Welcome to the Paragon Podcast. A Podcast focusing on the needs of high net-worth individuals and their families. We discuss the markets, tax strategies, and how to better manage wealth with the goal of living better for today while planning for tomorrow.
Hi everyone, welcome and thank you for tuning into the podcast. I’m Elean Mendoza and I’m here with Evan Shorten, the firm’s founder and principal.
Hello. I hope you’re all doing well and staying safe. Last year on the podcast we talked about Bitcoin and Ethereum as part of our efforts to shed some light on the world of digital assets. If you want to listen to those episodes we’ll include a link in the video description. Today we are going to continue discussing digital assets with a brief overview on NFTs, but first I’d like to ask you to subscribe to the podcast. You can do so via the Apple Podcasts app on your iphohe, Stitcher Radio if you’re on Android, or YouTube which you can access on your computer and both Apple and Android phones. .
Ok, so you have probably heard a bit about NFTs at this point. NFTs have had a lot of media coverage and publicity that really only slowed down once the Fed started talking about rate hikes. If you have listened to anyone talk about NFTs in the past, part of their conversation may have focused on the “Wow” factor of NFT prices. Unfortunately no one really talks about what an NFT is or why they are considered an innovation. So with that said, in this episode, we are going to explain NFTs, what they are, and what their potential role could be in the future. Most importantly, we’ll leave you with a better understanding of NFTs.
So, now that I’ve used the acronym NFT so many times, you might be wondering what it actually stands for. Evan?
NFTs are another type of digital asset. NFT is actually an acronym for the term “non-fungible token.” And if you’re wondering what a non-fungible token is, I’m going to break it down into each of the individual words.
Non – is pretty self-explanatory. It negates the meaning of the word it’s attached to.
Fungible – means that something is interchangeable. A Notable example is our currency, where five $20 dollar bills can be exchanged for a $100 dollar bill, or two $50 dollar bills. That’s three different ways you can exchange a $100 with many more possible combinations.
Therefore “non-fungible” means, not interchangeable. Meaning something unique that can’t be swapped out for something similar. The Mona Lisa is probably one of the most common examples of something that is non-fungible. There is no replacement that can be substituted or exchanged for it. Land is another example of a non-fungible good. Even two separate land plots that are similar in size are not truly interchangeable. One plot might be closer to a water source or have road access; one plot might have rougher topography making it more difficult to build on; one could have better soil for growing crops; and so on.
Lastly, Token – and when it comes to NFTs, token refers to the type of tokens that are used on a public blockchain.
If you recall from our Bitcoin episode, we defined the blockchain as a decentralized public ledger. Meaning it’s an accounting book on the internet, accessible to anyone who wants to view it. Blockchains permanently record transactions and share those recorded transactions with everyone on the network so that there can be no disagreement with what gets recorded. The blockchain and its mechanism of publically recording transactions is what allowed Bitcion to become what many believe is a form decentralized money.
Ethereum used its blockchain to take steps further and decentralized applications, programs, and services leading to non-fungible tokens, or simply NFTs.
So if we bring everything together that we have discussed up to this point, a non-fungible token is essentially a product with no comparable replacement that is recorded on a public blockchain. Or in more simple terms, an NFT provides a way to create a unique product whose ownership cannot be disputed once it’s recorded on a blockchain.
We can probably simplify it even further by calling it a product with an indisputable certificate of ownership.
So to summarize things, it’s the ability to create unique products with a digital certificate of ownership using the blockchain that has become a new technological innovation.
Yes, so far the blockchain and NFTs have received a lot of attention for giving people the ability to create and sell original pieces of art, music, photos, sports highlights, and so on. However, NFTs have a much wider range of use cases, especially when it comes to real estate transactions and record keeping.
Take for example the purchase of a home and all of the interested 3rd parties involved around that transaction; buyer’s agent, seller’s agent, escrow and Title Company, county assessor, and so on. Now compare that to a peer to peer transaction using Bitcoin or Ethereum where I send Elean a payment, it gets recorded on the blockchain for anyone with internet access to see, and finally the transaction and its details can never be altered by a bad actor.
If blockchain technologies were to advance beyond being speculative assets, we could potentially see real world use cases. In this specific example, the real estate transaction could be recorded on the blockchain and an NFT issued to the rightful buyer as an indisputable certificate of ownership.
Essentially, the NFT replaces the property deed and all of the associated infrastructure with recording, transferring, and record keeping of that deed.
Exactly. Later on if that buyer wants to sell the house they could simply sell the NFT, aka the indisputable certificate of ownership, to a new buyer. This potential future use case could at a minimum negate the role of the county assessor, escrow and the title company.
Now I imagine escrow and title companies aren’t going to disappear without a fight, and I highly doubt the county is in any rush to dissolve the role of the assessor’s office.
Right. That’s where it’s important that we stay grounded with the reality of things today. We simply illustrated one possible real-world use case for blockchain and NFT technologies. As it stands now, a lot of blockchian technologies, and especially NFTs are just speculative digital assets. Some people don’t even consider these as assets and nothing more than this century’s Tulip bubble.
Ok, so hopefully this episode provided you some clarity and a better understanding of non-fungible tokens, also known simply as NFTs. While we do our best to keep our discussions simple and easy to understand, it’s impossible for us to cover every detail and aspect of digital assets. The reality is, blockchain and NFT technologies are heavily rooted in mathematics, cryptography, computer networking, and go far beyond the scope of our podcast.
With that said, if you are interested in a basic understanding of this space, please visit our YouTube channel where you can watch or listen to our Bitcoin and Cryptocurrency playlist which covers Bitcion, Ethereum, and now NFTs. As the financial world and the digital world become more and more intertwined, we’ll continue adding to that playlist. Lastly, we want to thank you for tuning in and please don’t