The real disruption is coming

How NFTs are changing the world of collectibles and art

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Franko Vatterott kept his interest in cryptocurrency to himself for several years — he’s been a self-professed “crypto guy” since circa 2016. He knew how people felt.  

“People who are not into it think you’re wearing tinfoil on your head,” he says. 

But when the pandemic “came crashing down on” his Boulder-based sports marketing and business development firm, Human Interest Group (HIG), Vatterott stopped caring what other people thought. 

“I kind of came out of the closet on the crypto stuff,” he says. “I started being a little more vocal with my partners [at HIG], and then Bitcoin kind of took off and I was like, alright, it’s time. I don’t care if people think I’ve gone off the deep end. And that’s when everything started launching with NetCents.”

Late last year, HIG partnered with the cryptocurrency payments service to stake out some territory in the Wild West that is non-fungible tokens (NFTs), a blockchain-based certificate of authenticity of sorts — a kind of digital collectible. NFTs are being simultaneously heralded as a panacea for creators of all stripes in the digital age, and derided as a new system of social stratification. Art, sneakers, NBA highlights, in-game real estate, digital cats, albums, concert tickets; NFTs are everywhere, challenging the seemingly indisputable notion that nothing can be scarce on the internet.

“We’re in interesting times right now, that’s for sure,” Vatterott says, “and I don’t even think we’ve seen the real disruption. That’s still yet to come.”

NFTs and cryptocurrency are based on the same technology: the blockchain, a type of database. In a blockchain, new data is entered into a fresh block, and once the block is filled, it’s chained onto the previous block, creating a chronological ledger. Many parties hold the ledger, which makes blockchains distributed. Sometimes everyone holds the ledger, making the blockchain decentralized — a big selling point for digital currencies like Bitcoin. It’s the ultimate middle finger to “the man,” cutting out all federal governments and banking institutions.  

While both exist on the blockchain, NFTs and cryptocurrency differ in fungibility, which, if it’s been a while since Econ 101, refers to interchangeability. Cryptocurrencies like Bitcoin or Ether, for example — there are more than 4,000 cryptocurrencies as of January 2021, by the way — are fungible, just like fiat currency. If two people exchange dollar bills, they each still have $1, no matter the serial number. Same with cryptocurrency: one Bitcoin is the same as any other Bitcoin. 

But NFTs are more like works of art. They are non-fungible. Two people can each have a painting by Picasso, but the values aren’t the same — they aren’t interchangeable. 

NFTs lend themselves perfectly to the world of collectibles because they are non-fungible — they’re unique, recorded on the blockchain by a distinctive alphanumeric tag called a hash. And nowhere are collectibles more pertinent than the sports world, where Franko Vatterott has made his career. 

A press release in December says HIG’s partnership with NetCents promises to bring “the first application of the technology to market allowing buyers and sellers of merchandise to prove ownership and authenticity of the item when purchased through the NetCents platform. The companies will also be co-developing industry-specific perks aligned with NetCents’ cryptocurrency business solutions to benefit merchants, athletes and consumers in active lifestyle markets.”

Vatterott can’t talk specifics just yet, but he says the goal is to “protect my clients.”

“I’ve basically been watching our athletes sort of get ripped off for years,” he says. “We do a partnership with a sponsor and they pay the athlete and we do a contract and [the sponsor] acquire[s] rights to use [the athlete’s] name, image, likeness, all that stuff. And then somebody else will take that proprietary content and repost it or repurpose it. I can’t tell you how many times over the years we have found stuff, even our own photos that we’ve shot, used in a magazine or something else that nobody asked permission for.

“And it’s like jaywalking,” he adds. “It’s like, alright, well, it happened, but what am I going to do about it? And you don’t do anything. What’s really interesting about this NFT world is it allows you to sort of protect your intellectual property that can be digitized and track it. And that doesn’t really exist in sports.”

Vatterott is talking about much more than just promotional photos. He brings up Pat Riley, the former Lakers head coach who trademarked the term “three-peat” in the late ’80s as the Los-Angeles-based team attempted to win its third championship in a row. Riley successfully trademarked the phrase — though the Lakers didn’t win their third championship — and subsequently collected royalties from sports apparel makers who licensed the phrase for use on merchandise commemorating the accomplishment when the Chicago Bulls did win their third championship in a row in 1993. 

Today, Vatterott says, Riley could profit even further by creating NFTs for the products that use the phrase. NFTs correspond with smart contracts, electronic transaction protocols that automatically execute actions according to the terms of the contract. A smart contract could demand, for example, that 10% of every sale of a product, no matter how far down the line in a secondary or tertiary market, goes to the creator. 

“Musicians, artists, athletes, any of these people, NFTs are going to be a godsend for them,” Vatterott says. “Because every time somebody has a massive amount of success where [other people are] willing to pay for their product or their service or their likeness, there’s a significant amount of fraud. And that’s what I see the biggest benefit of NFTs is going to be; essentially that digital smart contract follows the product, so you have a great history of what you’re buying, honestly, on a secondary market.”

Used sports equipment is another example Vatterott points to: you could purchase a bike that Elia Viviani used, and an NFT could be created that logged all of the details about the bike in the blockchain where it can’t be tampered with, ultimately giving the buyer a very accurate certificate of authentication. Much more accurate, Vatterott says, than current records, because most blockchains are decentralized, meaning none of the information is stored in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change.

“So imagine what Carfax was back in the day, when you bought a used car and you could get all the history of it,” Vatterott says. “Even that can be manipulated because it’s still through a centralized source versus an NFT on the blockchain. It’s impossible to manipulate — you’d have to have a 51% attack (a group controlling more than 50% of the network’s computing power) in order to go in and overcome the public ledger. That’s what makes the blockchain so powerful.” 

Eric Alston, a scholar in residence in the finance division of the Leeds School of Business at CU Boulder, is also a crypto guy. But he’s got a more cynical take on NFTs. 

“We really have to understand a lot of different underlying economic incentives that are occurring,” Alston says. “The big question you should be asking yourself is what are you getting with a particular non-fungible token.”

Alston points to recent headlines about the millions of dollars spent on NFTs created by artists such as electronic music producer Grimes, who recently took to the digital merchandise platform Nifty Gateway to sell a series of 10 pieces of art — some one-of-a-kind, others one of hundreds of copies — featuring flying cherubs and original music. She made nearly $6 million in a matter of hours (in cryptocurrency, of course; Ether specifically).

Grimes WarNymph Collection/Nifty Gateway

Alston offers a “couple of hypotheticals surrounding the cryptocurrency bull run that we’re currently in.” 

“Imagine you’re an electronic music artist that’s been into cryptocurrencies for awhile, and you just became a multimillionaire as a result of the bull run, but most of your value hasn’t been transferred into U.S. dollars. So what if you buy all of your own non-fungible tokens through some not-particularly-well-monitored user on Nifty Gateway and don’t pay capital gains tax on them, and instead pay whatever tax you would pay as an artist selling art?

“Second, what if you are a newly minted crypto hundred millionaire and you’re having the time of your life and you want some of your artist friends to be there with you?” he adds. “You could literally give them a million dollars without thinking about it — except Uncle Sam would come and take half of that. Oh, but if your artist friend lists a particular NFT? Well, that’s a great way to gift your friend a bunch of money and support their art.

“What if you’re the famous-musician wife of one of the richest men in the world who also has an interest in crypto? Do you think he could afford to just firehose money at his wife’s non-fungible tokens? But that’s the cynical take. And I do think there’s gotta be some of that going on in terms of the numbers we’re seeing on this Nifty Gateway, and what’s in the value that’s being exchanged.”

And Grimes isn’t the only artist making bank on non-fungible tokens: other exorbitant NFT sales include an inked sketch of Batman for $195,000, and a digital cat — a CryptoKitty — for nearly $400,000. Electronic music producer 3LAU (pronounced “blau”) raked in more than $11 million for a custom song, access to never-before-heard music and custom art. 

Just this month, rock band Kings of Leon reportedly made $1.4 million from an NFT auction of their new album — the first band to sell an album as an NFT — including exclusive album editions, digital artwork and lifetime concert passes. 

“I don’t mean to impugn the amount of money they’re making, but we should spend some time talking about what’s implicit in that, in the sense of why people might be throwing this much money at these things right now,” Alston says. 

But he has a less cynical take as well. 

“I suspect there are a lot of periods in history where one of two things was happening: The newly minted wealthy — whether they were millionaires or a hundred-thousand-aires or whatever the standard of the time was — I bet that they’ve spurred artistic revolutions because they said, ‘Hey, I like these artists and I am going to bankroll this movement.’”

These early NFTs may “suck,” Alston says, “but we have to start somewhere.” 

“And maybe some of them will actually become incredibly valuable because they stand as the beginning of an artistic movement in the digital realm,” he says. “And certainly you could argue that the rapid duplicability of digital art deters artists from engaging in that output. I know artists who are like, ‘I would be interested in digital painting, but my main medium is this physical one because I can sell that, because the people who will buy it know that it’s the only painting.’ And so that’s the radical inclusivity that [could come from NFTs].”

NFTs could, theoretically, cut out middle men, like record labels or art auction houses, as artists can “mint” their own NFTs and use platforms like Nifty Gateway to sell their work and retain more of the profit (it does cost to mint an NFT, to create a new block in the chain, which could be cost prohibitive for some artists). 

Boulder-based graphic and brand design studio Berger & Föhr has also ventured into the NFT realm with a series of monochromatic artwork they auctioned off late last year. Todd Berger, who co-founded the company with his friend, Lucian Föhr, more than a decade ago, acknowledges the cynicism around NFTs — including the argument that crypto mining, which allows for the decentralized security of blockchain, is highly energy-intensive due to how much processing power it requires. Still, he says, the criticism is akin to virtue-signaling. 

A set of monochromatic NFTs created by Berger & Föhr

“There’s a lot of, like, old guard folks out there that missed the boat on crypto, missed the boat on Bitcoin, are missing the boat on NFTs, they don’t get it,” he says. “So they make the environmental argument. And meanwhile their personal footprint is, like, massive.”

Berger, Vatterott and Alston all mention a shift in blockchain technology — from proof of work to proof of stake; too convoluted to address here — that aims to decrease the amount of energy required to make transactions on the blockchain. The technology isn’t there yet, but all three say they believe proof of stake (lower energy) is the future. Their concerns are centered more squarely on how best to use NFTs and cryptocurrency to empower people in a day and age when the rich only seem to get richer. 

“I see artists and people that don’t necessarily want to sell their soul to the man to make a living and want to focus on what they want to do, I see this being outstanding for the independent [artists],” Vatterott says. “There’s a whole flock of new people that are going to come up because they don’t have to go through the corporate channel to be able to have a chance anymore because they can NFT something.”

But what we’re seeing with NFTs right now — $6 million on digital art of angels floating over planets — doesn’t feel like the solution to traditional capitalism.

“I would say there’s a cynical take on the prices people are making,” Alston says. “If somebody reads a headline that says Grimes made … $6 million … I’d like people to look a little bit deeper in terms of why those numbers might not be an indicator indicative of true market value being changed right now. That doesn’t mean NFTs are bunk. It doesn’t mean that they aren’t an important innovation. But it’s just a headline. … I get the incentives about these eye-popping numbers, but it could give someone the impression that artists will all soon be millionaires by minting NFTs. That’s not the case.”

Kristelia Garcia, an associate professor of law at CU Boulder, says she’s “more curious to see if we can do something better and more useful with” NFTs than just selling art or music. 

“I actually wonder if the real question here might be requiring all originals to have NFTs and be on the blockchain, so we know where they came from,” she says. “I’m thinking more from a criminal perspective, like child pornography or revenge porn — who posted it originally? We would know because the NFT would record it. To me, the more interesting angle is: how can we use this for something other than allowing very rich people to do silly things?”  

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