PassW0rd – 14 April 2021

Speaker A: This program is brought to you by Resonance FM. If you like what you hear, please support our work by making a donation at resonancefm.com/donate.

Speaker B: Welcome to Password on Resonance FM with me, Peter Warren and the team. Today we’re straddling the interface between technology, art, and investment banking. We’re working out how to mind the gap, as they say on the London Underground. Just listen to this. What you heard there was not just a random collection of tracks thrown up by Spotify on speed. These artists all have one thing in common: they’re producing NFTs. NFTs. Technology loves its abbreviations. There’s nothing that enterprise company executives, those people working in the tech world, like better than a good old TLA. That’s a 3-letter acronym to you and me. NFT stands for non-fungible token. It’s a new way of creating, buying, and selling unique objects using blockchain, the technology that underpins digital currencies like Bitcoin, Ethereum, Zcash. There are at least 100 of these currencies now. NFTs are selling for millions of dollars even though they are literally just tokens whose relationship to the object or thing they are identified with can be very tenuous. Some NFTs simply say that you are the owner, nothing more. It’s a little like owning a vintage car but not being allowed to drive it. Digital artist Anne Spalter has been creating, collecting, and curating works in the digital space since the 1990s, and she’s incredibly excited by the potential of NFTs to make the art market more transparent and to break down traditional resistance to pictures created by computers using artificial intelligence.

Speaker C: It has been quite a challenge, and I think somewhat similar to photography, where people question, you know, if the hand isn’t involved, is it somehow artwork? And, you know, in the beginning of photography, many people felt like, well, anyone can press a button, so where is the art in this? And then it became obvious that when some people pressed a button, the results were really different than when the average person pressed the button. And that That has also become apparent with the computer as well. So I think there is that critical distinction. And also, 50 years ago, we didn’t have everyone having a powerful computer in their phone that they walk around with all day long and interact with. So I think now our relationship with screens and computers has changed, and the idea of having artwork in that context is more comfortable for people.

Speaker D: There’s always been art collectors, they’ve always gone into galleries, they’ve wanted to buy their paintings, haven’t they? So how is your collection different from that? Theoretically, anybody can go online and look in the same way that anybody can go in a gallery. Anybody could download one of these images and keep it on their machine as part of a wallpaper.

Speaker C: Our collection is focused on the early days mostly of digital artwork, and at that time some artists worked even without screens. They used punch cards and had to run them through mainframe computers and corporations at time slots they got in the middle of the night, and then wait to see if their computer programs even worked properly. And so it was extremely challenging, and their output was often plotter drawings on on paper, which is what we primarily collect. So we have physical objects and they’re very archival because they’re India ink on paper, which is, you know, a known entity to keep in good condition. So we do have objects and it’s like collecting work on paper. But I think what people are, you know, wondering about today a lot are these NFTs or non-fungible tokens, which are images that you own that are online, and it is like owning a JPEG. So it’s sort of, you can download an image and anyone can download one of these things, but because there’s a certificate or token that’s on the blockchain, only one person technically owns it and can resell it. So it gives you a way to own digital art. And one of the problems, and I think that’s held back digital art collecting where you are just collecting some kind of a file has been the problem that you can duplicate it so easily. So even though, for instance, I make digital video and I do editions, I have an edition of 3. If someone buys it, they get a certificate of authenticity signed by me saying it’s edition 2 of 3, and then they could sell it. But I guess somehow psychologically it doesn’t have the same assurance as these NFTs have had where people feel like, okay, now I really know this is somehow a unique thing that I can resell and I’m not worried about people copying it. It’s just relieved that entire concern, and it’s really been a huge boon for the field.

Speaker D: It’s challenging, these challenging notions of abstraction and ideas, isn’t it? Because people wouldn’t think, hang on a minute, I’m going to go to the Louvre and have a look at the Mona Lisa. I can look at it in the same way that anyone else can look at it, but it’s the Louvre who owns it. Is that a similar sort of idea? Because even then, if you go and get a copy of the Mona Lisa from the Louvre’s shop, obviously it’s not the Mona Lisa.

Speaker C: Right, so it’s much more like your first example. So if you see a photo of the painting, it’s not the same thing the way if you download a digital file, it’s literally the same thing. But yes, you could go look at it, and someone who, you know, works at the Louvre can go look at it, and you’re all looking at the same thing. But, you know, as a tourist visiting Paris, you don’t own the painting.

Speaker D: Okay, so let’s take an extension of that then. I get a computer. My computer can actually make a real-life artwork by spraying paint on a canvas. The person who owns the NFT is the person who owns the rights to that picture. And even though the picture that’s sprayed on the canvas is exactly the same as the next one that comes along, that the ownership is in the idea.

Speaker C: Okay, there’s a lot of different issues there. So one is that with the NFT, when you buy one, you don’t actually get any rights. You literally only have the right to resell that token. So you don’t have the right to print the image or really do anything else with it. It doesn’t come with any intellectual property rights.

Speaker D: So, as it stands, or I mean, somebody could say, I can give you some intellectual property rights, I can allow you the right to print this. There is— there you go, another bit of intrinsic value.

Speaker C: Absolutely. And when these NFTs are exchanged, it’s with a smart contract. So in that contract, you could specify different rights and additional things that could go with it. And there’s a wonderful artist named Pinder van Armin who does exactly what you’re saying. He makes robotic paintings, so they’re programmed, and then he has a really cool painting machine and he makes paintings, and then he could sell an NFT of the painting. And as a kind of a sign of our times, he had a client buy an NFT of a painting with the understanding he would only purchase it if the actual painting would be destroyed. He only wanted it to exist in the digital world. So I’m kind of old school. I wouldn’t have done that.

Speaker D: How important are NFTs to art, do you think?

Speaker C: In terms of the art world, there’s a lot of dysfunctional things about the traditional art world and having the art NFTs have kind of shined a light on that and has made it possible for a lot of people that probably wouldn’t have been able to sell work in the traditional world to suddenly be able to make a living. So it’s very wonderful on my Twitter feed, which is where most of the artists in this field, instead of being on Instagram where traditional art seem to hang out, they’re all on Twitter. I see these tweets that they just kind of make you want to cry, like with happiness. People saying, I was working full-time and doing my art, and now I was able to quit my job. I’ve seen people saying, I was able to pay off my student loans. I was able to pay off my mortgage. I was able to help out my parents, just suddenly literally having their lives changed by this new marketplace. I think the economics of it are so powerful and are allowing so many more people to participate in this visual economy. So it’s really exciting that way, new artists and new collectors and just expanding the whole field of art.

Speaker D: And you mentioned that in some of the earlier artworks that people were using punch cards to almost create an artistic happening. Is that something that people are doing? Is that the work becomes almost 4D because it’s got this time element in it as well as the representational 3D?

Speaker C: Absolutely. I’m involved with a project that’s really incredible and that draws historically on that same sort of ancestral artistic chain called Artblocks.io, and it’s for artists who work with procedural programming. So they write an algorithm, a set of instructions to create artwork, and the artwork is on the blockchain, the program is on the blockchain. There’s an art drop, which is the NFT way of saying this sort of the artwork is beginning to be available for purchase, and you can see kind of the basic feeling of what the artworks will look like, but you don’t see what your individual piece will look like until you buy it. So it runs the software and then it gives you an instance of that program. So it’s exactly the way that early computer artists work. So they have an algorithm and they run it and they might make a whole bunch and then choose from all the different results, the ones they thought best represented their goals. So this runs, and every time someone buys one, they get a new artwork that no one has ever seen before. So it’s very, it’s exciting because it is real time, and it’s kind of a very modern implementation of something that started at the very beginning of computer art history.

Speaker B: Some of this digital art is now literally worth a fortune. The recent auction of a piece called “Everydays” by the artist known as Beeple made him $69 million $1 million richer. And it’s not only music and pictures that are being stored and sold as NFTs. The first ever tweet on Twitter, the tweet which just said, ‘Just setting up my Twitter,’ composed by Twitter founder Jack Dorsey, has sold for $2.9 million. Sports shoes endorsed by famous athletes are also commanding huge prices And so are NFT-based artworks of them. You can buy a pair of Michael Jordan’s Air Jordan Nike shoes for an average price of £145 and an NFT-backed picture of them for $6,000. Still though, an original pair of Air Jordan 1s recently sold at auction for $560,000, making them the most expensive sneakers ever. NFTs are now turning up on everything from football cards to clothes. There’s even a piece of human skin. Not just any old piece of skin, it’s the skin on the forearm of an up-and-coming tennis player, Croatia’s Oleksandra Oliniakova. She’s offering her arm as a canvas for a tattoo, a painting, or a written inscription, a sort of flesh-based global advertising hoarding, if you like. In that sense, it’s not very different from wearing a sponsor’s brand of underwear or endorsing a particular shampoo. The world of sport is drenched in deals like these. So how are NFTs different from a sponsor’s logo, and how can we be sure they are genuine? Not just a way of recycling ill-gotten gains. Cryptocurrency expert Jonathan Marriott explains using a new set of TLAs. Bear with him.

Speaker E: The blockchain is public, but you can trace transaction to transaction. There are obviously ways in which some people do try and launder money through, through cryptocurrencies, but a lot of reports have come out to suggest that actually money laundering takes place more elsewhere than it does in cryptocurrency. Not to mention the fact that KYC and AML is coming into the cryptocurrency space. Some projects, some cryptocurrencies have taken it upon themselves to implement that sooner than required. But certainly, you look at the likes of the United States and the United Kingdom, AML KYC procedures are incredibly important. I don’t think the majority of people working in cryptocurrency would agree with that. That we need to legitimize the space to make sure that bad actors can’t utilize the technology that we’re building to, to their advantage.

Speaker D: And AML and KYC, I mean, obviously the technology community loves acronyms. What do they mean?

Speaker E: AML is anti-money laundering. So they’re the processes in which a company is responsible to undergo to ensure that users on their network or clients in their business, whatever it may be, are checked to ensure who they are. That’s the KYC part, know your customer. So an identification like a passport or driving license would be required to prove your identity. And in terms of AML, anti-money laundering, you’re required to show proof of source of funds. So if you were to suddenly deposit £50,000 worth of cryptocurrency on an exchange, they would need to know that you legitimately acquired that cryptocurrency. Otherwise you could have stolen it. You could have laundered illegal gains through cryptocurrency. So it’s the checks that these companies are now required to do.

Speaker D: Okay. So what is the difference between something like Bitcoin and Ethereum, for example?

Speaker E: So Bitcoin, again, the general consensus is that it’s a store of value. It’s what you, you put your fiat money, your, your US dollars, your Great British pounds, into to hedge against traditional currencies. So if we were to go through a financial crisis, you’ll find that more people put their money into gold to protect themselves against the devaluation of their currency. The same is sort of applied to Bitcoin. And in terms of Ethereum, it’s a cryptocurrency that’s used to provide a framework for other applications to work from. So Ethereum actually is the basis for the majority of cryptocurrencies out there. Majority of cryptocurrencies run off Ethereum. And so Ethereum is kind of a credit or a token, I suppose, that, that enables the network to run and the applications to run on top of it.

Speaker D: I mean, token seems to be the word in all of this, doesn’t it? I mean, everything is NFTs, non-fungible tokens. Everything is a token.

Speaker E: Yes, absolutely. I mean, tokenization is a widely used term in this space. You could tokenize a building. If you wanted to acquire a building, but you couldn’t acquire the whole lot, you could tokenize that, or somebody or a company could tokenize that building and effectively sell shares in that building and through tokens. The more tokens you hold, the larger the share of the building you own, and that is all recorded on the blockchain. No one can challenge your right to own that part of the building. In terms of NFTs, NFTs, again, can be almost anything. It can be digital, it can be physical. But the whole purpose of an NFT is that it tracks the ownership and the origin of that item on the blockchain. So if you take collectible sneakers, for instance, Jordans are widely collectible and they range in value. Some, some go into the thousands. If you purchase a pair of Jordans off of the open market, say eBay, how do you verify that they are genuine? You verify that they’re genuine through people that know what they’re doing. They validate it. Companies like StockX will prove to you that— will provide validation that that product that you purchased is genuine. But if you were to apply an NFT, a token, to that pair of sneakers from manufacturing by Nike, anybody that buys those pairs of shoes will be transferred the token as well. And that proves that you are the true owner of those shoes and that those shoes are genuine.

Speaker D: My youngest son sent me a Kinks record for a joke that said, I’m not like anyone else. It was an original single. So in a sense, I could apply an NFT to that, couldn’t I? Because I can see it’s original from its sleeve and from the way it’s manufactured. And I got a little note with it saying that this was an original Kink single.

Speaker E: Yeah. Yeah. So in theory, I mean, if you bought up all of those singles that ever existed, you could create your, your cryptocurrency, apply a token to each one of those, sell them off alongside the token itself, and you have effectively tokenized the entire, the entire stock of that item around the world. Got Kings of Leon selling their latest album via NFT. And, you know, that’s a really clever way to utilize NFTs because what they’ve done is you can, you can listen to the single on Spotify, but you don’t own it. You, you, for all the while you’re paying for your subscription, you can listen to it, but you never truly own it. You can buy the album in digital format or in physical format or both. So I, I’m into vinyl. So I buy vinyl, it’s widely considered as collectible, but it’s a niche, niche area. Very few of us have record players, but I buy vinyl that’s collectible in itself. Can also get special unique album artwork delivered via that NFT. And that in itself is rare and has value attributed to it. So Kings of Leon are using it as a way of giving their listeners, their fans, even more value for their money.

Speaker B: Okay.

Speaker D: Is cryptocurrency a fad?

Speaker E: Is it— Bitcoin is considered a store of value. If that remains to be the case, it will be around like gold is. We don’t use gold day to day. Yes, of course, gold. We have gold jewelry and there are gold components within our electronic items. So yes, there’s a use for it. But if Bitcoin remains a store of value, a hedge against currency, then that will remain. Ethereum is powering some incredibly, incredibly exciting innovations that simply wouldn’t be possible without blockchain. Where you’ve got traditional ledger technology and you’ve got servers, someone always controls that and they can take that away at any moment. If Google owned 98% of the servers, around the world, and they close down, that’s 98% of the internet gone. That can’t happen with a blockchain. There are some really incredible things taking place that are decentralizing finance, for instance, the ability to give people microloans. They can do this through a blockchain network. Ethereum is enabling that, as are many other cryptocurrencies. The tracking of goods, for instance, you’ve got a project called VeChain. They track goods from source of manufacturing right through to the customer. So if you were to buy— BMW, for instance, have, have, are working with VeChain, and so you can track your car from its manufacturing to its destination. And in theory, you could track the ownership of that car and any modifications, any repairs that are done to that car. I think there’s too many positives for the future around blockchain, for it to be a fad. These will be here to stay, though.

Speaker B: Jonathan Marriott, you’re listening to Password on Resonance FM with me, Peter Warren, and the Password team. We tweet from @Password, and you can find out more about our work on our website, Future Intelligence. After this, you can hear A World in London with DJ Ritu. We’re considering the impact of NFTs, non-fungible tokens, on the market for music, visual arts, and collectibles. You might think they’re just like any other piece of merchandise that’s offered to fans who will pay large amounts of money for a signature, a drumstick, or an accessory with special powers in the context of a computer game. No, the craze is growing so fast and creating such huge fortunes, it must be more than a fad for fan clubs. That’s not just me saying it. Here’s David Birch, head of 15mb and a member of the governing council of the London-based think tank the Center for the Study of Financial Innovation, a renowned expert on digital currencies and author of the acclaimed book Identity Is the New Money.

Speaker F: Non-fungible means that you can’t substitute one for the other. So in other words, fungible is one of my very favorite words, by the way. Actually, I absolutely— I love fungible because it’s a very important word about money. For something to be money under English law, it has to be fungible. You know, every pound note is the same as every other pound note. Every pound coin is the same as every other pound coin. And the reason why that’s important is because there’s a crucial difference between things that are fungible and can be money and things that are not fungible. If I steal your car and sell it to somebody else, you can go to them and get that car back. Money’s not like that, right? If I steal your money, the police can’t go to Barclays and look in my bank account and say, oh, I see you’ve got Pete’s pounds in there, you’ve got to give them back to him. Money doesn’t work like that. One of the One of the crucial characteristics of money is that it’s fungible. That’s what its property is not. So when you implement something using, let’s say we’re going to make some, we’re going to make something on Ethereum. We’re going to create some tokens. We have basically two choices. We can create fungible tokens, which can act like money. They’re all indistinguishable. They’re all the same. Or we can create non-fungible tokens that can’t. And of course, you know, the first example of this, which came to everybody’s attention was CryptoKitties, which was brilliant by the way, where you could create your CryptoKitty and sell it to other people and move it on and all this kind of thing. So they have this problem of non-substitutability. Now that’s a very interesting concept. The fact you can, you see, the thing is in the virtual world, the software world, the idea of having something that’s not copyable is a bit alien. So attributing value to these software objects is a little difficult. So for example, I taught my kids economics by getting them to play World of Warcraft. And in World of Warcraft, they learned everything about value and supply and demand and auctions and reverse auctions and markets and information asymmetries and all the other things that you need to know. They learned how to spot kids who were new in the game and didn’t understand what things were worth and buy them off them and corner the market in magic swords and then resell them at a higher price. I mean, it was an absolute lesson in investment banking. But when I buy a magic sword from you in World of Warcraft, the reason it has value is because I can’t just create more of them. I can’t copy that magic sword. And in that case, the person who stops me from copying that magic sword is the person that runs the game, of course. It’s Blizzard Entertainment. Only they can create the new swords. So the idea is, well, what if there’s magic swords that can’t be copied, they can’t be cloned, they can only be traded by— but you don’t have somebody in charge of them, like Blizzard Entertainment in charge of World of Warcraft. Instead, the blockchain, everybody is in charge of these things. So now I’ve got, now I’ve got my magic sword on the blockchain. If I sell it to you, I can’t copy it and sell you a copy. Then the magic sword goes from me to you. Now substitute concert ticket, Rolex watch, access to this building, or any other non-fungible thing. And you can see why I’m so interested in that as the form of a market. Now, why did I come to that conclusion? Well, because non-fungible tokens make the virtual world more like the real world. I always thought this was one of the interesting applications of the blockchain. In the real world, you can’t copy things. The chair I’m sitting on, there’s only one of them. You can’t clone it. In the virtual world, you could clone an infinite number of them. So the blockchain makes the virtual world a bit more like the real world. There’s only one of something. You can pass it from person to person, but you can’t clone it. And that to me seems like the basis of some economics there. So, so that was why I kind of got interested in that kind of thing. And then, you know, you start thinking about things like concert tickets and so on and other things that are valuable. But there’s another factor as well, which is if you can link the non-fungible token to the item in the real world such that its utility rests on that link, then you have a very interesting way of doing some new things. And I’ll give you an example. Suppose, so we’re having dinner and I notice you’ve got a Rolex watch, and so I just scan it with my phone, and my phone says, actually, this is a real Rolex. It comes from this factory. It went from this wholesaler to this distributor to this retailer to Hong Kong airport duty-free. Then it was sold to Pete. You see, if I, if I just, if I scan your, your watch and now I can tell it’s real, But hold on, should I be allowed to do that? And under what circumstances should I be allowed to scan your— like, should anybody be able to scan your watch and find out whether it’s real or not? I mean, should burglars be able to wander around your house with a phone and just, just check out where the good stuff is? I mean, that doesn’t sound quite right to me either. Should rival brands be able to walk into the shop and have a quick scan around to see which items have been selling, which items haven’t. Someone from Gucci should be able to scan a Gucci handbag and tell whether it’s real or not. But should you, or should the potential purchaser, should you? If I walk in with a Gucci app on my phone, should I be able to scan and just tell whether that’s a real Gucci handbag? Like, it gets really— so when you think about how this stuff’s going to work, it’s not obvious. But what is obvious is that the crucial factor is not the token itself, but what it links to, that provenance, that history, that management of that. So, so I’m interested in both the non-fungible tokens themselves and how they behave on the blockchain and what they can do and what they can link to in the real world. And how it helps us. So if, for example, and this is a stupid example, but you see what I’m doing with it. Suppose you’ve got a Rolex watch, but that watch will only work if you can demonstrate you’ve got the relevant key, you know, that you are its owner. Like, you put it on and nothing happens. You have to show it that you’re its owner before it will show you the time. I know that sounds crazy, but But you see where I’m going with this. You know, it creates security and authenticity that we don’t have. And it might seem a bit flibberty-jibbet using it for, for poncy watches and shirts and fancy designer handbags and whatever. But on the other hand, what happens when you’re talking about aircraft parts or pharmaceuticals or, or whatever? So this is why I think if people think that NFTs are just about some crypto bros mucking about with stupid tweets and artworks, I think they’re wrong. I think NFTs have a really interesting future, and that the link between NFTs and things in the real world is, is very fascinating and very interesting.

Speaker B: Well, the crypto bros has David Birch calls them, are certainly cashing in on the hype around NFTs, and that makes me think that this is another of those phenomena that economists call a bubble. They’ve been popping up and exploding since the 18th century, as I found on the website of Historic UK, where Ellen Castelow describes the frenzy on the London market in 1720.. In return for a loan of £7 million to finance the war against France, the House of Lords passed the South Sea Bill, which allowed the South Sea Company a monopoly in trade with South America. The company underwrote the British national debt, which stood at £30 million, on a promise of 5% interest from the government. Shares immediately rose to 10 times their value Speculation ran wild and all sorts of companies, some lunatic, some fraudulent, or just optimistic, were launched. For example, one company floated was to buy the Irish bogs, another to manufacture a gun to fire square cannonballs, and most ludicrous of all, for carrying on an undertaking of great advantage but no one to know what it is. Unbelievably, £2,000 was invested in this one. Now, it’s easy to make fun of those investors with hindsight, but in the year 2320, what would the Password radio show be saying then about NFTs? The South Sea Bubble burst. Thousands of people faced financial ruin. The Prime Minister Hugh Walpole had to intervene, and the Chancellor of the Exchequer John Aislabie ended up in the Tower of London on charges of treachery. He was one of the few people to carry the can for the scandal, principally because almost every MP had shares in the company, as did Aislabie. He had the huge sum of £20,000 in stock and promoted the interests of the company rather than those of the Crown. Hence his treachery. Like Olyanjakova, you could say he had some skin in the game. History professor Dr. Helen Poole from the University of Southampton and author of the book The South Sea Bubble puts it into context.

Speaker G: The company was caught out by giving huge amounts of bribes to various people, including the king’s mistress, and Robert Walpole was actually involved in the clear-up operation. He’d wanted to invest even put more money into the stock market, and his advisor basically stopped him from doing so. But Walpole was in charge of the political reconstruction, and he was able to bring out a public inquiry into what had happened. And yes, people were caught out accepting huge bribes and giving bribes, and that side of it became something people could understand. And decide was a scandalous activity. And it involved people being put in the Tower of London for a little bit. Walpole essentially had to protect the new royal family by giving other people over as scapegoats.

Speaker D: Right, so there must have been someone who benefited from this. There must have been some people who were exploiting the situation, who made fortunes out of it?

Speaker G: Well, it’s certainly if you took bribes, then you were exploiting the situation, and that was a fairly straightforward process. If you simply had bought into the shares early on and then they went up in value and you sold out at the top of the market, it’s not clear that you’re exploiting anyone in particular because they’re choosing to buy from you. And one of those people is Thomas Guy, of Guy’s Hospital fame, who’s recently been revisited, or his reputation has been given another look, because of the company connections to slavery. But Guy was not someone who was really expecting a bubble to happen. When it did, he did the sensible thing and sold out. Right.

Speaker D: So a lot of people use this as an example of— it’s almost a historical bubble that people learned from, and people started to look for the symptoms of bubbles after that because then they thought, hey, yeah, we can exploit these. You know, we can be the people who get there in the early days, sell out. Would that be fair?

Speaker G: I don’t really think so because it didn’t show a great deal of impact on financial theory as a whole. People just didn’t really understand how to conceptualize how stock markets worked unless you actually just traded yourself. You didn’t know an awful lot about trading. And certainly you can see when the prices are maybe far too high and then you, you want to sell out. But of course that’s easy to say with hindsight. When you go into a bubble, at what point should you sell out. That’s always a, that’s always a timing issue. And you can see that the government were trying to regulate the stock market and failing to do so because they just did not have capacity to monitor trading activity or to really understand an awful lot of the more complicated financial derivatives trading that was going on.

Speaker B: That’s the thing about technology. Everyone wants to invest in innovation, and there’s hardly ever an undiplomatic little boy who pipes up from the front of the parade as the powerful and wealthy pass by, crying, “Look, Mum, the emperor’s got no clothes!” Certainly, I’m not going to be that little boy in relation to NFTs. Better people than I have analyzed hype circles, boom and bust economics, and fashions that come and go. Gresham College Emeritus Professor Michael Manelli founded the think tank Y/Zen and the Long Finance Initiative. And as Sheriff of the City of London, he gets a ringside seat at the big parade. But just like the child in a fairy tale, Manelli is loudly skeptical about the NFT craze.

Speaker H: Well, there’s several reasons I believe it to be a bubble. I mean, the first is that a bubble is some sort of outrageous expectations of the value of an asset that other people are incapable of valuing. There are a number of chartists who would say this has bubble chart bubble elements to it. I’m not a chartist, but chartists would call it that. Ultimately, one of the problems with the bubble is it’s hard to see when you’re in it. It all looks rational. And as you look across the history of bubbles, whether it’s the tulip bubble in the Netherlands back in the 17th century, if it’s the 18th century and the South Sea Bubble, if it’s the dot-com bubble, whatever it is, it’s very, very difficult to see. But one of the characteristics of bubbles which Jeremy Grantham studied was he went and he looked at bubbles of the 20th century. And he in fact found, believe it or not, something like 50 of them. Many of them are corners that we don’t think about, but you’d remember the silver bubble of the ’70s and things like that.

Speaker C: Like that.

Speaker H: And what he noticed is that characterized by these rapid high price rises of something that has no utility, no change in utility. And we’ve never really had a shortage of numbers, in case you’re curious. There’s always been a few more infinite numbers out there, so I’m not sure that trading the numbers makes a lot of sense. And he points out that every bubble is basically— busts as a mirror of itself. And that’s because nobody ever quite wants to give up. There’s a presumption in the world outside that bubbles are these sorts of steep cliff edges. So they rise like a stroll up a steeper and steeper mountain, but they fall vertically as a cliff. Actually, that’s not true. And Grantham’s work shows, in fact, it’s very much a mirror image as people go, “Oh, it’s going to come back. Oh, it’s really going to come back. Oh, now’s a really good time to buy it as it’s fading. Now, nope, it’s still an even better time to buy as it’s fading.” because it’s continuing to go down. And this is a, this is characteristic of gold markets and is characteristic, as I said, of these crypto cockroaches.

Speaker D: So does that mean that the NFTs are a potential bubble?

Speaker H: It’s very faddish at the moment to put things online and to do them. I must say, I think it was 11 days ago, we in my firm, we in fact issued our first NFT. In fact, we called it an NFFT. It was a non-fungible fishy token. As we decided to carve a turbot up into 100 trillion parts and save the global economy. In other words, yes, we do tend to think that this is a very faddish thing. And again, but you know, we have fads. We’ve had Tamagotchi, we’ve had Pet Rocks. They’re fads there and people will go out and play those fads. I just don’t see any intrinsic personal value in owning a fraction of a painting which resides really on my computer as a long digital signature that proves that I own a corner of some painting that I can’t even see. It doesn’t sound half as satisfying as, you know, going down to the local market and spending £100 on a local artist. So why are people doing that? I don’t know, but people do a lot of things that I don’t understand. Which was the, I think it was, yes, it was Lagavulin from, no, it was Laphroaig. Laphroaig whiskey offered you the ability to own a tiny little piece of the peat bog around them. And that’s good fun, and you could say, yes, I own a tiny little bit of Skye Island, and isn’t that really great? But it’s a joke. We had people who were carving up the moon. Selling off tiny little moon certificates, even though nobody has any ownership rights on the moon, people would still purchase it. It’s a good giggle. But is this really— once it gets beyond a giggle, then people get hurt. But I think those people are getting hurt because of their own ignorance. They’re just not thinking this through.

Speaker B: So what is it that excites people to part with their cash for a high-tech something that they don’t understand? I’m old enough to remember the dot-com bubble of the 1990s, and I’ve been talking to some of its casualties. Ernst Malmstedt launched one of the first ever online bookshops. He could have been the next Amazon. Instead, he moved from Sweden to London to build the next big thing: the online fashion e-tailer Boo. The history of what happened is a sad one. Ernst’s book describing the experience is entitled Boo Hoo. Looking back, he told me that he learned important lessons.

Speaker I: It was a very exciting time, you know. Every day was quite dramatic, you know, and we tried to build something that was very new. And of course, we tried too much, you know. We want to have the best technical platform. We’re going to open in all different countries, you know, in have offices in Europe. I mean, with the different languages, we even have, like, we were also pioneers, we have a magazine online as well, you know, it was a lot, lots of things we’re trying to do in a very short time. And London changed, you know, when we moved, when I moved to London in ’98, I mean, internet wasn’t so, lots of people didn’t even have emails and things like that. But in ’99, things become crazy. Now everyone wants to join a startup, but we didn’t have broadband and the time wasn’t— we had the wrong timing if you look back at it.

Speaker D: Was it the wrong timing and you trying to do too much at the same time?

Speaker I: Yes, but I think it was the wrong— everything is— you always have the perfect timing. When I launched the book business in Sweden in in ’97, that was perfect timing. And you just search for words and titles, you didn’t need images. Internet wasn’t ready for high images. And you know, you remember the dial-up modem?

Speaker D: Exactly, I was explaining that yesterday to another journalist. Yeah, that was the signature tune of the times, wasn’t it?

Speaker I: Yes, and also people were afraid, you know, to leave the credit cards to make payments and and things like that, you know, quite rightly.

Speaker A: Yeah.

Speaker B: So wait, wait, wait.

Speaker I: So why should I leave my credit card number online?

Speaker D: Well, given the level of cybersecurity at that time, yeah, it would have been—

Speaker B: I mean, the whole issue about all of that was I can remember speaking to one of the top programmers in the world at the time, and he told me that the entire next century or the beginning of the next century was going to all be about trust, whether you could trust somebody is at the other end, whether you’re going to trust the transaction, etc., etc. And we’re still seeing that. We’re still seeing trust is an issue online.

Speaker I: Yes, yes, yes, very much so. And especially if you buy for maybe brands or companies you didn’t know about before.

Speaker D: Do you actually have any nostalgic sort of thinking that, oh, if I’d have stuck with a book business then—

Speaker B: because let’s face it, Amazon, buy clothes off Amazon now.

Speaker I: No, no, not really. So I, I mean, it was a great experience, you know, and yes, we probably could do things differently, but I think Hindsight is a wonderful thing.

Speaker D: It is, isn’t it?

Speaker B: And in terms of what was it like dealing with the investors when, you know, because obviously you managed to put together a very, very large sum of money, I think it was $135 million. So, you know, they must have been very keen.

Speaker D: What was it like?

Speaker B: They were ringing you up all of the time saying, Ernst, can we give you a lot of money?

Speaker I: Yes, no, well, I mean, in the first round it wasn’t like that, but then later on it becomes like that, you know, everyone want to invest, you know, and like people like Goldman Sachs and things, you know, they said maybe the founders should— we could buy out the founders. They thought we have owned too much of the company, wasn’t good for London, you know, and new startups, you know, that we, uh, yes, so people just call everyone want to invest, you know. And I called them and I begged to have a meeting, you know, and at one stage a member, like, the investors said, like, you know, you will get 2 minutes with Ernst. My staff said, don’t say anything that could upset him, then he’s just going to walk out and then you can’t invest.

Speaker D: How did you feel about that?

Speaker I: Yeah, I mean, end of the day, capitalism and investment banks, of course, that’s greed, you know, people want to be wealthy. And become wealthy, yes, that’s greed. And you, and for example, if you own the old kind of business, then you need to diversify to invest in new things, you know, otherwise you’re going to lose your wealth. Yeah, I don’t know, I think if an entrepreneur, it’s not about the money, it’s, it’s sort of turning your reality, like your fantasy into reality. That was drives me, it was more like You know, you have a project, you think you can do something, and then you make it happen, basically.

Speaker B: That was a motivation too for Amir Butt. He’s been involved in not one, but several tech-based startups during and after the internet bubble. I asked Amir to cast his mind back to those dot-com days of the late 1990s.

Speaker A: My company was valued at several hundred million, and I was in meetings with the top accountancy firm and speaking to their investors, the investment bankers there. And, you know, we were saying this is the revenue that we could do given a certain amount of investment, etc. And their response was, well, that’s not really high enough, is it? To which I responded, well, give me more money and I can do more business. And that was the kind of dynamic being played by professionals, equity investment advisors. And so given that kind of environment, fortunes were made and lost rather rapidly. So I guess you could say I was in that sense, not just a millionaire, but like, you know, tens of millions millionaire for about 4 weeks because we, you know, we were very, very close to closing a round 2, but it wasn’t to be. It was, we hit the, hit the, the, the bang of the bubble and conversations, you know, investors never say no. They always give you a soft no. They kept holding and holding and holding, and before it was too late, we had to do a quick fire sale to a company that had successfully raised a good amount of funding. So we had to sell.

Speaker B: Did it change you walking around thinking that you had tens of millions of pounds potentially in your bank account?

Speaker A: Undoubtedly it does, only because all of a sudden from not having, especially as early stage sort of founders of a business, without a great deal of investment capital. You know, we were— there was, there was a lot of sweat equity that goes into building a business. And so all of a sudden, because conversations you have with investment bankers, you know, they also encourage you to think big and think money and think lots of fortune and yada yada yada. So you get very quickly drawn into this whole world of suddenly being flush with cash. And so we went from literally 6 weeks from considering how we were going to have enough money to make the payroll for the next 3 months to suddenly being told we can go buy yachts. And that, of course, has, you know, it affects your mindset. It would be, you have to adjust to it quite rapidly without, you know, losing your footing. But we never got a chance to lose our footing because, as I said, you know, it didn’t take long for us to have run out of the money because The second round of investment didn’t close because the dot-com, you know, the bubble bursting.

Speaker D: So the ship never sailed.

Speaker A: Very good.

Speaker F: Very good.

Speaker A: It went into the water, but the sea was too choppy to go out.

Speaker B: Is NFTs this new thing that will allow value to be developed in lots and lots of other objects? And, you know, people are talking about NFTs NFTs on football cards, but also with the Internet of Things, you should be able to find some value in other items in your house that you can try to monetize.

Speaker D: There’s a Croatian tennis player at the moment who sold a 16-centimeter part of her skin.

Speaker A: Yeah, I think NFTs definitely have an element of hype around them at the moment. Do NFTs have a genuine value? Absolutely they do. If you look at anything which is digital, actually not just digital, if you look at how medicines are distributed across some of the poorer countries, and we can look at something like current, very, very topical, is, is the, is the vaccine. Pfizer vaccine, for example, requires refrigeration up to -80, otherwise it begins to degrade quite rapidly. So if you are providing Pfizer into countries where electrical supply is not very genuine, how do you would know this, the vaccine that you’re getting hasn’t been degraded to the point of being useless, and you don’t know. Now, we can visualize that today, but that kind of whether it’s fake or whether it’s genuine or whether it’s, you know, depleted and so on has been going on in African countries for quite a number of decades. And something which is an NFT or a non-fungible token, one of the things that it can do is not just on digital thing, but also in physical things, depending on how you manage the relationship between physical and digital, it is a very good way of determining the genuineness of something. And that anything that you can say, you can for sure say is a genuine, is the genuine article and represents the genuineness of it, that has to have value. Because, you know, we in the West sit in sort of commercial environments which may not lead them, you know, sort of lean into a lot of fake stuff, but you know, vast parts of the world that’s just common practice.

Speaker B: Which brings me back to what I was saying earlier about transparency and trust. This is the thread that links the tennis player’s arm to the gamer’s magic sword. This is what makes Anne Spalter want to cry with happiness when a piece of art that she sold for a few bucks 10 years ago changes hands at an auction for a few $50,000, and she gets a royalty on the resale. The next iteration of the internet belongs to the artists and creative people. I’ve been saying that for years here on Password, on Resonance FM, and in my books and articles. And now finally it’s actually coming true. Here’s cryptocurrency expert David Birch again. He thinks that in this new world technology will save us from fakes, from fraud, from forgeries, and that this is no bubble.

Speaker F: I remember a few years ago going to Halifax, I think it was. There was a chap who’d been arrested for being a forger and put in prison, which may have been in Halifax, I can’t remember exactly. And while he was in prison, because he was such an excellent forger, he, he passed the time by painting amazing forgeries which were sold for the benefit of prisoners’ charities and things like that. But of course, he became famous. So if you were going to buy a fake Matisse, you wanted to buy one of his fakes, not somebody else’s fakes or a fake of his fake. You wanted his fake. And I remember at the time they were experimenting with bonding RFID chips into the canvas so that you could always check that this was a real— now I think, I think we might be going in that direction. You know, the cost of those chips is falling. The RFID standards are there, the security in the chips is there. You know, the idea that, you know, you buy something like a canvas and it comes with the chip arrow-dighted into it. Just, you know, these kind of ideas I think are really interesting. I remember looking at an example a few years ago. This was to do with fake Scotch whisky. There was a big problem with fake Scotch whisky in Korea, and so the Koreans had put these chips in the bottle caps so that you could scan the bottle and see that it was real Scotch whisky. And then when you opened the bottle, it would break the chip. So that it couldn’t be reused in other ways. Now, I thought things like that are a really interesting window into the way we’re heading in the future. And I think this linking between online and offline, between real and virtual authenticity, is just a fascinating area to explore and, you know, for new business opportunities.

Speaker B: On that optimistic note, We come to the end of this edition of Password on Resonance FM. Of course, there are many reasons to be pessimistic and, quite frankly, horrified about NFTs. Not because people might lose a fortune, but because the energy required to produce enough computational power to keep the blockchain going will burn up our planet faster than we can imagine. Currently, Bitcoin mining uses the same amount of electrical power as Austria, and it is increasing. The Password team will be investigating those concerns in a future edition of the show. This one was produced by Blue Buffery, whose sister once asked her what she should buy her for Christmas. She said nothing and received a plastic bubble with nothing inside. It was written by Jane Wyatt and presented by me, Peter Warren. You can follow us on Twitter at Password Radio. And the NFT artists you heard earlier are Deadmau5, Grimes, Glass Hammer, Mike Shinoda, Elon Musk, and Lindsay Lohan. Here they are again, and from me, it’s goodbye and thanks for listening.

Speaker G: Dance across your face with me again, though we were strangers.

Speaker A: This program has been brought to you by Resonance FM. If you like what you heard, please support our work by making a donation at resonancefm.com/donate.