You guessed it, I’m using jpg as a gateway to talk about non-fungible tokens (NFTs) what Erik Nakamura, CFO of Orange Comet, an NFT gaming platform, calls digital assets, opting for the more palatable name. Understandable: the word fungible always makes me think of mushrooms. Besides, the word’s mere utterance has the unfortunate effect of making people’s brains turn off.
It’s all simpler than the terminology makes it seem. I talked to Erik about what NFTs are and what makes them unique, where to buy, sell and mint them, useful applications of NFTs and the enabling technology, and what the future looks like in the space. This is a very basic guide, of course, giving the high level of it all, and that is the intent: a starting block that you can move from as various aspects of the space intrigue you.
In This Post:
- How’s An NFT Different Than A Regular Digital Asset
- Buying, Selling And Minting NFTs
- The Future Of NFTs
How’s An NFT Different Than A Regular Digital Asset
My core question today is what is an NFT exactly? An NFT or digital asset, is, Erik confirms, anything that can be digitalized: a still picture, a movie, a song, a ticket, a contract, a document, a tweet.
Can’t you just right-click it and end up with the same thing? I ask with a smile as I know you cannot, but clearly articulating the difference is key. So what makes this NFT different from a jpg?
“An NFT has a unique number or identifier when that asset is stored, making it 1 of 1,” he starts. “It is written in the blockchain as part of a smart contract.”
OK, so to break this down: A digital asset - and right now we’re talking the most basic of them – a digital image - has been made, but then it’s been attached to a digital “smart contract” that is registered on the blockchain.
In other words, you can right click to get the image, but that’s only half the picture – and not the valuable part. Doing that doesn’t mean you own it, as you don't have the one with the smart contract that’s registered on the public ledger (and given a unique number) for all to see.
Basically, you could take a picture of the Mona Lisa at the Louvre but that’s not the same as having the Mona Lisa. Or, maybe a better example is that you could take a picture of Bored Ape #7495 and save it to your phone, use it as a PFP on Twitter (although that would be incredibly lame), and pretend that that super rare primate with a dagger in its mouth, a cyborg eye, a cross earring and Dmt hair (pink fuzzy and covered in green eyeballs), is your furbaby. However, the blockchain quite publicly disagrees.
So there we have it: an NFT is basically a digitalized asset with a public attestation on the blockchain that it is yours and only yours.
But there’s more than just the ownership to an NFT, Erik assures.
“An NFT can have other attributes ascribed to it that we call utility. It can give you rights, access, physical items, and real life experiences.” That is much more interesting than just an image.
Imagine when you buy the NFT of a song, and it not only gives you the digital file but also rights to go to a private concert, be on a VIP message board with the artist and her dearest fans, get additional merch, or get a special low price for tickets to the artists’ concerts in perpetuity. That’s pretty cool.
In fact at Orange Comet, Erik explains, they create virtual experiences and games with IP like Walking Dead, Anne Rice’s Interview with a Vampire, and NBA legend Scotty Pippen, to name a few. The release of Pippen’s sneaker NFT included with the purchase a chance to also get real sneakers or even meet Pippen himself. That is utility.
And, of course, the sky’s the limit to the things that could be the extra “utility” that unlocks with the purchase of an NFT.
So now we have 3 words from our ABCs at play: NFT, Blockchain, and Smart Contract. Let’s focus on the last, as when it comes down to it, the inclusion of a smart contract is what gives the uniqueness to the NFT. So what is a smart contract exactly? How do you write one? “In the most simple terms, a smart contract is a digital agreement between two entities programmed to execute automatically once validated on the blockchain,” says Erik.
Programmed is the interesting thing here. Unlike those thick paper contracts that we’re all used to seeing, a contract in the NFT space is written in code. No lawyers, and the only John Hancock is your crypto wallet’s unique digital identifier or “private key”.
So how does this all go down? Basically, once the NFT has been purchased, a bunch of things happen in the background before the transaction renders completed, including checking that you have the money to pay for the item you’re buying – sort of a credit-check – and if all things are good the smart contract code is called up to write the transaction on the blockchain ledger and exchange money for the NFT and whatever other utility the contract states.
So now we know why a NFT is different from any old jpg, and what gives it value. We know that it requires a smart contract in order to write it onto the blockchain and give it its unique number – the key to its value. We know that many times NFTs come with other utilities beyond the digital asset itself, and these utilities can be the exciting part.
Buying, Selling And Minting NFTs
So at this point you might theoretically understand, but now, to turn the corner, you have to do it. Buying your first NFT can be daunting, as it requires you to open and fund a crypto wallet. This is where you dip your toe in. I won’t get into wallets here, but suffice to say, be careful and only fund a small amount. This is about the experience of it and building familiarity with the systems at the beginning.
Presuming you have a crypto wallet, to continue the adventure, you’re going to have to find something you want to buy. Which begs the question:
Where would I buy an NFT? Right now, the largest NFT marketplace is OpenSea, says Erik. “You can buy all kinds of NFTs from OpenSea and they operate on the Ethereum Blockchain.” A note to always be sure you’re on the right platform (spelling matters). Just like there’s Ray’s Original Pizza, the Original Ray’s Pizza, and The Actual Original Ray’s Pizza, there are imitators out there. Because transactions in crypto are immutable (no take backs) once you send your money that’s it. If you send it to a scammer or just for whatever reason the wrong wallet, it’s gone. This is to say, when you’re transacting on a platform, be sure you’re at the right place.
After you have chosen an NFT (pick something inexpensive that you actually like), then you want to ensure you know what you’re buying. You can trace that NFT back to its originator, thanks to the transparency of blockchain. You can see who originally minted it and how it has changed hands over its digital life. If it all is what you expect, before proceeding, get a look at the current gas fees - a fluctuating charge like a congestion tax that validators charge for doing what I earlier likened to a ‘credit check’. More about this in a future post. Presuming you’re OK with the gas charge, then buy it. You can see your transaction written onto the blockchain, your public key there for all to see that you (identified as an alpha-numeric public key) are the proud new owner of said digital asset.
So that’s buying an NFT, but What if I want to create one? To create an NFT you need to start with the digital asset itself. Go onto Adobe Illustrator, record a song on your iPhone, write a culturally relevant tweet, take a photo of your categorically comely cat, and save the digital file.
Then you’ll have to select the blockchain that you’re going to “mint” your digital asset to via a smart contract, and the marketplace (like OpenSea) that you’re going to try to list and sell it on. There are various programs out there that will help you mint your image.
One word about doing this: It’s important to look at the unit economics of your whole plan, as selling an NFT is easier said than done. There are a glut of NFTs out there, so for yours to stand out it’s not so easy (no offense to your cat). It costs gas to mint and to buy and sell, so these extra fees should come into your pricing strategy when you’re minting your first NFT for sale.
The Future Of NFTs
NFTs blew up in 2021 and then dropped off precipitously. It seems everything in crypto can feel like a rollercoaster ride. People had FOMO and they had FUD. There were the bad actors and the rug pullers and the scammers. Too much noise. In talking with Erik, he makes clear that despite some early bumps, this ride is just beginning, pointing to tons of applications for the underlying technology still underway that will transform a lot of what we do.
The real use-cases with NFTs are about the tech and the utility more than the digital asset itself. In Orange Comet’s case, he says that they began selling NFTs for the IP properties they worked with to be used, purchased, sold and traded in the web3 worlds or games. For the Walking Dead, they sold land, vehicles, walkers, weapons that you will be able to use in their Walking Dead Lands game (launching later this year) to compete and kill walkers, live, join factions and more.
Beyond gaming, companies are experimenting with digital twins (get one digital and one physical item with a purchase) giving the additional physical sort of utility–Dolce & Gabbana, Gucci, Balenciaga, Nike and Adidas all have tried this out. There are also NFTs being used to prove transfer and authenticity of luxury items and gems.
All the fashion and entertainment is the fun and flashy stuff, but the “regular stuff” of everyday life can benefit from NFTs as well. Erik says, NFTs, smart contracts and blockchain stand to create “true disruption” in antiquated systems around real estate, health care, official documentation, legal contracts. Imagine the next time you sell your house, escrow happens in a blink, and there's no need to engage expensive legal teams for the contract’s execution.
This technology is not without its issues and there’s still a lot to figure out, but it’s clear that NFTs are more than just monkeys. Lots of things can be more fun or more frictionless using this blockchain technology. That is, if people can wrap their heads around it.
“If education can happen, it will foster adoption,” Erik says. “I really see blockchain technology being something that we will adopt to be more efficient, transparent, cost effective and more green. If the masses can understand how it works, and what it is, then we can find many ways to adopt and implement it, and it will be a very powerful technology.”
Erik Nakamura is the CFO of Orange Comet. Orange Comet is a next generation web3 gaming and entertainment company. The company has sold digital assets for some of the world’s large IP properties such as AMC’s The Walking Dead, Ann Rice’s Interview with a Vampire and Mayfair Witches. They’ve also partnered and sold digital assets for Sir Anthony Hopkins and Scotty Pippen. Additionally, they partner with NBCUniversal, NFT Alumni Association, Dreamworks, POW! Entertainment, Barry Sonnefeld, Golden Boy Productions and William Shatner.
Orange Comet is obviously a powerhouse in the space to watch, and I am very grateful for Erik’s chat and insight!