Legacy Research Group

Last month, a digital artwork sold for an eye-popping $69 million.

It looks like a regular JPEG file. But here’s what makes this artwork different – it was “minted” as a new type of crypto called an NFT.

What is an NFT? Are they here to stay? Can you profit from this new crypto trend?

It’s all in your Weekly Pulse video at the top of the page. It’s where I (Chris Lowe) and host Tom Beal break down the single most important market story on our radar for the week.

And if you prefer to read along, we’ve included a transcript of our conversation below.

Regards,

Chris Lowe
Editor, The Daily Cut and Legacy Inner Circle

Transcript

Tom Beal: How does someone who sold a piece of digital artwork for $69 million relate to you and your wealth growth? That’s the topic of today’s discussion.

My name is Tom Beal, the host of The Weekly Pulse, where we break down the biggest wealth-growth strategy of the week. I’m here with Legacy Inner Circle editor, Chris Lowe.

Chris Lowe: Hey, Tom.

Tom: Chris, how are you doing today?

Chris: I’m very well. How are you?

Tom: Fantastic. So we’re talking about NFTs today, non-fungible tokens. I am clueless about NFTs. And about how I or our viewers could profit from them.

So can you help me understand what the heck is an NFT, and how and what does that do to affect us in our wealth growth?

Chris: You may have heard, Tom, that in March, a cryptocurrency entrepreneur bought a piece of digital art. It was a painting by an artist out of South Carolina, who calls himself Beeple. He sold this GIF, basically, like a JPEG that you or I would send back and forth across the internet. He sold that for $69 million.

You or I can go online and actually download that piece of art. We could print it out if we wanted to do. We could put it up on our wall.

But what Beeple did is he made this piece of art into this thing called an NFT, which gives it scarcity.

It’s like signing a painting. It’s like a digital signature that says, “This is the original.” It has just transformed the art market.

It’s even hit the mainstream. I don’t know if you’ve heard of this NBA Top Shot craze. Have you heard of this?

Tom: I have not. I haven’t heard of it all.

Chris: Basically, people are trading NFTs of NBA shots, top shots from the NBA, back and forth. They’re trading an animated GIF of someone slam dunking the ball, like you used to trade baseball cards. These are also being minted, as they call it, as NFTs.

So essentially, digital GIFs, or pictures, or songs, typically can be copied. But NFTs are making these things scarce. And they’re giving that stamp of ownership to someone who has this token.

So today, Tom, I thought we’d looked at what is an NFT? We’ll get a bit more into that. What are they being used for outside of artwork and that type of thing?

And are they a fad or are they here to stay? It’s a fascinating story.

Tom: Chris, what I love about this, and speaking with you on a weekly basis about the largest wealth-growth strategies, is this… When I heard it, I’m thinking, “Okay, great for Beeple. But that has nothing to do with me.” There’s nothing in my realm of understanding of how I could benefit from this.

So I’m excited to hear the answers to those things that you just described. So I’ll be quiet over here as you help me and our viewers understand what this is and how this can be something to look a little more into, to grow our wealth.

Chris: This actually came up through Jeff Brown, our tech expert. He’s been writing about these NFTs over at his free daily tech investing e-letter, The Bleeding Edge. That’s where I started to dig in.

I’m always looking at what our analysts at Legacy, like Jeff and Teeka Tiwari, have to say. Actually, Jeff has been touching on this a lot. So let’s just cover real quick what an NFT is.

It’s basically any image, video, or other piece of digital media that’s made into a unique token. The name is NFT, non-fungible token.

All fungible means, Tom, is like the U.S. dollar, you can take one U.S. dollar and replace it with another one, and it’s the same value.

It’s the same thing with bitcoin. If I have one bitcoin, I can replace it with another. I don’t care which bitcoin I have; they’re all going to have the same value.

It’s the same as a bar of gold. Every bar of gold has the same value.

But NFTs are different. NFTs are unique.

I’m not going to get into the weeds here, but using the same technology behind bitcoin and other cryptocurrencies – that’s the blockchain – they’ve managed to create these unique digital tokens.

The first application of those digital tokens is artwork. So folks who produce these digital artworks, before, they couldn’t sell those for very much, because you could just reproduce them all the time.

But now, with an NFT, you can give this original, authentic stamp, if you like, digitally.

So that’s the first use of it. Does that make sense to you?

Tom: A little bit. It’s still outside of my realm of fully conceiving it. Kind of like when I heard of crypto back in 2011, I was like, “Wow, that sounds interesting, but I have no clue where to go.”

This is in the same category. This was totally off my radar. But now that you’re bringing it to my attention, I’ll learn what this can do to help us grow.

But the second question you mentioned was, “Is this a passing fad or is this here to stay?” So is it a passing fad, where it’s not even worth me going to learn more about it because it’d be gone in the snap of a finger? Or is this something that may have some staying power?

Chris: This is the question Jeff addressed. These are incredible figures. $69 million for a JPEG just sounds so crazy. And people have been selling digital artwork of sneakers for thousands of dollars.

So if you open the mainstream press, you’re going to see a lot of people talking about NFTs and saying, “This is crazy. It’s a mania.”

But Jeff thinks differently. The art and collectibles market is worth about $400 billion a year. What these tokens can do, Jeff says, is make sure that things can’t be faked.

So if you’re in any part of that market, if you’re selling an old sports car, or if you’re selling a piece of real-world art, or if you have a song online, you can stamp that, turn it into an NFT. You can use that to prove that you own it. And then you can trade it back and forth.

Here’s an interesting thing, Tom, that shows that this does have some sticking power.

Originally, an artist like Beeple sells his painting for a lot of money. But that painting gets sold over and over again. And sometimes, the prices go through the roof.

But with an NFT, the artist who makes that original NFT and associates it with that piece of art gets a kickback every time that painting gets sold again.

The different applications are very interesting. Think of ticketing. Think of Ticketmaster and how that works now. Maybe you get sent out tickets in the mail. Or you go to the little window and you pick it up.

With an NFT, it’s a bit like the way you put a bitcoin in your wallet. You can put an NFT, which is a ticket to a Bruce Springsteen gig, in your wallet. When you get to the place, you scan it, and you go in. So, that’s a really interesting use case for this.

Another one is gaming. There’s a game called Fortnite. It’s incredibly popular. Most game makers don’t make money from selling the actual game to the gamers. What they have now are these in-game purchases. I’ve seen it happen. My friends have two seven-year-olds, who play Fortnite all the time. And they buy these things called skins, which make their character look different. And then they buy dances. The majority of Fortnite’s revenues – and they’re in the billions – come from these in-game purchases.

An NFT will allow gamers to take that identity, that they’ve spent a lot of money on, and transfer it to a different game, or even trade it with other people.

So think of your passport and your driver’s license. These are unique identifiers. The whole point of Tom’s passport is it isn’t like anyone else’s passport. It identifies you as Tom.

You could have something similar with this type of technology, just in digital form, and much easier to use. You’re not going to lose your wallet and lose your driver’s license.

It can be in a wallet, very much like you own your bitcoin or Ethereum now. You’ll just have another token, that’ll be one of these NFTs, that will do one of these many functions.

Jeff Brown says he’s absolutely convinced that NFTs are going to stick around. It’s really interesting, Tom.

He talks about them in terms of this “digital leap” idea. That’s a big, powerful phenomenon, where a whole industry goes from analog to digital.

We saw this with Amazon and retail. It took the retail business and put it online.

We saw it with Netflix. When Netflix came on the scene, Blockbuster had brick-and-mortar stores. You drove up, went in, rented your DVD, and you had to bring it back. I was always getting fines. I never brought my DVDs back. Netflix digitized it.

Jeff is a tech expert. He’s says this is a digital leap happening in the collectibles and artwork space now, but it is going to spread. Because this technology, like a lot of the technologies associated with the blockchain, which is the technology behind bitcoin, is very powerful. It allows you to do things you couldn’t do before, like create this unique token.

This is very early days. It’s not like you could go out and invest in a stock that creates NFTs. But it is something to pay attention to, because I think we’re very early on in this phase of growth and these NFTs. And it’s bullish, I think, in general for the crypto space.

Tom: If you’re a viewer watching this and you’re not quite grasping it, you’re not alone. Me too. This literally is me hearing about bitcoin in 2011. A friend of mine was like, “Now my shopping cart also allows purchases in bitcoin.” I was like, “What the heck’s bitcoin?” “Oh, you don’t know about bitcoin?” He filled me in, but I didn’t know what it meant.

So if you’re there thinking, “I have no idea what Chris is talking about,” you’re not alone.

But as he mentioned, he, as the editor of Legacy Inner Circle, was able to talk to Jeff Brown. Jeff is the expert in that space. As the editor of Legacy Inner Circle, Chris speaks to all the other experts within Legacy Research. So he has a unique perspective. He’s bringing it to your perspective, similar to how bitcoin was brought to my perspective in 2011.

I didn’t act on it for years. But I wish I had. So I’m hearing about this now. It wasn’t on my radar before. Now it is. I’ll do a little bit of research.

As Chris has mentioned, Jeff thinks this is here to stay. I was clueless about it until today. You may be in the same boat.

Chris, thank you for bringing these types of insights to us here at The Weekly Pulse. That’s what you do with your unique oversight of all the different portfolios within Legacy Research.

Any final words for people watching this week’s Weekly Pulse episode?

Chris: Well, Tom, I hope I haven’t confused you too much. I think everyone who’s watching this, or at least people who’ve been watching for some time, do have some idea what bitcoin is. They know it’s a digital token. They know they own it in a digital wallet. And they know they can move it around securely on this thing called a blockchain.

An NFT is just like a bitcoin, except it’s unique. That’s the difference. And it can be tied to real-world objects, or digital art objects, or digital collectibles. And it can make those uniquely tradable. You can see who owned them, the provenance, where they trade.

I think the use cases are going to explode from here. At least, that’s what Jeff Brown is saying.

Tom: Awesome. Thank you, Chris. This is skating to where the puck is going, right?

Chris: Right.

Tom: This is exactly where we, as people who are able to hear this early, can possibly benefit greatly. So thank you for bringing it to our attention. I look forward to speaking soon on the next Weekly Pulse episode.

Chris: Thanks, Tom.