Q. Where does the value of an NFT come from? Is it about utility, rights, provenance, democratization, exclusivity or inclusivity?
A. NFTs represent a cultural shift toward a creative economy. [It's also software that represents your rights to something. The non-fungible part is the fact that your painting is not equivalent to my painting - they are different from a rights perspective. Yes, you can take a screenshot and copy it, but you can't copy the digital signature that says it's my painting. This is important because digital ownership is a fundamental concept that we are moving toward in the metaverse world.
Artists who sell digital representations can participate in a new economy. But can we create a decentralized economy out of NFTs? Can artists bypass traditional markets and make money based on verifiable digital property? In theory, you don't need a centralized marketplace; you can use a person-to-person model. For example: you text me and ask me to buy your digital baseball card for $1,000. I send you bitcoin. You send me back an Ethereum transaction that transfers that NFT to my public key, which is now encapsulated with my private key. The result is that I own it and can prove that it is mine.
Right now, most people in this ecosystem are still going to centralized marketplaces, so we'll see how it evolves. But the idea of decentralized rights for different types of collectibles is extremely compelling and offers an incredible number of use cases when you look at smart contracts. Potentially, this is going to change everything.
Q. Should there be limits to what these NFTs can do?
A. I'm a capitalist and I see the value of something in what others are willing to pay. While I don't necessarily want regulators and governments to act as arbiters, marketplaces tend to take people out of the market who don't behave ethically, and hopefully will self-regulate over time. eBay does this with buyer/seller ratings, and it's very effective. There is fraud, but it is very small relative to the volume of transactions.
NFTs are another form of capitalism. People assign value and subtract that value when someone else wants it. It's about supply and demand - it's about collectibles. I actually think that's great. I collected baseball cards when I was a kid, and I don't see the difference.
Q. What do you think about fractionalization within NFTs, which is very similar to equity and opens up new sales opportunities?
A. That's going to happen. There are two problems: The first problem is fractional ownership of a non-fungible asset. You take a non-fungible asset and break it up into parts that in and of themselves are probably fungible. That's very interesting conceptually and from a business perspective. You could have millions of dollars worth of rights that are accessible to people in the same way that mutual fund shares are.
The second problem: It sounds a lot like securities. And as soon as you start offering securities in the U.S., the U.S. Securities and Exchange Commission [SEC] gets involved. I haven't heard of any large-scale legal tests on this. But I am sure that this will happen. We'll see how governments decide what role to play.
Q. You have been very vocal in criticizing the SEC and its general approach to cryptocurrencies. What would you advise regulators to do to encourage the adoption of NFTs?
A. Get out of the way. I think the biggest problem with regulators today is inconsistency. As far as the federal government is concerned - if you look at the way we regulate commodities, securities, etc. - it's an overlapping mess, and it was that way before cryptocurrency. Federal laws prior to the Infrastructure Act do not recognize the existence of cryptocurrencies, and it is unclear how the Infrastructure Act will be interpreted.
My desire as an American and when it comes to politics is to do no harm. And since capitalism - in my opinion - is the only tide that lifts all boats, [we] can at least create open, fair markets that allow for the free flow and exchange of information, and then get out of the way.
Q. We haven't talked about GameFi yet. Will NFTs be a subset of GameFi in two years, or will GameFi be a subset of NFTs?
A. The NFT-ization of games is definitely happening, and I think we need a new nomenclature for that. These gaming platforms are much more sophisticated than the NFT platforms associated with art and digital collectibles.
The behind-the-scenes funding that is flowing into Web 3-focused game companies is amazing. Developers are excited about it, and where developers go, the future goes.
Several Abra customers [outside the U.S.] are buying their Ethereum and using XRP to move the money and trade on Axie Infinity because the fees are lower than Ethereum.
There will be a phenomenon around the gambling economy that will be decentralized, and people will look for arbitrage opportunities. The question is: How will it find its way back into the real world and into non-gaming environments, and what will we learn from that? We'll come back to the fact that people place a value on digital property and that value is transactional.
Q. Can NFTs find application in other industries?
A. Luxury goods companies are asking, "How can we maintain what we do physically in the digital world?" I've been contacted by handbag manufacturers who want to use NFTs to resell handbags. It makes a lot of sense. This is a multi-billion dollar industry - not first sale, but resale. This brings us back to what we said at the beginning about the creative industries.
About Abra
Abra is the leading global asset management platform for cryptocurrencies. Founded in 2014 by Bill Barhydt, the platform helps millions of users earn high returns on their crypto assets, trade over 100 different cryptocurrencies, and borrow dollars against crypto holdings. Abra has processed over $1 billion in crypto-backed loans and paid millions of dollars in interest payments to retail and institutional clients. Abra is headquartered in Silicon Valley and has offices around the world. For more information, visit https://www.abra.com/.
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