What are NFTs & Why are Some Worth Millions? – Reuben Noronha

In episode #14 of Chills w TFC, we bring on crypto-enthusiast who has worked in Bain & Co, Zilingo and multiple start-ups. NFTs(Non fungible tokens) have been making their rounds in the media cycle. But, what do they actually do and what potential do they bring to the table?

Join me as I chill with Reuben Noronha to dive deep into NFTs. How does NFTs work? What is going on in the space? What is the potential that it can bring to the table for the creator economy? What is the technology behind it? Can this be a potential latest investment tool out there today? How can you pick NFTs and how does that work? How are they priced? What are some risks in buying NFTs? Tune to to find out!

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podcast Transcript

Reggie: NFTs are making their rounds in the media cycle. Non fungible tokens, what do they actually do? What does it mean, man? Is it that now gifs are worth millions of dollars? What is the potential that it can bring to the table for the creator economy? I think there are many things to touch on in this space. So I’m interjecting the planned career episodes to give you a deep dive into NFTs to allow you to understand what is going on, the technology behind it, the application behind it, and also is this a potential latest investment tool out there today? All questions answered. Welcome home. 

Welcome to another Chills with TFC session. In this series, we want to bring on interesting, relevant people to help us learn better from various perspectives. Life is not always about learning from people that you already agree with. Perspectives shape a rounder thinker in our pursuit of the life we love or managing our finances. 

Well, our guest for today is a friend of mine that I met while running a podcast fellowship. He is really a cool guy, worked at multiple start-ups, big enthusiast in the crypto space and I think he does a much better explanation than many others that I’ve seen as professionals of crypto. So let me welcome Mr Reuben Noronha, ex-Zilingo, ex Bain & Co, now budding podcaster and crypto enthusiast and fun [indiscernible] friend of mine. I had a good time. Welcome back. 

Could you just like, tell me what is an NFT? Like what is going on in this space? [laughter]

Expand Full Transcript

Reuben: What do you think an NFT is, based on whatever you’ve read? Why don’t you describe to me, what do you think it is? 

Reggie: I mean, it is a tokenization process, right? Essentially, you’re trying to make something that is not digital, give it a digital identity… 

Reuben: Yeah. 

Reggie: …and then whoever that owns that digital identity actually owns the physical thing. That’s it? 

Reuben: Somebody who owns the digital identity owns the physical thing? 

Reggie: Yeah. So to me that is, it’s like a smart certification process. I don’t know, is that what it is? 

Reuben: In a… in some light. 

Reggie: [laughter] 

Reuben: Like one aspect of it.   

Reggie: Yeah yeah, somehow there. 

Reuben: One aspect of it. 

Reggie: Yes. Tell me more, tell me more. 

Reuben: [indiscernible] so that I understand where you are at right now. Why do you think it’s a craze? 

Reggie: I don’t know, man. You know it’s… everything is crazy these days, like GameStop and then NFT and then whatnot. So everything is a craze. Um, I don’t know why it’s so big. Yeah. 

Reuben: Hmm okay. So let me start it… The problem that NFTs are trying to solve, let me virtually describe to you what the problem in the world today is. 

Reggie: What is the problem? 

Reuben: And then we can describe how NFTs is one of the ways to solve it and why it is like a superior way to solve it. So NFTs, non fungible token. The biggest ways different from tokens are like say, you know, an ERC 20 token or say Bitcoin, right? Or money is too… and which is why it’s highly interlinked with the entire crypto and blockchain world. If you take $2 notes, they’re fungible, they both represent, can be changed with each other. You take two, arguably Bitcoins, it’s not physically a real thing, but you take two Bitcoins. It’s fungible, you can change them. 

A non fungible token is essentially… has the same properties, with what a Bitcoin would have, but you can’t swap it out with something else. So it’s unique. That’s one part about why non-fungibility is important. You can’t swap it out with something else. 

Reggie: Okay. 

Reuben: But it has all the properties of what a token would have. That means it lives in the blockchain. It is public ledger. Everybody sort of unanimously agrees that the owner of a token is the owner of that token. All the benefits of Bitcoin or any token, NFTs enjoy. Their builders, essentially mostly on top with Ethereum, but they’re non-fungible. So two tokens are not the same. 

Reggie: Okay. 

Reuben: Or you can create that. But NFTs, you see, have sort of grown the most as in the digital art and the creative sort of space, and it makes sense. Why? So if you think of a digital artist, he makes an art form. He makes basically a jpeg, right? 

Reggie: Like a gif? 

Reuben: Like a gif, correct. Like a gif, and that doesn’t have much value, but why does it not have value? It doesn’t have value because it is not scarce. Anything of value needs to be scarce. It should be limited. If there’s unlimited amounts of it, it loses value. Now the Internet and everything digital was essentially built on the premise that everything can be copied billions of times. Information can be taken from one place and be copied with literally three clicks, control C, control V.

Reggie:[laughter] 

Reuben: That’s it, everything can be copied, right? And that was the power of the Internet. You could make millions and millions of copies and essentially make this available to the world. That was the promise of the Internet. But what that created was all of this information, which could be copied and pasted did not have scarcity and inherently it wasn’t valuable. 

Now if you’re a digital artist and you’re building something in the digital world, just like everything else in the digital world, it can be copied and pasted. As a result, there’s no scarcity, and as a result, it doesn’t have value. So how does a digital artist create scarcity in a digital first world? NFTs sort of solve that problem. What NFTs are able to do is even though this is a digital copy, It can somehow… not somehow. It can essentially say that these are the original copies and these are the con… like the copies of the original. 

Reggie: Mmm.  

Reuben: Because you can identify and there’s consensus across the world because it’s a public ledger that this is actually the copy, that is scarce now and that has value. Now a common argument which comes against this is everybody can see it, so why is it valuable? Well, you know what? You can apply the same argument to art in a museum. Everybody in the museum can see it. So why is it valuable? So it’s the same argument, just because you can see it doesn’t mean you own it, number one. And there’s value to ownership. So that’s one aspect of, to what you said, a smart certification. 

It’s a smart way to be like “hey, that piece of art is scarce.” You can create scarcity in the digital world and you can sort of authenticate publicly that this person owns it. So that’s one part by NFTs [indiscernible] entity. Now the second problem in art, and this is not only digital, but any format or any creative piece, the creation and the distribution are two separate sort of worlds. An artist, paints a painting, a musician makes a song, and then a label or a gallery will essentially distribute it. Now it’s common knowledge that as this piece of creation moves from hand to hand, its value usually appreciate if it’s good… 

Reggie: Yes. 

Reuben: …and it sometimes appreciates by a magnitude of… like exponentially. But in the current economic format, in the current economic world, the creator actually does not get any percent of the upside. So when a song is released, the musician mostly does not get the most of… you get royalties, but to enforce royalties again is quite hard. The artist does not get any cut from secondary sales. So the economic model is a bit flawed because it’s the collector and the middleman who are essentially, you know, making most of the upside. 

Reggie: Mmm. 

Reuben: Now what NFTs can solve for or at least like smart contracts, what they can solve for is that every time you can essentially program in the NFT that every time it changes hands, every time the ownership goes from one person to another person at whatever transaction price, X percent of it will automatically get sent to the creator, the original creator of that product.

And what that solves for is… you can program in a royalty system which doesn’t have to be enforced by anybody. Nobody’s going to be pulling up… 

Reggie: Nice. 

Reuben: …anybody else for copyright. You use my song? Boom, automatically I get royalties. 

Reggie: Nice nice. 

Reuben: It’s completely programmed. 

Reggie: Yes yes. 

Reuben: So that’s another big value prop for artists. In fact, anybody who creates something and they feel that they do not get the value of it as it goes down the supply chain or it goes down the value chain can now program it into that. I think that a big use case of this is even products, physical products. Think of the factory who makes a garment and think of Zara who sells it or say, forget Zara… say, Balenciaga who sells it.

Reggie: [indiscernible] [laughter] 

Reuben: Is that sensitive? 

Reggie: [laughter] 

Reuben: Erm… or the guys will make the Supreme T-shirts, right? 

Reggie: Okay. 

Reuben: Yeah, Supreme has an immense amount of brand, but imagine the guy who manufactured it. He’s like “what the hell, man. This is why I would just go and make Nike copies.” You can solve that problem by saying that “hey, everybody, programmatically, nobody has to enforce it, or gets a piece of it.” Now it’s very easy to implement in digital because it’s digital first. But I see a big use case of this eventually happening in the physical world, because the physical world, what today tells you that you want a piece of art, you want a piece of product is basically a paper certificate. 

Reggie: Yeah. 

Reuben: That will become irrelevant. You will have to own the NFT, or you will have to own the token of it to actually say I own it. And yeah, maybe you can take my painting, but if you can’t show proof that you have the NFT, you can almost imagine jurisdiction coming down and be like “okay, show me proof that you own it and you didn’t steal it.” If you can’t show them the NFT, it’s stolen. We’ll take it back to the NFT owner. And every time the NFT switches owners, a percentage of it automatically gets wired to the creator. 

Reggie: Okay. Okay. 

Reuben: So that’s another big value add, what NFTs can potentially solve for. Now on the third. Think of creators and compare them to start-ups. What start-ups do today is they raise a lot of venture capital, and what venture capital helps for, if you think about how venture capital was set up. It was mainly set up to help build SaaS (Software as a Service) companies because SaaS companies needed a lot of upfront investment, and then once you created that, every additional user who was using that product, the marginal cost of it was zero.

Reggie: Yes. 

Reuben: But the marginal revenue is high. 

Reggie: Yes.

Reuben: Now think of media. It’s exactly the same. We produce this podcast. There’s a cost to produce this podcast, but for a marginal user, for every new user to listen to it, the cost is zero. 

Reggie: Yes. 

Reuben: That means a business like content creation or any kind of creation can be compared to a SAS business.

Reggie: Yeah. 

Reuben: And then what does VC for SAS look like? What does VC for creator look like? It’s a bit of a question mark. Now, a lot of guys in the world today are going and setting up companies and they’re raising equity very similar to a start-up, but in order and a way to finance all of that is you issue an NFT.

How would that work? You issue an NFT and this gets really exciting. You issue an NFT saying that “hey, I’m going to be producing 10 pieces of art and I’m doing a pre-sale. I’m not going to… I don’t know what I’m going to make, but I’m going to sell these 10 NFTs. And if you own an NFT at the end of this process, you can redeem that for a piece of art.

So I do the sale and I sell it in the open market. It’s almost like VCs coming in and be like “I want a piece of that. I want a piece of that.” And when you come into the challenges, you know, you require the community. You can’t just be bluffing away like what most ICOs did, right? ICOs  proved that you could raise a lot of money, but they also proved that a lot of random people… you could just raise money on false promises. 

Reggie: Hmm. Why is this different then? 

Reuben: Erm it’s not actually very different from the ICO challenge. People raising money with NFTs for something they have to produce in the future is very similar to an ICO. So it’s not that different. But yeah, I think that the ICO is sort of like, for the sake of argument, I think it’s very, very similar. 

Reggie: Mmm mmm. 

Reuben: It’s not too different. 

Reggie: Yeah. Okay, okay. 

Reuben: So think of the… actually a good way to think about it is think of the NFT as a SPAC (Special Purpose Acquisition Companies). 

Reggie: That was what was going through my mind. It’s like a SPAC, it’s like a venture fund, it’s like a… 

Reuben: Exactly. You have a shell NFT. It’s valued as something because that creator is going to actually put something into it, and you have some trust that that creator is going to create something of value. But basically you own the SPAC and NFTs represent the SPAC. The ICO sort of represented a share into something in the future. Maybe that’s some kind of a difference because you won’t issue a hundred thousand NFTs, you would maybe issue one NFT, whereas an ICO, you probably issue thousands of tokens. But anyway, forget about the difference. It’s similar but slightly different.

So you are a creator, you sell these NFTs. It requires an immense amount of trust from a community that is actually going to be valuable. But you put them out, you get in cash, people buy your NFT, and then you can start creating whatever you create. So it solves for that. A lot of creators can essentially crowdfund whatever they’re making, but here’s where it gets really exciting and where it gets very different from crowdfunding. Whatever I just said sounded exactly like crowdfunding.

Reggie: Yeah, it does [laughter] 

Reuben: When I essentially buy something, be a part of some… or I fund something on Kickstarter, I’ve essentially put in my money for the actual outcome of that project. 

Reggie: Yeah. 

Reuben: My ownership into that project is highly illiquid, but that doesn’t happen with NFTs. If I’ve essentially say… Reggie raises 10 NFTs for the next 10 podcasts. I bought it. But at any point between today when I bought the NFT, to when Reggie actually puts out his episodes, I can sell my NFT. So that almost becomes a financial asset. And here’s where it gets even more interesting. Every time that NFT changes hands [indiscernible], the artist actually gets a cut. So I can theoretically sell all my NFTs today at $10 before making any art, I can launch one piece of art, which people are like “wow this is epic, it’s worth a million dollars.” All my nine NFTs start trading for higher and every time they trade, I get a percent of it. 

So it’s like basically an IPO, but you actually get an upside as your share price goes up. But most companies IPO, which is why the big question on what price you IPO. If you price it too low, you leave money on the table. If you price it too high… 

Reggie: Nobody wants it. 

Reuben: Nobody wants it. Getting that right price is so hard, but in this kind of format, and again, it’s not purely NFT, I’m sure it can apply to companies raising money also. It’s okay. You can price it whatever you want, because as it goes up, you’re sort of getting the upside. So it lowers the barrier for enthusiasts to participate in a creator, finance them. And if things are not going too well, sell their stake off. Be like, you know, Reggie, I think you are able to produce a hundred podcasts, you have never ever sold a hundred NFTs. I bought it, I was excited. 

But two weeks later I’m like “oh man, I don’t know if Reggie’s into it.” All my conviction goes down. I have a market where I can sell that NFT. I can’t do simple crowdfunding, which is why the big difference in crowdfunding. But here’s the flip. If the value of it actually goes up, if you get a lot of traction, oversubscribed on a crowdfunding platform, you actually [indiscernible] incentivized because if I sell it to somebody else, there’s a way that you actually get a cut on every increment which goes up.

So it all boils down to the NFTs is essentially an economic model which is very, very pro -creator and it allows the creator to dip into all the areas where his art was actually creating value and extract value from all those, even if it’s very far away from.

Reggie: Yep. Yep. So that’s the creative part, right? And then as an investor or someone that is trying to explore this thing as a financial asset, what is my reality then? How do I pick NFTs and how does that work? How are they priced? 

Reuben: That’s a good question. So think about the financial assets you’re currently invested in. What would they look like? 

Reggie: I mean, stocks, ETFs, bonds. 

Reuben: Exactly. 

Reggie: Right? There’s a market exchange out there and those kinds of stuff. 

Reuben: Correct. So you own stocks, you own bonds, say you own Tesla right? 

Reggie: Mmm I don’t [laughter] 

Reuben: Forget all those. What stocks do you own? 

Reggie: I mean, Apple, Facebook… 

Reuben: Say you own Apple. 

Reggie: …Disney, whatnot. Yeah. 

Reuben: Now you might actually understand Apple’s business. You might actually understand Apple’s balance sheet. You might actually understand what happens on Apple’s investor calls. My guess is at least 50% of the people who own Apple don’t understand that. 

Reggie: Okay. Really? 

Reuben: I think so. 

Reggie: Okay. I don’t know, I don’t know. 

Reuben: Like they don’t really understand… like they probably don’t know how to read a balance sheet. 

Reggie: Okay. 

Reuben: They won’t know what a debt-to… like what a good debt-to-equity ratio should be. They won’t know it. As you sort of look at the entire market of investors, especially not professional, like people in the business of investing, but like retail investors, my guess is most people don’t really understand the financial product at hand. 

Reggie: Fair. Anecdotal experience tells me yeah, probably.

Reuben: Yeah, I think a handful of them people actually understand. Like, yeah, I can say, you know, I own, say Spotify, why do I own Spotify? Because I’m a happy user of the product, I pay for them. That’s it. Now the real question is I buy Spotify stock, is that the right price? I have no clue. I have no clue Spotify is overvalued, undervalued. I would have owned it because I liked the product, but from a pure financial price, I have no clue. Anyway, the point is that my view is that a lot of people who buy stocks, bonds, they get a broad feel of it. They don’t really understand it.

Reggie: Yeah. 

Reuben: So it begs the question on “hey, you know, we should be investing in things we actually understand.” And what I feel is a new asset class will emerge… is basically investing in businesses you actually understand, which are creators. If you were essentially, you know, watching say, I DJ right. I watch this DJ putting up YouTube videos. I am better than the average individual to assess if the guy’s talking shit or the guy’s talking sense. So I understand that better than most other people. It gives me a competitive edge. 

Number two is if that guy actually sells it like a course, or actually sells an event, or sells like a masterclass, I’m probably going to buy it. That means I’m putting my… I’m paying for that product that means… proves to me that “hey, this guy’s probably doing something interesting.” As a fan of musicians, I’m anyway promoting them. What if I could get financial reward for it? So at a macro, I feel creators as an asset class is going to start becoming a thing. Just like we have baskets. You probably have, you know, Korean beauty.  

Reggie: [laughter] 

Reuben: You know, baskets. You want to invest in Korean beauty. You can invest in this ETF because thinking of creators as creators… just purely guys who make videos and content is quite limiting. You need to think of them as media companies. So NFTs sort of become a new vehicle, like a stock to invest into new age media companies. And that’s why from an investor’s point of view, if you’re bullish on like, you know, meditation’s a thing, you might want to invest in a meditation app, you might want to invest in clinics, in yoga companies, or you might want to invest in a basket of creators who talk about meditation online. 

Reggie: Okay. That’s interesting. That’s interesting. 

Reuben: I feel on the other end of spectrum, I didn’t mention this earlier, is creators as an asset class is something which will be a new asset class, like an alternative asset class. Like everything else, like sneakers sort of becoming collectibles that’s becoming an asset class, art is an asset class…. all of that. I feel like investing in creators, which are like new age media companies, in my opinion, will be an asset class, and the way you invest in them is probably not to stocks. They just don’t want to set up a company and dilute stock and [indiscernible]. They probably do it through NFTs. 

Reggie: Okay. So try to help me understand this. When we run something in a stock structure… 

Reuben: Yup.  

Reggie: There’s a company and there’s cashflow, and when you own a stock, you’re actually owning a part of the company. If they pay out dividend, you get that cashflow, right? 

Reuben: Correct. 

Reggie: And if the value of the company goes up, then your stock price go up. You get that experience, right? 

Reuben: Yeah. 

Reggie: How would that translate into an NFT, when it is just an individual like “are we getting a bunch of their cashflow or what’s going on?” Because it sounds like it’s so flexible, like you can essentially create tokens for the singer itself or their songs or their future project. What’s going on here? How does that work then? 

Reuben: That’s a great question. So let me break this into two parts. Number one is how do you actually get access to potential cash flows and dividends? That’s one… actually three parts. So that’s one, we’ll come to that. The second is how does the price go up? Because you gain through appreciation. That’s two. And the third is how do you actually enforce it? Which I think is a very important one, which is phase three. So let’s maybe deal with phase three. 

Today, if a company makes a lot of profit, it’s at the backend call of the company to announce dividends or not. Yeah, you can arguably say the shadow of the board can be like “we’ll vote for dividend blah blah blah”, but as a retail investor, I don’t know if this company is going to announce dividends or not. 

Reggie: Yeah. 

Reuben: That can be avoided because with NFTs, what is possible is it can be programmatically written that this is what’s going to be the dividend payout if X, Y, Z criteria are met. You can almost like put it into code, make it publicly available. And if everybody’s like “that makes sense to me, I buy in. Doesn’t makes sense to me, I don’t buy it.” 

Reggie: Okay.  

Reuben: So like payouts, if the person who’s… you investing in actually does well, shorting your payout can be guaranteed to a larger extent as compared to a women fancicer for board of investors and shareholder, which is… can be moved on. So that’s a quick one and it gets super important, because if you’re not investing in an equity, a stock, who’s enforcing your ownership? How do you prove your ownership? How do you essentially say “hey, give me dividend”? 

Reggie: Yeah, that’s actually one of my bigger concerns in the crypto space, right? It’s like…

Reuben: Yeah. 

Reggie: … you don’t actually own the company. You’re not actually like, you don’t own the technology. You’re just putting your resources here and then like who… and how does this work, right? So I think a lot of people have these kinds of concerns? 

Reuben: And they’re very valid because we are used to a system where in the rule of law of the country will come down and enforce on it, right? 

Reggie: Yeah.

Reuben: Anything… like if I give you money and whatever legal tender means, you’re not allowed…  if I give you $10, you can’t, you are not allowed to say that “hey, [indiscernible], give me $10, give me something else.” So we all essentially go up to the rule of law to enforce it. But… at least in countries like India, for example, you’re like “really? Is that a good assumption… 

Reggie: Really? Mmm hmm. 

Reuben: … rule of law? Mmm, I don’t know.” 

Reggie: [laughter] 

Reuben: Erm, so yeah. It’s a good question. How much do you trust? For example, in Singapore, you know, rule of law [indiscernible] we are pretty confident of that. But a lot of places, a bit of a doubt, will rule of law actually… 

Reggie: Especially when it’s so huge, right? You’re in like all these different parts, like what’s going on?

Reuben: Correct, especially when it comes to corporate, you’re just like, you know… will anybody listen to the small guy? They bring in their attorneys, they fight and you know… I don’t know, right? 

Reggie: Yeah. 

Reuben: So you can just think about all of that. There’s no rule of law. There’s contracts. You buy in or buy out, and if it’s in the code, if it’s in the contract, if it’s in the smart contract, we can assume that it’s going to happen because it’s not going to be determined by somebody.  If X, Y, and Z conditions are met, it’s going to happen. 

Reggie: Okay. So that is the thing with NFTs. 

Reuben: We just blockchain in… 

Reggie: We blockchain in general, 

Reuben: … but like smart contracts. 

Reggie: Okay. Okay. 

Reuben: If this, this, this happens, you can assume that output is going to happen. 

Reggie: Okay. 

Reuben: Because a computer has decided. 

Reggie: It’s programmed to do that, right? No discussion on that? 

Reuben: No discussion. This is what they call programmable money. 

Reggie: Mmm, thank you.

Reuben: You can program the money to do things if something’s happened. 

Reggie: Nice. 

Reuben: And there’s no ambiguity. 

Reggie: Nice. Okay. Cool. 

Reuben: So that’s the enforcement part, which becomes important because today, if I want to finance Reggie, what if Reggie fucking fucks off tomorrow, right?  

Reggie: Yep yep.  

Reuben: I don’t own Reggie’s company, and even if I own Reggie’s company, they will just like “yeah okay, own the company.” 

Reggie: Yeah. By all means. 

Reuben: Yeah. 

Reggie: Do your thing. 

Reuben: I agree, I’ll start up a new company. So it gets harder in the creative space. 

Reggie: Ah. Okay okay.  I’m slowly seeing it. 

Reuben: Because the IP is also the creator. 

Reggie: Yes, yes. 

Reuben: It’s not the company’s operations and clients and things like that. 

Reggie: Yeah. Yeah. 

Reuben: So the company’s structure probably is not the smartest, but you know, you have to find other ways to do it. Anyway, that’s one. So let’s come to the first one. How do you get dividends? Now, again it comes back to how you program the NFT. There’s this platform which I think called Hive, and the way to think about it is it’s a decentralized YouTube. For practical purposes, it’s YouTube. 

Reggie: Okay. 

Reuben: There’s no real organization to run it, how they decide, you know, add splits and you know, how much percentage is creator’s stake lah lah lah… is all decentralization… 

Reggie: Or programmed. 

Reuben: Not run by a company. 

Reggie: Okay. 

Reuben: Nor programmed. So what happened in say, for example, Hive, and again, I’m not sure if this is exactly to… but in essence, what happens is I can show up to Hive and I can watch videos. Every time I watch a video of, or every time I listen to say, a podcast from Reggie, Reggie gets a coin, say the Hive coin, okay? Now that Hive coin, because it’s a crypto world, can essentially be traded out into anything. So that’s our value to you. It’s not like just getting a digital coin on some platform. You can trade that coin because who buys those coins? Advertisers. If an advertiser wants to put in an ad into your show or any show [indiscernible], as on Hive, you would essentially need to buy a coin or whatever.

So the economic model works there. Now, what is possible is your NFT can say every time Reggie gets one Hive coin, I get one hundredth of it. 

Reggie: Mmm. 

Reuben: Every time when Hive is pushing a coin to Reggie, the NFT can say when that transaction happens, I essentially get one hundredth of that coin. Because the good thing about coins is you can essentially fractionalize it to any extent. So every time Reggie gets a payout from anywhere, you can program the NFT and you can say “hey, here’s my NFT, here’s what it means: every time I get paid out from YouTube, every time I get paid from this company, you will get X percent share of it.” 

Reggie: Mmm mmm. 

Reuben: And it doesn’t matter if I want to give it to you or not. It’s programmed

Reggie: Okay. 

Reuben: This is unlikely to happen on YouTube because YouTube will have to API sync into all of that. It’s complicated. 

Reggie: Yes yes. 

Reuben: [Theoretically can happen, theoretically can. If I can plug into your YouTube AdSense, you can do it. There’s this cool company called Stir, which sort of does split payments. 

Reggie: Stir?

Reuben: Stir. S-T-I-R, which does split payments for creators. So say you and I collaborate and say, this airs on your show and say you make a million dollars on the show. I’m like “we have to have a legal contract” and stuff like that. But what we could also do is, hey here’s a show, whatever ad revenue comes into your YouTube account or whatever account, say 20% automatically is wired to me. We don’t have to enforce it. 

Reggie: Nice. 

Reuben: So that’s what an NFT is. 

Reggie: Seems like I no longer need to write legal contracts. 

Reuben: You never have to write legal contracts. Because here’s the thing: who is enforcing the legal contract? 

Reggie & Reuben: The law. 

Reuben: Here, you don’t care about the law, the contract enforces… 

Reggie: The programme does it, right? 

Reuben: It just enforces itself.  

Reggie: Nice. Nice. Okay. I’m seeing this clearer and clearer, so that’s good. That’s good. Good stuff! 

Reuben: And by the way, there’s a flip side. Because if you don’t understand the law, if you don’t understand the contract, well, nobody can protect you. Which is why, for example, people have lost millions on Bitcoin. 

Reggie: Yeah there’s a lot of scams out there on this kind of stuff. 

Reuben: Yeah you gotta be very careful, because if somebody sell you something wrong and you don’t fully understand it. I’m sorry, you can’t go crying to somebody and be like “oh I don’t understand”. 

Reggie: Yeah, because this is the contract, right? 

Reuben: This is the contract, you signed it. There’s no resolution per se, and that is why I feel a lot of people are slightly nervous because you can’t make a mistake in this world. You send the money to the wrong guy? You can’t be like “oh, I’m sorry. I sent the money to you. Please give it to me back.” 

Reggie: No, does not work that way. 

Reuben: You can’t. Why did you make the mistake in the first place? Now, I think there’s a lot going to happen on the consumer side to improve this experience but that is what it is. If you say somehow you fucked up and you said “Reuben, you get 1% of my ownings as a, as NFT, that’s it. By contract, I can do that. It automatically executes and you might be pulling your hair like a lot of shadow founders do eventually when they dilute too much. “Why did I do it right there?” But you can’t divorce that… you can probably find ways. You can buy the NFT back and then kill it…

Reggie: Yeah all these kinds of stuff. 

Reuben:…but you have to be very careful of what you sign up for. But the good thing is what you say will happen, no two ways about it. 

Reggie: Okay, I briefly got it. Okay. So it’s kind of like, if I NFT one podcast episode and then I say that you will get 5% of all my ad revenue that goes through this particular episode… 

Reuben: Correct.  

Reggie: And if someone buys that ad slot, you automatically get 5% because you own the NFT of this particular episode. 

Reuben: Absolutely. 

Reggie: Is that what it is? 

Reuben: A hundred percent. 

Reggie: Okay, okay. Nice! 

Reuben: So for example, If I listened to this episode and I’m like the first hundred listener and I’m like “man, This episode’s going to be dope… 

Reggie: Yeah. 

Reuben: …I’m going to buy that episode.” 

Reggie: Okay. By the way, shout out to you guys. If you want to buy like Coconut NFTs… 

Reuben: A hundred percent!

Reggie: Yeah. Let me know, man. 

Reuben: If you want to buy like… clearly Financial Coconut is a big podcast. 

Reggie: Thank you. Thank you. Thank you. [laughter] 

Reuben: It’s a big podcast. Here’s the thing. You should try and sell your first NF… your first episode. That’s what I tell a lot of podcasters. Why don’t you ask the audience if they would like to own the very first episode you did? 

Reggie: Nice. Nice. 

Reuben: Now, how valuable is it? To be honest, I have no clue, but would you pay $1 for it? Maybe? Would it be $2? That’s less than a bubble tea. Maybe. It’s a way for you to show some… like Reggie support. Yeah. 

Reggie: t’s kind of like experimental, right? At this moment in time… 

Reuben: But here’s the thing. What is possible? People eventually realized that his art was worth $69 million. I don’t think he would have imagined that. 

Reggie: You mean the gif guy? 

Reuben: The gif… the guy who put NFTs on his paintings because somebody else place some value in it. So anyway, the thing is the price discovery of content is very hard. What is your first podcast valuated at? I don’t know. But put it out of the open market and we’ll find the value for it. So that’s another alternative NFTs solve for, by really creating an open market. It helps artists extract the most value.

Reggie: Mmm. So what are some of these platforms that I can go to? Like buy NFTs or explore what is out there? 

Reuben: So you can go to this platform called OpenSea. It is… 

Reggie: OpenSea. 

Reuben: OpenSea. 

Reggie: S-E-A? 

Reuben: S-E-A. 

Reggie: Okay. OpenSea. 

Reuben: Yeah. That’s a platform where you can maintain NFTs. What that means is you essentially say that this file and the metadata of this podcast, you sort of mint it into a token, and that token says okay, this is a unique token which has this metadata, which is your podcast, and that’s it. This is owned by this address, which is Reggie’s address. If you want to buy it, you can sort of build on that platform and then Reggie can sell you that, which means you transfer Reggie some cash and then Reggie sends you that address. It’s logged in the blockchain. Everybody agrees that. Now the owner of that token which contains the metadata of the first podcast is owned by that address. 

Reggie: Nice. 

Reuben: So OpenSea is one… you can pretty much tokenize anything, right? Like Jack Dorsey tokenized his first tweet. Why would anybody want to own the first tweet? Well, it’s like owning a piece of history, right? 

Reggie: Yeah. Fair, fair, fair. 

Reuben: It depends. Is it worth… is it worth 2.5 million? No, I wouldn’t be able to go and buy [indiscernible]. 

Reggie: I don’t care about Jack Dorsey [laughter] 

Reuben: Exactly. 

Reggie: But yeah, I know fans like Batman, Superman, people buy those things, right? 

Reuben: Correct. 

Reggie: But those will then fall into the very… you know, collector class assets. Then it’s a very different discussion. But at least through this discussion, we have come to understand more about how do we tokenize these things and find cash flow in this process. 

Reuben: Yeah. 

Reggie: And then once you have cashflow in some assets, then there is some sort of way to calculate its actual value in that sense.

Reuben: Yeah, correct. Because another great thing is say for example, even music, right? You can completely get rid of copyrights because you’re like, here’s this music, anybody in the world can use it for whatever they want. 

Reggie: Dude, tell me about it. Yeah. 

Reuben: You can take this music and plug it into… again, all of this probably needs to happen in the crypto [indiscernible] for all of these contracts to execute automatically, but I can take a song, put into my video and the song will automatically… Again, now how this works is… I’ll avoid it, but the song can literally say that “hey, if you want to use me, I’m going to get 5% of whatever the meta, bigger content gets. 

Reggie: Okay. 

Reuben: I go on this video. If this video gets X amount of ad revenue, the song per se will say, will automatically extract 5% of that video.

Reggie: I get it. It’s like you run a mini movie and you can use my hit song as your theme song of your mini movie, right? 

Reuben: Yeah. 

Reggie: And for every ticket that you sell for 10 bucks, I get a buck or something like that. 

Reuben: Exactly. 

Reggie: And then we’re locked in on a smart contract. Feel free to use the music.  

Reuben: Exactly. Feel free, if as long as I can enforce the contract and here the thing is automatically executes. So what NFTs actually will eventually become is not collectible. Today people are looking at collectibles, they’ll actually be income earning assets. 

Reggie: Nice, nice. 

Reuben: Like I own Reggie’s first podcast, not because I want to collect it. Because everybody… as Reggie grows as a podcaster, everybody will want to listen to his first podcast. How did Reggie start? And the more people listen to it, the more… 

Reggie: Ad revenue

Reuben: Ad revenue, the more money I make. So do you know, if there’s some person who should be like, “okay, I’m putting together a list of the top 100 first time episodes.” If Reggie’s podcast lands up on that list and that entire show makes them a lot of money, I should make more money. 

Reggie: So that becomes a structured product.

Reuben: So it becomes a structured product. 

Reggie: Or NFT. 

Reuben: Yeah. It becomes in like… today, people can see it as true ownership and a collectible. Yes, absolutely. But people already… I’m not the first one saying this, but you can see this as an income generating asset in the future. 

Reggie: Shit bro. Wow. Okay, okay. Well that’s amazing. Honestly, like the way you’ve explained it, I was like, wah I’m so blown man. Shout out to everyone listening, if you want to own a Coconut NFT [laughter] We’ll explore, we’ll explore okay. 

Reuben: Yeah. Why don’t we set up a new podcast called Financial Coconut Crypto, and then you get on the force of that? 

Reggie: Ah, okay okay. Well, let’s think about it. Okay. Recently there’ve been a lot of buzz in this space. 

Reuben: Yeah. 

Reggie: So, yeah, let’s see. Let’s see how that goes. Thank you. Thanks for sharing.. 

Reuben: No problem. 

Reggie: Hey, I hope you learnt something useful today and truly appreciate that you took time off to better your life with The Financial Coconut. Knowledge is that much more powerful and interesting when shared, debated, and discussed. Join our community Telegram group, follow us on our socials, sign up for our weekly newsletter. Everything is in the description below.. And if you love us, want to help us grow, definitely share the podcast with your friends and on your socials. Also, if you have some interesting thoughts to share or know someone that you want to hear more from, reach out to us through hello@thefinancialcoconut.com. With that, have a great day ahead. Stay tuned next week, and always remember, personal finance can be chill, clear and sustainable for all.

I’m just going to go through three short questions with you. Just share with me your thoughts. Okay. So number one is what is a core life principle that you hold close to? 

Reuben: Just try things. Don’t be afraid to try things. It’s very hard. It’s very scary, but you know what? I’ve been hearing time and time again, is that when people are very, very close to dying, the biggest thing they have is regret of not doing things. That’s something that I think… it’s very important to try it out, get it out of the system. Do it, try it. What’s the worst? You will fail it, right? It’s not even a bad thing. You learn something out of it.

So I think that’s an important principle I hold. Like, don’t be in a spot where in years later, I wish I did that. It’s not that I feel that way, but I’ve heard so many stories of people later in life, just be like, you know, regret is a washed feeling? And I don’t feel regret today, but I’m so scared to what that feeling would feel… 

Reggie: I know. 

Reuben: Because then you’re like, “man, like I’m 60” and even at that point in time, I think it’s too late. 

Reggie: And I’m still a virgin… no no.  

Reggie & Reuben: [laughter]  

Reuben: But I’m like “oh man, I’m 20 more years and I’m gone”, and you always think you will do this tomorrow. We’ll do this tomorrow. You’ll do this tomorrow. But… and then when you hear instances that, you know, whatever, like somebody died or somebody got a heart attack at 30 and you’re like… 

Reggie: I get that. Cool. 

Reuben: Yeah. 

Reggie: No regrets. Good. Okay. Next question: so what is a personal finance advice that you feel needs to be propagated? 

Reuben: If your full-time job is not a trader, don’t behave like one 

Reggie: Nice. 

Reuben: Like… 

Reggie: Don’t try to time it, don’t try to…. 

Reuben: Don’t try to time it. Yes, people around you will make a lot of money, but nobody’s going to tell you how, like I wish there was like an… like how much people lost? 

Reggie: You wish there was an NFT for their portfolio performance. 

Reuben: Yeah but that’s nothing that people will do. They just issue an NFT for themselves and be like “hey, you get a cut on every trade I do.” It’s a great way for a hedge fund guy to raise money. 

Reggie: Yeah, great shit man. Application, application! 

Reggie & Reuben: [laughter] 

Reggie: I’m sensing all these things. 

Reuben: Yeah. But yeah, don’t behave like a trader. You’ll probably just lose. Just because you have the ability to buy and sell every single day doesn’t mean you need to do it. 

Reggie: Nice. Got it. Cool. Last question. What is something that you’re working on now, like extra focused on in your life? 

Reuben: Oh, figuring out what I want to do next? 

Reggie & Reuben:[laughter] 

Reuben: I wish I was working on something more concrete, but I’m trying to just figure out what I want to do next, which is broadly in the space of crypto, create a monetization, higher education, but also work on my own podcast. It’s called Reuben’s Podcast. 

Reggie: Yeah. Cool stuff, check it out. 

Reuben: Yeah. 

Reggie: Fun with Reuben and friends. 

Reuben: Reuben and friends. And it’ll be about their lives over the last 10 years and the things they’ve learnt. So it’s interesting. I usually… I started off doing with my friends, but let’s see where it goes. 

Reggie: Nice. Thank you. Maybe we’ll do the crypto podcast.

Reuben: Yeah, yeah. 

Reggie: Sure, let’s talk about this after this. 

Reuben: Okay. 

Reggie: Take care guys. See ya.

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