today. And you could already see that happening in the sense of moving from, you know, what’s considered MVP, and I say this in the lens that this whole space is an MVP right now. And we have a lot of work to do, right.
Casey Wagner: So yeah, we’ve talked about NFTs in gaming, we talked about real estate of virtual identities, what’s next in the space? And how can the industry help some of these non crypto native companies enter into the space?
Harold Eytan: I’ll give you a kind of anecdote from us, right? We cater to a lot of our audience is actually non crypto native, just because we’re dealing with physical fine art pieces, right. So we bought a Banksy last year at auction, and that’s what we kind of fractionalized and tokenized. And a lot of people don’t understand NFTs, you know, right click and save, screenshots, this is, you know, Particles a bit of like a gateway NFT for them, you know, they can kind of wrap their head around it, and so they’re like, okay, I can do that. But onboarding these people is just very difficult if they don’t have, you know, the will if you want to take, let’s say, a couple of hours to actually go in, go ahead and, you know, set up their Metamask and buy crypto etc. So, I think there’s definitely a lot of room to grow there. And brands and us as builders on the blockchain need to make sure that the onboarding process as smooth as possible for people who are not crypto native, this goes all the you know, starts with like, custody and Fiat on ramp, and then being able to then slowly introduce them to actually, you know, own the assets themselves and have custody of them themselves.
Jonathan Padilla: I mean, I would say this in, let’s just be aware of where we are, we’re here at the Avalanche conference in Barcelona. I think Avalanche is a phenomenal, you know L1, and the technology there is really allowing a lot of the applications we have hopeful to actually have some some ability to be executed. And so the reason I say that is because we’re at a point now, where we go beyond the art and collectibles, the applications to retail coupons, receipts, these types of things to, frankly, large pools of data that are representative of the individual. These are the use cases to get me most excited. And the reason why is this, as we think about the data models that NFTs will allow, it’s far less sexy than a Beeple or Bored Ape. But the ramifications to macro economics are tremendous. And so we’re talking about NFTs being the basis of something as grandiose as a universal basic income. How do we leverage the data models from NFTs that people can collateralize their data, use it to get lump sum payments, or these types of things that could be truly transformative those in emerging markets, and for the businesses you know, if you’re a firm like Blackstone, and you have, literally, you know, hundreds of billions of dollars under management and you have a number of portfolio companies, how do you have that applied to the data, that’s add value, and you turn that to an asset on balance sheet. And in that kind of universe, we’re talking about businesses being able to add maybe 5 to 10% of their market cap to their market cap, and that’s something that will get large enterprise to adopt this across the spectrum. So number of these are probably a few years out. But these applications will create trillions of dollars of value. And those who have the vision, to see it early on, I think are to reap a lot of rewards there.
Calvin Chan: In terms of, I think the, going back to the question was what’s next for NFTs, fashion NFTs, retail NFTs. Basically, every product that you can hold in your hand is non fungible at the end of the day, whether it’s a pair of shoes, or even, you know, coins or a wallet or whatever. And at the end of the day, I fundamentally believe that they’ll unlock an entirely new ecosystem for products that, you know, we can’t even think about today. And we’re starting to see that emerge and it’s really going to pick up once people realize that, hey, NFTs are not just like you said digital pictures of, you know, monkeys or dogs or cats, right? It’s everything around us is non fungible, and we just need to kind of share that experience with the end customers.
Casey Wagner: Yeah, definitely. So we’ve talked about NFTs a lot from the industry in the retail perspective, I wanted to touch on the artists and Harold, I wanted to ask you this. I mean, how do NFTs change the way artists work? And especially with these physical pieces that then get tokenized? How are they thinking about it?
Harold Eytan: I mean, it varies greatly, right? You have digital artists, that’s one thing, that the physical artists that want to get into you know, I guess tokenizing their work it’s, you know, you have, you guys have heard of, not the artists right, but burns Banksy, so these guys who bought a Banksy last year, they took a picture of it, tokenized it and then they actually burnt the physical work of art, and they said well, now it only exists on the blockchain. So you have some people that, you know, do that. And Damien Hirst did the same thing with currency, right, you have a year of redemption period, basically, where you can redeem your burnt NFT for the physical copy, or the physical version of it, and then you know, all the physical ones that don’t get redeemed are then publicly destroyed. So the value is only in two places for a certain period of time, which is really interesting. I, you know, there’s just many creative ways that artists can leverage NFTs physical artists, you know, what we do is is to is to actually enable people to fractionally own these NFTs and not need to burn them physically, and, you know, be able to retain these cultural artifacts in their physical form. The way we do that is, you know, we found one way which, like you were saying, right, this, it’s both NFTs, and right now, it’s both a technical and a legal framework that you need to put around them, and we’ve put a lot of work on the legal framework around our projects. The way we come up with it is we, if you want burn the physical value of the NFT by donating it to a nonprofit, and then the collective of NFT owners manage or govern that nonprofit, that’s how they exert their rights of ownership over the physical works. And then they have the liquidity of their fraction of ownership and NFTs. So I think it’s, you know, it can vary everyone, what’s great about this whole space is that you can be as creative as you want with you know, and it’s actually an artistic process in itself, of how you actually tokenize your your works.
Casey Wagner: Any other? Okay. We have a few minutes left, I wanted to ask if anyone from the audience had any questions.
Audience 1: Just a question. How many times in your work and how many people in your team think about humanistic point of view? Because humanistic point of view is very important also to open this kind of world, to most of the people to empathize. But how many people do you take care of, I mean, how many people, humanistic people are in your team during the process to do whatever. Thank you.
Jonathan Padilla: Let me take a first stab at this. I mean, I think it’s a good question, and it’s the individual, the front and center here. We think about web1 and the 1990s, that think about that as the state of nature was brand new, I think people really know what to think. Web2, and we say this in a former part of the Spanish crown. Web two is digital feudalism. This was large corporations extracting the value without regard for the individual and transferring that to shareholders. That that is web2 in a nutshell. We have an onus and a responsibility, as I think champions of web3 to redefine what that social contract ought to be between the human, the individual, and frankly society. I think we have a chance, I mean, web3 right now we’re at the beginning days of this. It is the biggest transformation of both internet and money since the creation of the internet and, frankly, the Bretton Woods Institutions in the late 1940s. So we have a chance to redefine it, but if we have to be committed to that, and we have to make new very principled decisions to uphold the values that I think ought to be of help.
Harold Eytan: Yeah, I think it makes sense to me right, that you are, for lack of a better word at the mercy of the community that, or your, or the people who buy your products, right? It should be that way. Now, you know, well, you know, when you run a business, you know, you answer to your shareholders at the end of the day without your consumers, you are nobody. And so this kind of new paradigm is I think healthy for the industry, like you said, because you have to put the consumer first and you have to include them not only in the direction that your business is going to take. But also, you know, if possible in sharing some of the fruits of your work.
Casey Wagner: Are there any other audience questions?
Audience 2: Hi, this one specifically for Calvin, I’m wondering what you’re doing with Legitimate and what similar phygital companies are doing more broadly, to ensure that, you know, with great power comes great responsibility. And with these new sort of gateways into the digital space, how do we ensure that this data isn’t going to be mistreated or mishandled? Is that through ensuring adequate decentralization? Or is that through building trust with these brands?
Calvin Chan: Yeah, so to keep it really quick, because I know we’re over time, Legitimate connects physical products with NFTs creating the idea and concept of physical NFTs. And we really focus on the last mile layer. So a lot of different projects have attempted to tokenize you know, physical products through NFTs to increase liquidity or provide less friction when trading these physical assets as stores of value. What we do is we actually work with brands and manufacturers from day one, to integrate specific hardware into the products themselves that can be scanned with any mobile phone. Once you scan it, you can actually claim the NFT and that NFT is bound to that product, no matter what marketplace you sell on or no matter what, you know, trading mechanism you use. And at the end of the day, you know, one of the things that we really do believe is that, you know, physical and digital should remain the same and you’ve seen multiple instances of projects not doing this and you know, talk to me afterwards, and then more than happy to kind of give you a few examples. But at the end of the day, digital provenance and physical provenance is extremely important, especially as it pertains to physical retail and physical art.
Casey Wagner: Thank you all so much. Thank you. Give it up for the panel. Thanks.
