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Speaker 1: Welcome to tex Stuff, a production from I Heart Radio.

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Speaker 1: Hey there, and welcome to tex Stuff. I'm your host,

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Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio

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Speaker 1: and I love all things tech. And there's been a

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Speaker 1: lot of talk recently about n f t s, which

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Speaker 1: of course made me think I should probably do an

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Speaker 1: episode about them to help explain what they are and

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Speaker 1: why they are and how they work. And in some

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Speaker 1: ways it's a pretty simple concept but tries to get

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Speaker 1: around some really tricky elements about digital goods um and

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Speaker 1: in other ways it's just incredibly confusing and at least

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Speaker 1: in my case, frustrating. But we'll get there. So let's

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Speaker 1: get some definitions out of the way. First. N f

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Speaker 1: T stands for non fungible token, which is irritated eating

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Speaker 1: because I bet a lot of people don't know what

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Speaker 1: fungible means. I mean, I'm gonna be honest here. I

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Speaker 1: had heard the word before, but if there had been

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Speaker 1: space in my brain that held that definition at some point,

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Speaker 1: it was empty until recently. So does it have something

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Speaker 1: to do with mushrooms? I thought, no, it does not.

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Speaker 1: My brain is a bit slow, So my apologies and

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Speaker 1: for all of those of you out there who already

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Speaker 1: know what fungible means, and you've known it since you

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Speaker 1: were three days old, My hats off to you. You

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Speaker 1: are very smart. Just don't go gloating at me, because

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Speaker 1: we're not all you. Okay. Now, the word derives from

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Speaker 1: the Latin fun guy to perform, So again, nothing to

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Speaker 1: do with mushrooms. But you see why I got confused.

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Speaker 1: Since about sixty nine, which is when Miriam Webster says

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Speaker 1: the earliest found example of the word being used in

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Speaker 1: this particular way, fungible means essentially interchangeable. Something is fungible

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Speaker 1: if there are lots of it, and one version or

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Speaker 1: one instance or one example of it is just as

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Speaker 1: good as any other of equal amount, or even if

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Speaker 1: you look at parts of a thing, if one part

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Speaker 1: of a thing can be exchanged for an equal part

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Speaker 1: of that same thing, then it's fungible. So the simplest

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Speaker 1: example I can think of is a unit of currency.

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Speaker 1: And since I'm American, I'm gonna go with the dollar bill.

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Speaker 1: So a dollar bill is worth one dollar or four

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Speaker 1: quarters or twenty nickels, or will you get it? So

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Speaker 1: if I have a dollar bill and you have a

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Speaker 1: dollar bill. We could trade those dollar bills and nothing

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Speaker 1: else really changes. We would each still possess a thing

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Speaker 1: of the same value as what we had previously. We

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Speaker 1: could spend either version of that dollar bill the same way.

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Speaker 1: So if we didn't make the trade, if I kept

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Speaker 1: my dollar and you kept yours, we could use our

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Speaker 1: respective dollars to buy something like chewing gum or something.

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Speaker 1: But if instead we had swapped dollars, well, then we

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Speaker 1: could still use those swapped dollars to buy our chewing gum. Heck,

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Speaker 1: if I had a dollar bill and you had four quarters,

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Speaker 1: we could still do this right. We could interchange my

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Speaker 1: currency for yours, because from a value perspective, there is

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Speaker 1: no difference between my dollar bill and your four coins,

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Speaker 1: each worth twenty five cents. And one last example, Let's

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Speaker 1: say that I'm a little short on cash and you

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Speaker 1: generously lend me five bucks. The next day, I've got

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Speaker 1: cash to repay you. Now, you don't care if the

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Speaker 1: five dollar bill that you gave me is the same

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Speaker 1: as the five dollar bill I give back to you.

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Speaker 1: You don't care. If it's the exact same five dollar bill.

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Speaker 1: You don't care if I pay you back with five

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Speaker 1: one dollar bills. Now, you might be irritated if I

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Speaker 1: tried to pay you back and change, but as long

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Speaker 1: as the change adds up to five dollars, the actual

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Speaker 1: value of the transaction would be the same. The convenience

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Speaker 1: it becomes an issue, but let's ignore that for now.

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Speaker 1: I mean, heck, if all I had was a ten

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Speaker 1: dollar bill, but you happen to have another five dollar bill,

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Speaker 1: I could give you the ten dollars that I had,

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Speaker 1: you'd give me the five dollar bill you had. And

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Speaker 1: now we're square, right, because I returned the five dollars

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Speaker 1: I owed you, and then you squared off the extra

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Speaker 1: five dollars I gave you in the form of that

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Speaker 1: ten dollar bill. The fungibility of currency means that any

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Speaker 1: version of this transaction is fine because the value of

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Speaker 1: the exchange remains the same. Other stuff that can count

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Speaker 1: as fungible includes commodities, you know, like lumber. Barring any

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Speaker 1: clear differences in quality, one amount of a commodity is

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Speaker 1: roughly equal to the same amount of that commodity. Usually,

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Speaker 1: even if the samples were taken from totally different sources,

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Speaker 1: there's no practical difference between them. So it's a very

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Speaker 1: pragmatic way to go about things. You know, that pile

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Speaker 1: of lumber is just as good as that other pile

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Speaker 1: of lumber, you might think. Now, sure, if you were

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Speaker 1: to get down to details, like the really fine stuff,

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Speaker 1: there's going to be differences. But at scale it sort

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Speaker 1: of is a wash from a pragmatic standpoint. So what

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Speaker 1: does non fungible mean. Well, as the non tells us,

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Speaker 1: it's the opposite of fungible. So it's something that is

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Speaker 1: not interchangeable with something else, like a car, for example.

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Speaker 1: So let's say you own a nineteen fifty nine Cadillac

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Speaker 1: Fleetwood Series and I also happened to own one of

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Speaker 1: those as well. Now, first of all, you've got yourself

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Speaker 1: a sweet ride that you probably can't park anywhere because

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Speaker 1: it's not so much a car, it's really a space station.

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Speaker 1: I mean, that sucker is huge. But I'm getting off track.

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Speaker 1: Our respective cars are non fungible. Even though they are

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Speaker 1: the same year, the same make, the same model. We

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Speaker 1: wouldn't just interchange them. We wouldn't just swap them back

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Speaker 1: and forth. I mean, there are many other factors that

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Speaker 1: determine the actual value of a car. How much has

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Speaker 1: each car been driven how many parts are original to

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Speaker 1: the car, what condition is the car in and its parts?

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Speaker 1: Has either of those cars been in any accidents? Did

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Speaker 1: one of them serve as the vehicle for Doc Hopper,

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Speaker 1: the bad guy in the Muppet movie. All of these

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Speaker 1: sort of things affect the value of the car, and

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Speaker 1: so these two cars, while possessing lots of similarities, are

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Speaker 1: not interchangeable. And to go back to the lending example,

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Speaker 1: let's say you are a very kind person and you

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Speaker 1: lend me your car, despite the fact that you know

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Speaker 1: I don't actually drive, But for this example, we'll say

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Speaker 1: that I do so for a week you lend me

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Speaker 1: your car. It would not be acceptable for me to

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Speaker 1: return a car that was different from the one you

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Speaker 1: lent me. Even if the car I brought back was

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Speaker 1: the same year, the same make, and the same model

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Speaker 1: as the car you lent me. It's not your car.

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Speaker 1: That's a problem. You would probably have some choice words

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Speaker 1: for me if I tried to pull that kind of

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Speaker 1: stunt and me, well, I'd be like, huh, you know

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Speaker 1: that is weird. Where did I even get this car?

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Speaker 1: And fungibility does admittedly get a bit fuzzy because the

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Speaker 1: line between fungibility and non fungibility isn't always easily distinguishable.

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Speaker 1: For example, let's take gold. Now, in general, gold is

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Speaker 1: considered a fungible commodity. If you pan for gold and

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Speaker 1: you end up with half an ounce of gold, that way,

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Speaker 1: that's worth the same as a half ounce of gold

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Speaker 1: in any other format, whether it's a nugget or dust

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Speaker 1: or a teeny tiny piece off a gold bar or whatever.

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Speaker 1: One bit of gold is worth the same as an

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Speaker 1: equivalent amount of that gold, assuming that other things are

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Speaker 1: the same, like the pure pity of the gold is

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Speaker 1: the same. That does account for differences in value. But

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Speaker 1: let's say that you go to the Federal Reserve Bank

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Speaker 1: in New York City. Maybe you're the sibling of a

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Speaker 1: thief who had a really unsuccessful run at Nakatomi Plaza

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Speaker 1: and you want to clear out the Federal Reserve. Now,

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Speaker 1: this bank stores gold in an underground vault, and it

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Speaker 1: holds it on behalf of financial institutions from all over

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Speaker 1: the world. Each gold bar has a serial number that

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Speaker 1: identifies that gold bar and to whom that gold bar belongs.

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Speaker 1: These serial numbers correspond with ledgers, and those ledgers are

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Speaker 1: a complete record of which gold bars belong to which

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Speaker 1: financial institutions, and in this case, the gold bars are

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Speaker 1: measured with incredible precision to determine their weight and purity,

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Speaker 1: which means each gold bar has its own distinct value.

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Speaker 1: And it also means you can't just swap the bars around.

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Speaker 1: You couldn't turn to Liechtenstein and say, okay, so you

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Speaker 1: want five gold bars and you just grab any five

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Speaker 1: off the vault shelves. You would have to retrieve the

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Speaker 1: specific bars indicated by whichever client you're talking to, because

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Speaker 1: each bar would have a specific value that could vary

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Speaker 1: a little bit or maybe even a lot from other

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Speaker 1: bars that are in the vault. So this type of

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Speaker 1: gold bar is not fungible. Okay, but what does all

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Speaker 1: this have to do with digital goods. Let's consider the

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Speaker 1: nature of digital stuff for a bit. One of the

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Speaker 1: big differences between digital and physical goods is the ease

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Speaker 1: of replication and distribution. This is something that has been

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Speaker 1: an enormous issue in the business world, and it's something

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Speaker 1: that we see prompting big companies to overreact in ways

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Speaker 1: that range from bewildering, too, incredibly negligent and beyond. So

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Speaker 1: let's consider a few examples. Essentially, whenever a technology comes

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Speaker 1: along that allows the common folk you know, like me,

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Speaker 1: to copy stuff, well, big companies get ants in their bridges.

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Speaker 1: If you want to go all economic thought on this,

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Speaker 1: it's all about the means of production and who has

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Speaker 1: access to them. In a capitalist society, the means of

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Speaker 1: production are in the hands of private individuals and companies

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Speaker 1: who then may profit off the stuff that they produce.

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Speaker 1: And that totally makes sense, right you make something, you

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Speaker 1: can profit off of that something if someone else wants

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Speaker 1: to buy it. And of course, in the world we

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Speaker 1: live in, a lot of the stuff we can buy

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Speaker 1: comes from really big companies that are churning out products

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Speaker 1: at an enormous scale. So when tech comes around that

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Speaker 1: can make copies of stuff, that scares these companies. One

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Speaker 1: thing big companies do not like to see for some

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Speaker 1: reason are things that can make their numbers next to

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Speaker 1: profit go down on a spreadsheet. And if a technology

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Speaker 1: allows people to copy stuff rather than buy things from

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Speaker 1: a company, that's a potential hit to the bottom line.

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Speaker 1: And we've seen this over and over from the first

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Speaker 1: cassette tape and audio recorders that made it possible to

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Speaker 1: duplicate music abums, to VCRs that created a home theater industry,

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Speaker 1: to the MP three format, to peer to peer networks

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Speaker 1: that facilitated file transfers. In each of these cases, big

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Speaker 1: established industries like movie studios, television studios, and music labels

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Speaker 1: have lobbied governments to come up with increasingly harsh penalties

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Speaker 1: that target people who are creating unauthorized copies of work,

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Speaker 1: so in other words, making copies of stuff without permission. Now,

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Speaker 1: in most of these cases, it turned out that the

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Speaker 1: concerns were largely unwarranted. Yes, the ability to copy stuff

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Speaker 1: can be scary, but the real issue was that these

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Speaker 1: very big companies that got accustomed to the industry working

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Speaker 1: a certain way, we're not ready for changes. When those

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Speaker 1: changes happened, eventually, these same companies found new ways to

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Speaker 1: do business that were just as if not more profitable,

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Speaker 1: than previous methods. Movie and TV studios hated the idea

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Speaker 1: of VCRs when they first came out when VCRs had

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Speaker 1: home recording capabilities, but this eventually gave birth to the

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Speaker 1: home video industry, and those same companies found out that

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Speaker 1: the properties they owned, many of which had laid dormant

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Speaker 1: in storage because there was no place to exhibit them.

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Speaker 1: Suddenly that represented a new stream of revenue. Music labels

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Speaker 1: discovered first the lucrative market of MP three stores, and

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Speaker 1: later the potentially even more lucrative market of streaming audio,

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Speaker 1: which hey represented the best of all worlds because with streaming,

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Speaker 1: the end customer never actually owns a copy of the work,

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Speaker 1: They just have permission to experience the work by streaming

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Speaker 1: it to wherever they happened to be in a given moment.

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Speaker 1: On top of all that, the entertainment industry would claim

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Speaker 1: that any unauthorized download represents a monetary loss, which was

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Speaker 1: something that just wasn't supportable. Here's how the argument goes.

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Speaker 1: Company A produces some form of digital entertainment. Let's say

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Speaker 1: it's an album from a popular performer. Pirate B decides

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Speaker 1: to download an unauthorized copy of that album. Now, Company

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Speaker 1: A claims that they have experienced a loss, that Pirate

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Speaker 1: B has stolen something from Company A. But here's the thing.

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Speaker 1: It's a digital copy. The original file is still with

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Speaker 1: Company A. It's not like pirate be hacked into the

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Speaker 1: company's database and removed a file so that that file

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Speaker 1: is no longer there. The original file still exists, the

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Speaker 1: Company A can still sell copies of that file off

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Speaker 1: to customers, so Company A hasn't lost a product. If

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Speaker 1: we contrast this with a physical store, a shoplifter does

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Speaker 1: cost people money because that shoplifter has taken a physical

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Speaker 1: item from the store. The store can't magically reproduce that

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Speaker 1: physical item and then sell it off to a legitimate customer.

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Speaker 1: That's an actual loss. But with the digital model, the

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Speaker 1: same thing doesn't apply. Further, there's no way to argue

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Speaker 1: that Pirate B would have ever purchased that album legitimately,

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Speaker 1: so Company A can't even really claimed that they lost

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Speaker 1: out on a sale because it's entirely possible that if

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Speaker 1: Pirate B had never copied the album, that pra B

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Speaker 1: just never would have listened to the album at all.

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Speaker 1: And someone not buying something is not the same thing

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Speaker 1: as someone stealing something. If I walk into a store

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Speaker 1: and I look at a new computer, but I decide

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Speaker 1: I don't really need this right now, and I walk out,

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Speaker 1: I haven't stolen anything. I haven't cost the company a sale.

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Speaker 1: I just didn't decide to buy it. So even the

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Speaker 1: US government's Accountability Office concluded that media companies were going

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Speaker 1: way too far, with various claims of loss in numerous

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Speaker 1: lawsuits filed against people who had downloaded music without authorization.

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Speaker 1: Some of those cases were ludicrously vengeful, with studios seeking

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Speaker 1: hundreds of thousands of dollars and damages against folks who

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Speaker 1: had maybe downloaded a few songs. And the point is

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Speaker 1: that these arguments that the studios were making just weren't

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Speaker 1: so portable. But even though the arguments didn't hold water,

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Speaker 1: they do point to a problem. Digital goods have value,

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Speaker 1: that is clear. I mean people want them, so there

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Speaker 1: is value to those digital goods. And digital goods are

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Speaker 1: also replicable. It's easy to make copies of files. But

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Speaker 1: what if you wanted to buy the equivalent of an

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Speaker 1: autographed version of a digital piece of art. Maybe you

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Speaker 1: want to support a specific artist, maybe you're kind of

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Speaker 1: a digital collector. How would you even go about doing that?

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Speaker 1: I mean, what does that mean? In a world where

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Speaker 1: these files can just be replicated in too infinity? I mean,

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Speaker 1: how would you do it? Well? N f T s

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Speaker 1: are a way to establish who ultimately has ownership of

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Speaker 1: a unique, but not necessarily the original digital item, even

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Speaker 1: if there are millions of copies of that digital item

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Speaker 1: floating around. When we come back, will explain the backbone

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Speaker 1: of what makes this possible. But first, let's take a

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Speaker 1: quick break. All right, so we've covered how digital goods

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Speaker 1: present a challenge or a few challenges. How do you

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Speaker 1: control supply of a digital good? And sure, the thought

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Speaker 1: of controlling supply sounds a bit gross because you could

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Speaker 1: flip that on its head and say, how do you

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Speaker 1: limit access to something? But we have to remember that

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Speaker 1: creating stuff requires effort and skill. Creating something means that

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Speaker 1: someone somewhere spent time and utilize their talent in order

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Speaker 1: to do it. Presumably they should receive something in return

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Speaker 1: if other people want to access that work. Now, if

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Speaker 1: we all lived in the start Trek universe, where we

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Speaker 1: learned that money is no longer a concern because scarcity

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Speaker 1: doesn't exist, and so everyone can do whatever they want

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Speaker 1: whenever they want because they like to do it, well,

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Speaker 1: we would be having a different conversation. But instead, we

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Speaker 1: live in a world where we need to be able

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Speaker 1: to pay for stuff like rent, food, and medical bills

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Speaker 1: and whatnot, and we have a limited number of hours

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Speaker 1: in our lifetimes and being able to earn money from

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Speaker 1: spending some of those hours in our lives in ways that,

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Speaker 1: if we're lucky, are both fulfilling and profitable. That's a

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Speaker 1: big deal. But the digital world makes this challenging. It's

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Speaker 1: why we have processes like d m c A takedowns,

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Speaker 1: which can also sometimes get more than a bit overreactive. Ideally,

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Speaker 1: you would use a d m c A takedown to

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Speaker 1: stop someone from publishing or sharing your work without your authorization,

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Speaker 1: but of course some rights holders overstepped and will issue

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Speaker 1: takedown notices when someone is making fair use of work.

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Speaker 1: But that's a topic for another episode. Another approach to

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Speaker 1: protecting digital works is the dreaded digital rights management or

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Speaker 1: DRM category. The purpose of DRM is to limit how

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Speaker 1: a work can be copy and or distribute it. Sometimes

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Speaker 1: it involves including code in a digital product that limits

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Speaker 1: the number of devices that can have access to that

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Speaker 1: digital work. For example, you might purchase a game from

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Speaker 1: an online store and then see that you are authorized

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Speaker 1: to install that game on up to say three devices,

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Speaker 1: and furthermore, you might be limited on how many devices

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Speaker 1: can access that digital work at a given time, so

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Speaker 1: that if you are running an instance of a game

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Speaker 1: on one machine, you cannot launch that same game on

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Speaker 1: another machine while that first instance is still going. But

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Speaker 1: DRM can lead to a lot of problems. For one thing,

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Speaker 1: sometimes companies will employ measures that make it really hard

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Speaker 1: for legitimate customers to actually consume the digital work that

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Speaker 1: they have purchased. So let's say I've made a legitimate

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Speaker 1: purchase of a music album using my phone, and now

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Speaker 1: I've decided I want to listen to this album on

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Speaker 1: my digital sound system so that I can enjoy it

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Speaker 1: on a really good audio system. I want to transfer

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Speaker 1: the file to the sound system. I don't want to

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Speaker 1: just cast it from my phone. I might find that

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Speaker 1: transferring the file over so that I can listen to

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Speaker 1: it on the sound system is a huge hassle. I

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Speaker 1: might have to jump through numerous hoops just to get

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Speaker 1: it to work. Now, this is incredibly frustrating, and it

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Speaker 1: often leads to old fogies like me saying, you know what,

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Speaker 1: in the old days, we just take a Vinyl album.

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Speaker 1: It didn't matter if you played it on one turn

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Speaker 1: table or the other. It's not fair to compare digital

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Speaker 1: and physical media to one another this way, because it's

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Speaker 1: not apples to apples. I swear that's not an iPod reference,

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Speaker 1: but you get the point. Beyond that, some companies have

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Speaker 1: taken DRM to do really stupid stuff. There's the famous

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Speaker 1: example of Sony that introduced DRM on c d s,

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Speaker 1: and if you inserted the CD into a CD ROM

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Speaker 1: drive on a computer, it created a potential back door

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Speaker 1: for someone else to gain access to your computer. Sony

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Speaker 1: ended up paying dearly for that mistake. So DRM can

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Speaker 1: actually push some people who would be legitimate customers of

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Speaker 1: a product into piracy because one of the things we

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Speaker 1: frequently see in online piracy is that hackers will find

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Speaker 1: ways to strip DRM from digital works. Now, this streamlines

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Speaker 1: the experience of actually using the digital works, and so

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Speaker 1: there's a case to be made that using certain strategies

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Speaker 1: to protect digital works actually creates the incentive that pushes

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Speaker 1: people towards piracy. It's complicated stuff beyond that, how do

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Speaker 1: you determine who owns a specific instance of a digital work?

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Speaker 1: If it's something that's replicable and easily distributable, how do

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Speaker 1: you ascertain who owns it? And how do you have

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Speaker 1: a tracking system to track the transfer of ownership from

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Speaker 1: one party to another. Well, there is a solution to

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Speaker 1: that problem, and it depends upon a system that was

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Speaker 1: developed largely in tune with cryptocurrency. So let's go back

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Speaker 1: to the world of physical currency first. If we're talking

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Speaker 1: actual physical currency of notes and coins and whatnot, we've

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Speaker 1: got a big requirement to make that currency work. Actually,

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Speaker 1: we've got a lot of requirements, but one of the

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Speaker 1: big ones is that we need to make sure that

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Speaker 1: the average person cannot easily duplicate currency. We need that

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Speaker 1: currency protected against counterfeiting. Otherwise, someone with the means would

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Speaker 1: just create a whole bunch of fake cash and use

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Speaker 1: it to stand in for the real thing. This causes

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Speaker 1: all sorts of huge problems, from leading to losses at

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Speaker 1: the point of purchase all the way to undermining confidence

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Speaker 1: in the financial systems that support an entire economic system

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Speaker 1: like a country. And there are a lot of different

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Speaker 1: protections that go into physical currency. There are special inks,

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Speaker 1: special materials for notes, they're special water marks, serial numbers,

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Speaker 1: all these kind of things. These are all elements that

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Speaker 1: help protect against counterfeiting and make it easier for people

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Speaker 1: to spot a fake before someone can pass it off

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Speaker 1: as the real thing. And obviously we've gotten better at

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Speaker 1: creating or sophisticated protections. These don't guarantee that someone won't

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Speaker 1: come up with a counterfeiting process, but they raise the

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Speaker 1: level of difficulty to a point where it's really, really

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Speaker 1: hard to do. And if you make something hard enough,

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Speaker 1: that means that if you do want to do it,

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Speaker 1: it's going to be really expensive. So if it's so

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Speaker 1: expensive that you're not likely to be able to pay

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Speaker 1: off the method you used to do the illegal thing,

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Speaker 1: you're not going to do the illegal thing. It just

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Speaker 1: doesn't make It's a it's a bad return on investment, right.

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Speaker 1: So that's one way to protect against counterfeiting. Just make

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Speaker 1: it super hard to do. Well. That's physical money. Cryptocurrency,

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Speaker 1: being digital, needs some similar protections. It needs the digital

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Speaker 1: equivalent of that special blend of paper and cloth that

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Speaker 1: dollar bills have, or the serial number, or the ink

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Speaker 1: or transparent pains within the note, or whatever it might be.

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Speaker 1: It needs a way to protect against duplication. Otherwise you

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Speaker 1: might grab a bitcoin through some means, maybe you've purchased one,

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Speaker 1: maybe you mind it, whatever, Then you might copy it

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Speaker 1: a billion times and either become a billionaire or more likely,

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Speaker 1: crash the value of the cryptocurrency beyond repair. If you

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Speaker 1: could find a way to duplicate bitcoin, then the entire

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Speaker 1: system falls apart because no one would ever know if

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Speaker 1: a bitcoin is quote unquote real or a duplicate. It's

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Speaker 1: already digital, which gives people a sense that it's not

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Speaker 1: quote unquote real to start off with. But digital goods

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Speaker 1: do have value as long as people have a desire

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Speaker 1: for those digital goods. A digital good is only worthless

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Speaker 1: if literally no one wants it, and at least no

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Speaker 1: one wants it enough to spend money or effort at

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Speaker 1: getting it. How then, do cryptocurrencies avoid duplication? How can

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Speaker 1: bitcoin make certain that someone doesn't try and spend the

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Speaker 1: same virtual coin more than once. This is where blockchain

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Speaker 1: comes into play, and it's important to note right off

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Speaker 1: the bat that blockchain and bitcoin are not synonymous. Heck,

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Speaker 1: blockchain and cryptocurrency aren't son onymous. Bitcoin depends upon the

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Speaker 1: technology of blockchain, but blockchain can apply to lots of

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Speaker 1: different types of transactions, not just bitcoin or cryptocurrency in general.

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Speaker 1: But let's get into how it works, because man, this

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Speaker 1: technology is one that is a challenge for people to understand.

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Speaker 1: We're going to use bitcoin as an example for this

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Speaker 1: because it's arguably the most well known, at least on

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Speaker 1: a surface level of An example of this technology. At

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Speaker 1: the heart of the matter is a ledger. This is

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Speaker 1: a record of every single transaction made within the bitcoin

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Speaker 1: system and every node in that system, that is, every

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Speaker 1: computer or computer network. It's a point of contact. All

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Speaker 1: of them have access to seeing this ledger. It is

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Speaker 1: a universal ledger that everyone has access to. The ledger

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Speaker 1: broadcasts each and every transaction that occurs within the system.

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Speaker 1: The nodes, as in those points of contact, then decide

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Speaker 1: the order in which the transactions occur. They agree upon this,

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Speaker 1: and that last bit is a really critical piece. Not

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Speaker 1: all digital currencies rely on blockchain. Some are controlled by

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Speaker 1: financial institutions like banks. These institutions step into arbitrate issues,

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Speaker 1: such as if there's a payment dispute. But because the

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Speaker 1: banks have to do this, they have to act as

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Speaker 1: an arbiter. These same banks tend to have a lot

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Speaker 1: of fees for customers to pay but to cover the

432
00:25:26,760 --> 00:25:30,600
Speaker 1: cost of being an arbiter. Also, the process moves rather slowly.

433
00:25:30,920 --> 00:25:35,840
Speaker 1: The blockchain approach replaces everything with cryptographic evidence, and the

434
00:25:35,920 --> 00:25:40,280
Speaker 1: nodes agree on what evidence actually is. So let's say

435
00:25:40,320 --> 00:25:42,200
Speaker 1: that I have a bitcoin and I want to buy

436
00:25:42,240 --> 00:25:44,960
Speaker 1: something with it. Here's the fun part. When I started

437
00:25:45,000 --> 00:25:48,560
Speaker 1: researching this episode, a bitcoin's value was around fifty seven

438
00:25:48,600 --> 00:25:52,119
Speaker 1: thousand U S. Dollars. Side note, as I record this

439
00:25:52,359 --> 00:25:55,680
Speaker 1: is closer to fifty dollars either way, I guess I'm

440
00:25:55,680 --> 00:25:58,159
Speaker 1: buying a car with it. So I plopped down my

441
00:25:58,200 --> 00:26:01,919
Speaker 1: bitcoin digitally speaking, and I purchase a brand new Tesla

442
00:26:02,040 --> 00:26:04,920
Speaker 1: Model three, which means I should actually get some change

443
00:26:04,920 --> 00:26:07,720
Speaker 1: back on that deal, because I think a fully kitted

444
00:26:07,720 --> 00:26:09,920
Speaker 1: out Tesla Model three with all the options would top

445
00:26:09,960 --> 00:26:14,320
Speaker 1: out under fifty dollars. So I fill up my online

446
00:26:14,320 --> 00:26:17,200
Speaker 1: shopping cart with a Tesla Model three and I make

447
00:26:17,240 --> 00:26:20,000
Speaker 1: the purchase. But then I quickly switched tabs to a

448
00:26:20,040 --> 00:26:23,200
Speaker 1: different shopping window. And in that window, let's say I've

449
00:26:23,200 --> 00:26:27,920
Speaker 1: got a Chevrolet Camaro, and this one's not totally tricked out,

450
00:26:27,920 --> 00:26:31,199
Speaker 1: because those can get upwards of around seventy dollars with

451
00:26:31,240 --> 00:26:34,080
Speaker 1: all the options, So I hit purchase on that as well.

452
00:26:34,840 --> 00:26:37,600
Speaker 1: Now I only have one bitcoin to my name, but

453
00:26:37,680 --> 00:26:40,640
Speaker 1: I've just tried to spend it twice, and the process

454
00:26:40,680 --> 00:26:43,760
Speaker 1: to verify a transaction can take about ten minutes. So

455
00:26:43,840 --> 00:26:47,000
Speaker 1: what happens, Well, each of those transactions gets submitted to

456
00:26:47,040 --> 00:26:50,800
Speaker 1: the ledger, which announces the transaction to all the nodes

457
00:26:50,880 --> 00:26:53,920
Speaker 1: that connect to the blockchain system. The nodes then work

458
00:26:53,960 --> 00:26:56,600
Speaker 1: out the order of transactions, and a majority of the

459
00:26:56,640 --> 00:27:00,200
Speaker 1: nodes have to agree on which came first. That will

460
00:27:00,240 --> 00:27:03,800
Speaker 1: invalidate the other transaction, because I cannot say, spend the

461
00:27:03,840 --> 00:27:06,520
Speaker 1: same bitcoin twice. So does that mean I'm going to

462
00:27:06,640 --> 00:27:10,280
Speaker 1: end up with the Tesla? Probably, but not necessarily. The

463
00:27:10,320 --> 00:27:13,399
Speaker 1: majority of notes could conclude that I actually ordered the

464
00:27:13,400 --> 00:27:16,399
Speaker 1: Camaro first, But even so, that would mean that the

465
00:27:16,440 --> 00:27:19,320
Speaker 1: Camaro transaction will be authorized and the Tesla one would

466
00:27:19,320 --> 00:27:23,000
Speaker 1: be null and void. Each bitcoin is in effect a

467
00:27:23,040 --> 00:27:26,159
Speaker 1: series of digital signatures that if you were to trace

468
00:27:26,240 --> 00:27:30,000
Speaker 1: them back from most recent to oldest, it would lead

469
00:27:30,000 --> 00:27:33,040
Speaker 1: back to the original creation of the bitcoin and every

470
00:27:33,080 --> 00:27:36,639
Speaker 1: transaction it had been through since that point. Each signature

471
00:27:37,119 --> 00:27:39,960
Speaker 1: is a record of a transaction, which means a bitcoin

472
00:27:39,960 --> 00:27:43,120
Speaker 1: effectively has a memory of every single time someone used

473
00:27:43,119 --> 00:27:47,640
Speaker 1: it in some form of transaction. In addition, bitcoin relies

474
00:27:47,720 --> 00:27:52,159
Speaker 1: on the cryptographic practice of maintaining a public key, that is,

475
00:27:52,480 --> 00:27:56,360
Speaker 1: a cryptographic key that everyone has access to, as well

476
00:27:56,400 --> 00:27:59,679
Speaker 1: as a private key for each user. Only the user

477
00:27:59,840 --> 00:28:03,320
Speaker 1: has access to the their own personal private key. So

478
00:28:03,520 --> 00:28:06,600
Speaker 1: when I make this transaction, my public key and the

479
00:28:06,640 --> 00:28:09,760
Speaker 1: most recent of the transactions that was on the bitcoin,

480
00:28:09,800 --> 00:28:12,800
Speaker 1: the one the most recent transaction before the one I'm

481
00:28:12,840 --> 00:28:16,440
Speaker 1: making that is, those get hashed together, and my digital

482
00:28:16,480 --> 00:28:20,520
Speaker 1: signature adds on to that Bitcoin hash. By the way,

483
00:28:20,520 --> 00:28:23,200
Speaker 1: as a process by which I can feed a string

484
00:28:23,240 --> 00:28:27,040
Speaker 1: of characters into an algorithm and it produces a fixed

485
00:28:27,080 --> 00:28:30,720
Speaker 1: size output based on whatever my input was. So let's

486
00:28:30,720 --> 00:28:33,640
Speaker 1: say the hash creates a string that's twenty characters long.

487
00:28:33,800 --> 00:28:36,399
Speaker 1: That's going to be the output. It does not matter

488
00:28:36,760 --> 00:28:39,040
Speaker 1: how long of a string of data I feed to

489
00:28:39,120 --> 00:28:43,360
Speaker 1: this algorithm. I might feed a one string one character

490
00:28:43,400 --> 00:28:46,280
Speaker 1: string into it, or a thousand character string into it.

491
00:28:46,480 --> 00:28:48,840
Speaker 1: The output is going to be twenty characters long. However,

492
00:28:49,360 --> 00:28:53,920
Speaker 1: the actual characters in that string, you know, there's gonna

493
00:28:53,920 --> 00:28:56,120
Speaker 1: be twenty of them, but the specific ones that appear

494
00:28:56,160 --> 00:28:58,600
Speaker 1: in that string are going to depend on whatever I

495
00:28:58,760 --> 00:29:02,440
Speaker 1: used as the in put. The hashes created on bitcoin

496
00:29:02,520 --> 00:29:05,480
Speaker 1: show the chain of ownership. It's this paired with the

497
00:29:05,600 --> 00:29:09,600
Speaker 1: time stamped transactions from the server and the nodes that

498
00:29:09,640 --> 00:29:13,080
Speaker 1: are agreeing on transaction order that I'll prevent bitcoins from

499
00:29:13,120 --> 00:29:17,720
Speaker 1: being double spent. Oh and blockchain groups transactions together into

500
00:29:17,880 --> 00:29:21,440
Speaker 1: blocks of data. That's why it's called block chain. You

501
00:29:21,480 --> 00:29:25,920
Speaker 1: have a chain of blocks of transactions. Each block is

502
00:29:25,960 --> 00:29:30,440
Speaker 1: cryptographically hashed to the previous blocks. Now that also means

503
00:29:30,480 --> 00:29:33,440
Speaker 1: there's no way to change the record. So let's say

504
00:29:33,480 --> 00:29:36,360
Speaker 1: that this chain is ten blocks long. If you tried

505
00:29:36,360 --> 00:29:38,880
Speaker 1: to change the record of a transaction that was back

506
00:29:38,920 --> 00:29:43,160
Speaker 1: in block number four, it would force everything from block

507
00:29:43,280 --> 00:29:46,959
Speaker 1: five onward to change as well. And since the ledger

508
00:29:47,120 --> 00:29:50,080
Speaker 1: is universal, meaning every computer or node on the system

509
00:29:50,120 --> 00:29:52,320
Speaker 1: can see it, no one would be able to get

510
00:29:52,360 --> 00:29:54,600
Speaker 1: away with those changes because everyone would see that the

511
00:29:54,680 --> 00:29:58,400
Speaker 1: ledger was changing. That's the basics of blockchain and bitcoin.

512
00:29:58,520 --> 00:30:00,800
Speaker 1: Now there's more to it than that, and it gets

513
00:30:00,800 --> 00:30:03,240
Speaker 1: really technical, but now we have the basis of what

514
00:30:03,440 --> 00:30:05,840
Speaker 1: makes n f t s work. When we come back,

515
00:30:06,040 --> 00:30:07,920
Speaker 1: we'll learn a bit more about n f t s

516
00:30:07,960 --> 00:30:11,880
Speaker 1: in particular. But first let's take another quick break so

517
00:30:11,920 --> 00:30:22,640
Speaker 1: I can breathe. And now we're up to non fungible

518
00:30:22,720 --> 00:30:26,280
Speaker 1: tokens like bitcoin. N f t s are tied to

519
00:30:26,520 --> 00:30:30,960
Speaker 1: block chains. Ethereum is one of the most common ones.

520
00:30:31,040 --> 00:30:36,080
Speaker 1: Ethereum has the built in support for things that are

521
00:30:36,120 --> 00:30:39,520
Speaker 1: not just cryptocurrency to work on that block chain. So

522
00:30:39,560 --> 00:30:40,920
Speaker 1: and if a lot of n f T s are

523
00:30:40,960 --> 00:30:44,880
Speaker 1: built on the Ethereum system, so a blockchain doesn't have

524
00:30:44,920 --> 00:30:47,240
Speaker 1: to be connected to cryptocurrency. It can be a way

525
00:30:47,280 --> 00:30:51,120
Speaker 1: to track any type of transaction. Some companies are using

526
00:30:51,120 --> 00:30:53,800
Speaker 1: blockchain to create a way to track different components in

527
00:30:53,880 --> 00:30:56,600
Speaker 1: supply chains. So using a block chain, it would be

528
00:30:56,600 --> 00:30:59,560
Speaker 1: possible to maintain a record of stuff ranging from fruit

529
00:30:59,760 --> 00:31:02,600
Speaker 1: that has picked hundreds of miles away and all the

530
00:31:02,600 --> 00:31:05,160
Speaker 1: stops that made before it finally got to your kitchen table,

531
00:31:05,680 --> 00:31:09,280
Speaker 1: or tracking authentic designer handbags from the point of origin

532
00:31:09,360 --> 00:31:11,000
Speaker 1: to the point of sale so that you know you're

533
00:31:11,000 --> 00:31:14,320
Speaker 1: not looking at a counterfeit. The blockchain gives insight and

534
00:31:14,400 --> 00:31:17,640
Speaker 1: peace of mind. You know exactly where that thing has

535
00:31:17,680 --> 00:31:22,760
Speaker 1: been because there's an unalterable digital record of every transaction

536
00:31:22,920 --> 00:31:27,200
Speaker 1: involving that thing. So, an n f T is a

537
00:31:27,280 --> 00:31:29,960
Speaker 1: token that connects to a digital item that has a

538
00:31:30,040 --> 00:31:33,240
Speaker 1: unique I D. This is different from bitcoins. A bitcoin

539
00:31:33,320 --> 00:31:37,120
Speaker 1: technically doesn't have its own I D. Bitcoins are associated

540
00:31:37,120 --> 00:31:41,720
Speaker 1: with specific transaction outputs, so the transaction has an I D,

541
00:31:42,320 --> 00:31:46,880
Speaker 1: but technically speaking, the bitcoin itself does not n f

542
00:31:46,920 --> 00:31:48,800
Speaker 1: T s have to have an I D. This is

543
00:31:48,800 --> 00:31:52,000
Speaker 1: how you identify which instance of a digital something is

544
00:31:52,560 --> 00:31:55,960
Speaker 1: in fact the one that is up for purchase, And

545
00:31:56,000 --> 00:31:58,040
Speaker 1: in a way, it's like saying, how can you tell

546
00:31:58,080 --> 00:32:02,520
Speaker 1: who owns a specific in stance of a unique digital item,

547
00:32:02,560 --> 00:32:04,720
Speaker 1: and the n f T is the way of doing that.

548
00:32:05,120 --> 00:32:07,880
Speaker 1: With physical goods, like a book, you can have a

549
00:32:07,920 --> 00:32:11,320
Speaker 1: lot of ways of differentiating them, right, they could be

550
00:32:11,440 --> 00:32:13,280
Speaker 1: hard bag, they could be paperback, they could be an

551
00:32:13,280 --> 00:32:16,160
Speaker 1: original edition, they could be autographed. All of this is

552
00:32:16,200 --> 00:32:20,640
Speaker 1: easily verifiable. With digital goods, it's a lot more challenging

553
00:32:20,680 --> 00:32:25,360
Speaker 1: because they're digital, they're ephemeral. So really what an n

554
00:32:25,440 --> 00:32:28,240
Speaker 1: f T ends up being is a digital signature, much

555
00:32:28,280 --> 00:32:31,520
Speaker 1: like what we see with cryptocurrencies like bitcoin, and just

556
00:32:31,600 --> 00:32:34,640
Speaker 1: like cryptocurrencies, and n f T can be part of

557
00:32:34,640 --> 00:32:37,600
Speaker 1: a transaction and making that transaction means that the n

558
00:32:37,640 --> 00:32:41,040
Speaker 1: f T goes through a very similar process as a

559
00:32:41,120 --> 00:32:45,520
Speaker 1: bitcoin or other cryptocurrency. There's a time stamped transaction and

560
00:32:45,560 --> 00:32:48,600
Speaker 1: a cryptographic hash that records the transfer of the n

561
00:32:48,640 --> 00:32:52,240
Speaker 1: f T, so it moves from one party's ownership to another.

562
00:32:52,760 --> 00:32:56,520
Speaker 1: The transaction enters into a universal ledger, and every node

563
00:32:56,760 --> 00:32:59,920
Speaker 1: within that system can see that universal ledger, and then

564
00:33:00,000 --> 00:33:02,720
Speaker 1: odes verified the block of transactions that the n f

565
00:33:02,760 --> 00:33:05,800
Speaker 1: T was part of, and thus ownership has changed hands

566
00:33:05,800 --> 00:33:09,760
Speaker 1: and everybody knows about it. Now. Nothing physical has actually

567
00:33:09,840 --> 00:33:12,640
Speaker 1: changed hands. It's not like a painting at an auction,

568
00:33:12,880 --> 00:33:15,960
Speaker 1: where you might go to an auction, you bid truckloads

569
00:33:16,000 --> 00:33:18,560
Speaker 1: of money for a money and at the end of

570
00:33:18,560 --> 00:33:21,840
Speaker 1: the auction, assuming that you won the bid, you could

571
00:33:21,840 --> 00:33:24,160
Speaker 1: take that painting home, or you can put in a

572
00:33:24,240 --> 00:33:27,480
Speaker 1: museum or whatever. But with an n f T, what

573
00:33:27,600 --> 00:33:30,680
Speaker 1: has happened is that there is a record of digital

574
00:33:30,720 --> 00:33:35,120
Speaker 1: ownership that has changed hands. You own the n f

575
00:33:35,160 --> 00:33:39,920
Speaker 1: T instance of whatever digital item you were buying, but

576
00:33:40,040 --> 00:33:44,960
Speaker 1: because it's digital, it's still ephemeral. What's more, there might

577
00:33:45,000 --> 00:33:49,920
Speaker 1: be many many copies of that digital thing out in

578
00:33:49,960 --> 00:33:52,920
Speaker 1: the wild. In fact, if it's a popular piece of

579
00:33:52,960 --> 00:33:56,760
Speaker 1: digital art, there could be countless copies out there. And

580
00:33:56,760 --> 00:33:59,280
Speaker 1: an n f T is not the same thing as

581
00:33:59,320 --> 00:34:03,200
Speaker 1: owning the original instance of something. It's not like going

582
00:34:03,240 --> 00:34:06,600
Speaker 1: to an art auction and buying the original canvas painting

583
00:34:06,680 --> 00:34:09,160
Speaker 1: of a moon Ai. It might be like going to

584
00:34:09,200 --> 00:34:12,480
Speaker 1: an art auction and buying a print of a mon

585
00:34:12,520 --> 00:34:16,719
Speaker 1: Ai that happens to be autographed by somebody, presumably not

586
00:34:16,920 --> 00:34:19,840
Speaker 1: mon Ai. I don't think Mona's around signing prints of

587
00:34:20,400 --> 00:34:24,200
Speaker 1: Monai's work. But n f T doesn't even mean that

588
00:34:24,280 --> 00:34:29,200
Speaker 1: the owner of that n f T tokened digital item

589
00:34:29,239 --> 00:34:33,279
Speaker 1: has any copyright to that work. If I purchase an

590
00:34:33,440 --> 00:34:37,240
Speaker 1: n f T connected version of, say, the keyboard Cat video,

591
00:34:37,800 --> 00:34:41,400
Speaker 1: all that means is that specific n f T instance

592
00:34:41,600 --> 00:34:45,480
Speaker 1: of keyboard Cat is what I own. The actual creator

593
00:34:45,520 --> 00:34:48,200
Speaker 1: of the keyboard Cat video could make as many n

594
00:34:48,200 --> 00:34:50,439
Speaker 1: f T s based off that video as they liked.

595
00:34:50,480 --> 00:34:55,040
Speaker 1: They could have a different n f t uh version

596
00:34:55,080 --> 00:34:58,400
Speaker 1: of the keyboard Cat video for like twenty fifty thousand

597
00:34:58,480 --> 00:35:00,680
Speaker 1: different people if they wanted to. Each n f T

598
00:35:01,120 --> 00:35:04,799
Speaker 1: would be digitally unique from a signature standpoint, but they

599
00:35:04,800 --> 00:35:07,640
Speaker 1: would all represent the same source of digital work, which

600
00:35:07,640 --> 00:35:09,680
Speaker 1: is kind of weird right now. If we go back

601
00:35:09,719 --> 00:35:13,640
Speaker 1: to thinking about books, you can start to grock this

602
00:35:13,840 --> 00:35:16,400
Speaker 1: a little better, at least I can. So. An author

603
00:35:16,560 --> 00:35:19,440
Speaker 1: writes a book, the author auctions off the chance for

604
00:35:19,520 --> 00:35:23,800
Speaker 1: someone to buy an autographed, personalized copy of the book.

605
00:35:24,560 --> 00:35:27,600
Speaker 1: The person who wins that auction Obviously, they don't get

606
00:35:27,640 --> 00:35:30,880
Speaker 1: the copyright to the book itself. They can't break in

607
00:35:30,920 --> 00:35:34,799
Speaker 1: the royalties for sales of that book. The author still

608
00:35:34,800 --> 00:35:37,879
Speaker 1: retains the copyright and can continue to make a living

609
00:35:37,920 --> 00:35:41,600
Speaker 1: off that book. What you have is a specific instance

610
00:35:41,640 --> 00:35:45,520
Speaker 1: of that book that is autographed and personalized. There's also

611
00:35:45,800 --> 00:35:49,320
Speaker 1: nothing stopping the author from doing more auctions to offer

612
00:35:49,760 --> 00:35:53,759
Speaker 1: more chances for autographed copies personalized to other people. These

613
00:35:53,800 --> 00:35:57,319
Speaker 1: instances are all unique in of themselves, but they all

614
00:35:57,440 --> 00:36:00,799
Speaker 1: come from the same source material. Now, there have been

615
00:36:00,840 --> 00:36:06,240
Speaker 1: several extremely high profile n f T transactions recently. For example,

616
00:36:06,840 --> 00:36:09,840
Speaker 1: Jack Dorsey, the CEO of Twitter, auctioned off and n

617
00:36:09,880 --> 00:36:13,680
Speaker 1: f T representing his first tweet ever, which just said

618
00:36:14,480 --> 00:36:18,560
Speaker 1: quote just setting up my Twitter end quote. Twitter was

619
00:36:18,600 --> 00:36:21,759
Speaker 1: spelled without vowels, so as t W T t R.

620
00:36:22,080 --> 00:36:25,560
Speaker 1: He posted that back on March twenty one, two thousand six,

621
00:36:25,840 --> 00:36:30,000
Speaker 1: and he auctioned off an n f T token representing

622
00:36:30,440 --> 00:36:33,839
Speaker 1: the tweet. The winning bid came in at more than

623
00:36:33,880 --> 00:36:39,600
Speaker 1: two point nine million dollars. And you know, this doesn't

624
00:36:39,640 --> 00:36:43,879
Speaker 1: mean that the tweet has disappeared from everybody else's view, right,

625
00:36:43,960 --> 00:36:46,920
Speaker 1: So what does ownership even mean? I'm not sure I

626
00:36:46,960 --> 00:36:50,560
Speaker 1: could even tell you. We're getting into some fuzzy territory here,

627
00:36:50,600 --> 00:36:54,840
Speaker 1: because clearly everyone can still see the tweet. Everyone knows

628
00:36:54,960 --> 00:36:58,719
Speaker 1: what that tweet is. Where is the value? What is

629
00:36:58,760 --> 00:37:02,279
Speaker 1: the point of ownership? I'm not sure I know I

630
00:37:02,360 --> 00:37:05,600
Speaker 1: can tell you. However, the Dorsey donated the proceeds of

631
00:37:05,600 --> 00:37:09,440
Speaker 1: that auction to a charity, which was pretty awesome. Or

632
00:37:09,719 --> 00:37:13,000
Speaker 1: take the work of the artist people whose real name

633
00:37:13,040 --> 00:37:16,359
Speaker 1: is Mike Winkelman. He's been making digital art for more

634
00:37:16,360 --> 00:37:18,920
Speaker 1: than a decade and he began to experiment with n

635
00:37:18,960 --> 00:37:21,279
Speaker 1: f T s a few months ago. This led to

636
00:37:21,360 --> 00:37:24,440
Speaker 1: an n f T representing a collection of his works

637
00:37:24,760 --> 00:37:28,400
Speaker 1: going on auction at Christie's, the company that oversees like

638
00:37:29,320 --> 00:37:34,160
Speaker 1: really big, real legit art auctions, and this brought in

639
00:37:34,200 --> 00:37:39,320
Speaker 1: a lot of money, as in sixty nine million dollars.

640
00:37:39,320 --> 00:37:42,040
Speaker 1: But these works of art exist on the Internet, which

641
00:37:42,040 --> 00:37:44,640
Speaker 1: means you can actually look at them, you can copy them,

642
00:37:44,760 --> 00:37:47,960
Speaker 1: you could store them on your home device, on your phone, whatever.

643
00:37:48,040 --> 00:37:51,080
Speaker 1: You can make as many copies as you liked. So again,

644
00:37:51,520 --> 00:37:54,920
Speaker 1: what does n f T ownership actually mean? Because you

645
00:37:54,960 --> 00:37:58,200
Speaker 1: don't own the original, It's not like purchasing that painting

646
00:37:58,239 --> 00:38:01,799
Speaker 1: that an artist has created. Personally, you don't own the copyright.

647
00:38:02,200 --> 00:38:05,000
Speaker 1: What do you own? Well, you own a record of

648
00:38:05,040 --> 00:38:09,239
Speaker 1: a transaction. YEA. N f T S can be a

649
00:38:09,280 --> 00:38:11,960
Speaker 1: way that let you support an artist, and that I

650
00:38:12,000 --> 00:38:15,920
Speaker 1: think is totally cool. Digital art is very hard to

651
00:38:16,040 --> 00:38:21,480
Speaker 1: monetize because of this replicability and easy to distribute nature

652
00:38:21,480 --> 00:38:25,160
Speaker 1: of digital goods. It's Harvard digital artists to make money

653
00:38:25,200 --> 00:38:28,120
Speaker 1: off their work because it's so easy to just lift

654
00:38:28,160 --> 00:38:31,000
Speaker 1: it for free, you know, unless it's part of an

655
00:38:31,160 --> 00:38:35,360
Speaker 1: established commercial endeavor. A lot of digital artists struggle to

656
00:38:35,680 --> 00:38:38,960
Speaker 1: make money from their work. So maybe there's an artist

657
00:38:39,000 --> 00:38:42,600
Speaker 1: that you like who creates really cool digital art. Purchasing

658
00:38:42,600 --> 00:38:45,080
Speaker 1: a work connected to n f T might be a

659
00:38:45,080 --> 00:38:47,880
Speaker 1: way to show your support. And because that transaction happens

660
00:38:47,920 --> 00:38:51,760
Speaker 1: on a publicly viewable blockchain, or at least publicly viewable

661
00:38:51,800 --> 00:38:56,960
Speaker 1: to any node connected to that blockchain, that support that

662
00:38:57,040 --> 00:38:59,640
Speaker 1: you gave is public, and public support can be a

663
00:38:59,719 --> 00:39:02,720
Speaker 1: huge which helped to an artist. If more people see

664
00:39:02,760 --> 00:39:06,040
Speaker 1: that a certain artist's work is moving, like people are

665
00:39:06,080 --> 00:39:09,799
Speaker 1: buying in a T tokens representing pieces of work from

666
00:39:09,800 --> 00:39:12,800
Speaker 1: this particular artist, then maybe they go and help support

667
00:39:12,840 --> 00:39:16,040
Speaker 1: that artist, and that artist flourishes as a result. That's great,

668
00:39:16,880 --> 00:39:18,600
Speaker 1: but a lot of the reporting on n f t

669
00:39:18,760 --> 00:39:22,279
Speaker 1: s right now isn't so much about supporting artists as

670
00:39:22,280 --> 00:39:27,440
Speaker 1: it is about speculation. Like speculation from an economic standpoint,

671
00:39:27,760 --> 00:39:29,799
Speaker 1: this means that n f t s are kind of

672
00:39:29,920 --> 00:39:33,960
Speaker 1: in a way, being treated sort of like cryptocurrency is.

673
00:39:34,560 --> 00:39:37,800
Speaker 1: You've likely heard me say on many occasions that cryptocurrency

674
00:39:37,880 --> 00:39:42,480
Speaker 1: really comes across more as a commodity than as a currency.

675
00:39:42,600 --> 00:39:46,680
Speaker 1: The value of cryptocurrencies tends to be, let's say, fluid,

676
00:39:47,239 --> 00:39:50,520
Speaker 1: and thus it's hard to treat cryptocurrency as a real

677
00:39:50,680 --> 00:39:53,840
Speaker 1: means of exchange. More people treat it as a way

678
00:39:53,840 --> 00:39:58,120
Speaker 1: to invest and increase their money, and n f t

679
00:39:58,360 --> 00:40:01,560
Speaker 1: s seem to be headed in at general direction right now.

680
00:40:02,080 --> 00:40:05,360
Speaker 1: Owning the digital signature of a transaction for a specific

681
00:40:05,400 --> 00:40:09,440
Speaker 1: instance of art is sort of like having bragging rights,

682
00:40:09,680 --> 00:40:13,520
Speaker 1: and as long as people ascribe value to those bragging rights,

683
00:40:14,120 --> 00:40:17,279
Speaker 1: it will be worth something. In fact, at least in

684
00:40:17,280 --> 00:40:20,240
Speaker 1: the short term, the value will likely go up because

685
00:40:20,320 --> 00:40:22,080
Speaker 1: lots of people are hearing about n f t s,

686
00:40:22,080 --> 00:40:23,920
Speaker 1: they're curious about it, they want to get in on it,

687
00:40:24,040 --> 00:40:28,640
Speaker 1: especially the cryptocurrency fans, they really want to jump on

688
00:40:28,840 --> 00:40:32,680
Speaker 1: this this bandwagon. But a lot of people, including people,

689
00:40:33,040 --> 00:40:35,600
Speaker 1: it turns out, have expressed some concern that what we're

690
00:40:35,640 --> 00:40:38,400
Speaker 1: seeing is sort of a speculative bubble that could collapse

691
00:40:38,440 --> 00:40:42,320
Speaker 1: at any moment. All right, but how do you store

692
00:40:42,960 --> 00:40:44,480
Speaker 1: n f T S. I mean, if you were to

693
00:40:44,560 --> 00:40:46,400
Speaker 1: buy a physical work of art, you would have to

694
00:40:46,520 --> 00:40:50,239
Speaker 1: put that in some physical location. But if an n

695
00:40:50,320 --> 00:40:53,160
Speaker 1: f T is a digital signature, where does it go.

696
00:40:54,360 --> 00:40:57,040
Speaker 1: The answer to that is a digital wallet. Though it

697
00:40:57,080 --> 00:40:59,839
Speaker 1: has to be a digital wallet, it's also compatible within

698
00:41:00,000 --> 00:41:03,200
Speaker 1: f T S. This is the same way that cryptocurrencies work.

699
00:41:03,680 --> 00:41:07,160
Speaker 1: That digital wallet would exist on a physical piece of

700
00:41:07,200 --> 00:41:11,040
Speaker 1: hardware like a computer, preferably one that is a prey

701
00:41:11,160 --> 00:41:16,000
Speaker 1: secure location and has password protection. But it also means

702
00:41:16,000 --> 00:41:18,560
Speaker 1: that if you were to ever lose that hardware or

703
00:41:18,719 --> 00:41:21,680
Speaker 1: lose the password to access it, you would also lose

704
00:41:21,760 --> 00:41:24,239
Speaker 1: all access to the n f T. Now you would

705
00:41:24,280 --> 00:41:26,799
Speaker 1: still own it, but you would never be able to

706
00:41:26,840 --> 00:41:30,279
Speaker 1: transfer that n f T to anyone else. So let's

707
00:41:30,320 --> 00:41:32,840
Speaker 1: say you bought an n f T for a dollar

708
00:41:33,400 --> 00:41:35,840
Speaker 1: and now, according to the market, it's worth like a

709
00:41:35,920 --> 00:41:38,680
Speaker 1: gazillion dollars, but you no longer have access to the

710
00:41:38,719 --> 00:41:42,840
Speaker 1: computer that holds the that digital wallet. You would be

711
00:41:42,920 --> 00:41:45,480
Speaker 1: up the creek. Oh and one other thing we have

712
00:41:45,520 --> 00:41:49,279
Speaker 1: to talk about. While we've been chatting about digital processes,

713
00:41:49,600 --> 00:41:52,560
Speaker 1: it's time to talk about environmental impact of n f

714
00:41:52,600 --> 00:41:56,080
Speaker 1: t s because there is one. And that's because the

715
00:41:56,120 --> 00:42:00,480
Speaker 1: process of proof of work cryptographic approaches, which is what

716
00:42:00,760 --> 00:42:04,080
Speaker 1: underlies n f t s and the cryptocurrencies that they

717
00:42:04,120 --> 00:42:07,160
Speaker 1: work on top of. Bitcoin is of an example ethereum

718
00:42:07,160 --> 00:42:10,680
Speaker 1: as an example, That approach is tied to how much

719
00:42:10,680 --> 00:42:16,560
Speaker 1: computer processing power is dedicated toward that system. So see

720
00:42:16,680 --> 00:42:20,000
Speaker 1: the way those blocks get formed on a blockchain and

721
00:42:20,040 --> 00:42:24,000
Speaker 1: bitcoin is that you've got these bitcoin miners and what

722
00:42:24,080 --> 00:42:26,799
Speaker 1: they're trying to do, essentially is to solve a very

723
00:42:26,920 --> 00:42:31,160
Speaker 1: hard math problem with their computer systems. The more computational

724
00:42:31,200 --> 00:42:35,799
Speaker 1: power that is applied to those problems, the harder those

725
00:42:35,840 --> 00:42:39,799
Speaker 1: problems get. This is a dynamic that's inherent in the

726
00:42:39,840 --> 00:42:43,160
Speaker 1: way the system works. It's geared towards having blocks of

727
00:42:43,200 --> 00:42:47,600
Speaker 1: transactions solved every ten minutes or so. But that's that's

728
00:42:47,640 --> 00:42:50,960
Speaker 1: the goal, is to keep that ten minutes pretty standard,

729
00:42:51,280 --> 00:42:54,240
Speaker 1: to keep that timeline steady. The system has to adjust

730
00:42:54,280 --> 00:42:58,120
Speaker 1: the difficulty of the problems that the different miners have

731
00:42:58,280 --> 00:43:01,480
Speaker 1: to solve in order to you you know, verify a

732
00:43:01,520 --> 00:43:04,440
Speaker 1: block and have them added to the chain. Because the

733
00:43:04,480 --> 00:43:07,000
Speaker 1: problems are too easy, then the blocks would be solved

734
00:43:07,040 --> 00:43:09,640
Speaker 1: in less than ten minutes. And if it's too hard,

735
00:43:09,680 --> 00:43:12,880
Speaker 1: then it would take too long. So every so often

736
00:43:12,920 --> 00:43:17,200
Speaker 1: the system readjusts how difficult these problems are, and it's

737
00:43:17,320 --> 00:43:22,120
Speaker 1: essentially guessing a really big number. It's it's that's hard

738
00:43:22,160 --> 00:43:25,000
Speaker 1: to do. It's hard to guess a very specific, very

739
00:43:25,080 --> 00:43:29,680
Speaker 1: big number. And the reward for solving these problems, which

740
00:43:29,719 --> 00:43:33,600
Speaker 1: again ultimately verifies a block of transactions so that it

741
00:43:33,640 --> 00:43:37,799
Speaker 1: can join the blockchain. The reward are a certain number

742
00:43:37,840 --> 00:43:40,920
Speaker 1: of bitcoins. At least in the case of bitcoin, uh

743
00:43:40,960 --> 00:43:44,319
Speaker 1: that number of bitcoins actually goes down over time, like

744
00:43:44,560 --> 00:43:47,920
Speaker 1: the longer Bitcoin is in action, the fewer coins you

745
00:43:47,960 --> 00:43:52,080
Speaker 1: get when you solve a block. Right now, if you

746
00:43:52,120 --> 00:43:55,680
Speaker 1: were to be running a computer system, or more likely

747
00:43:55,760 --> 00:44:01,000
Speaker 1: a computer network system that solved that problem that guests

748
00:44:01,040 --> 00:44:04,080
Speaker 1: that very hard number, you would get a reward of

749
00:44:04,160 --> 00:44:08,200
Speaker 1: six point to five bitcoins that would be worth around

750
00:44:07,600 --> 00:44:13,040
Speaker 1: thousand dollars. As I record this. But again, remember that

751
00:44:13,600 --> 00:44:16,280
Speaker 1: you know, the value of bitcoin dropped two thousand dollars

752
00:44:16,280 --> 00:44:20,400
Speaker 1: since I started researching this episode, which, um fun fact

753
00:44:20,960 --> 00:44:24,399
Speaker 1: means that over the course of one day, we've seen

754
00:44:24,440 --> 00:44:28,040
Speaker 1: the value of bitcoin fluctuate by two thousand dollars. Still,

755
00:44:28,080 --> 00:44:30,560
Speaker 1: that's a huge payout, right. I mean, if you have

756
00:44:30,680 --> 00:44:35,319
Speaker 1: that computer system and it solves the problem to validate

757
00:44:35,480 --> 00:44:38,960
Speaker 1: a block of transactions and you get six point two

758
00:44:39,000 --> 00:44:42,040
Speaker 1: five bitcoin, that's more than a quarter of a million dollars.

759
00:44:42,120 --> 00:44:46,399
Speaker 1: So that is an enormous incentive for bitcoin miners who

760
00:44:46,440 --> 00:44:52,239
Speaker 1: spend ridiculous amounts of money to create very fast, very

761
00:44:52,239 --> 00:44:56,720
Speaker 1: sophisticated networks of computers that are just dedicated to tackling

762
00:44:56,719 --> 00:44:59,480
Speaker 1: these problems. That's all these computers are doing. They're trying

763
00:44:59,480 --> 00:45:03,120
Speaker 1: to guess that number. And it also means the average

764
00:45:03,120 --> 00:45:06,280
Speaker 1: person running a typical computer has next to zero chance

765
00:45:06,360 --> 00:45:08,640
Speaker 1: when it comes to mining. It would be kind of

766
00:45:08,640 --> 00:45:11,880
Speaker 1: like if you were given a pick axe that was

767
00:45:11,960 --> 00:45:14,840
Speaker 1: covered in rust, and the person next to you is

768
00:45:14,920 --> 00:45:18,560
Speaker 1: running a one hundred ton high tech, high speed drill,

769
00:45:19,040 --> 00:45:22,000
Speaker 1: and you're both given the task to try and find

770
00:45:22,120 --> 00:45:25,680
Speaker 1: a specific gym somewhere in a mountain of stone. You're

771
00:45:25,760 --> 00:45:27,840
Speaker 1: not going to be able to keep up. But it

772
00:45:27,920 --> 00:45:31,760
Speaker 1: also means that bitcoin mining requires a lot of electricity

773
00:45:31,760 --> 00:45:35,440
Speaker 1: to power all these computers all over the world, and

774
00:45:35,480 --> 00:45:39,080
Speaker 1: the same is true for other cryptocurrencies, and it's also

775
00:45:39,160 --> 00:45:42,799
Speaker 1: true for n f T transactions. They all kind of

776
00:45:42,800 --> 00:45:44,600
Speaker 1: are wrapped up with each other. In fact, n f

777
00:45:44,640 --> 00:45:47,760
Speaker 1: T transactions are typically overlaid on top of an existing

778
00:45:47,760 --> 00:45:51,920
Speaker 1: cryptocurrency system. The n f T transactions become parts of

779
00:45:51,960 --> 00:45:56,799
Speaker 1: blocks representing also cryptocurrency transactions, and all this relies upon

780
00:45:56,920 --> 00:46:00,960
Speaker 1: that massive computer power that's just chugging away a racing

781
00:46:01,000 --> 00:46:05,200
Speaker 1: against other similarly powerful networks of computers, all trying to

782
00:46:05,200 --> 00:46:08,520
Speaker 1: be the first to guess that very big number to

783
00:46:08,640 --> 00:46:12,720
Speaker 1: validate a block and thus reap the rewards. Memo Acting

784
00:46:12,920 --> 00:46:15,800
Speaker 1: on Medium wrote up a pretty exhaustive series of blog

785
00:46:15,880 --> 00:46:20,320
Speaker 1: posts that really went into detail about the energy requirements

786
00:46:20,360 --> 00:46:23,400
Speaker 1: that are needed just to verify n f T transactions,

787
00:46:23,680 --> 00:46:28,400
Speaker 1: and the estimates are really daunting. Acting specifically focused on

788
00:46:28,440 --> 00:46:32,319
Speaker 1: Ethereum because the Ethereum cryptocurrency system allows for n f

789
00:46:32,360 --> 00:46:36,680
Speaker 1: T transactions and is a very popular option, and a

790
00:46:36,800 --> 00:46:42,200
Speaker 1: single Ethereum transaction has an estimated electricity requirement of thirty

791
00:46:42,239 --> 00:46:46,320
Speaker 1: five kilowatt hours of electricity, or about the same amount

792
00:46:46,320 --> 00:46:49,520
Speaker 1: of electricity that a resident in the European Union would

793
00:46:49,600 --> 00:46:53,880
Speaker 1: use over the course of four days for just one transaction.

794
00:46:54,560 --> 00:46:58,040
Speaker 1: In turn, Acting states that this generates an estimated twenty

795
00:46:58,719 --> 00:47:02,160
Speaker 1: ms of carbon diets emissions once you trace back the

796
00:47:02,200 --> 00:47:05,759
Speaker 1: origin point for electricity generation like where your where's your

797
00:47:05,760 --> 00:47:10,400
Speaker 1: electricity coming from? So, in other words, the fundamental process

798
00:47:10,520 --> 00:47:14,879
Speaker 1: used by cryptocurrencies like bitcoin and ethereum, as well as

799
00:47:15,000 --> 00:47:18,040
Speaker 1: n f t s, feeds into a system of eye

800
00:47:18,080 --> 00:47:22,120
Speaker 1: popping amounts of energy consumption, which of course feeds back

801
00:47:22,160 --> 00:47:25,920
Speaker 1: to the need for greater amounts of energy production and

802
00:47:25,960 --> 00:47:30,120
Speaker 1: then in turn creates a big ecological impact, particularly with

803
00:47:30,239 --> 00:47:34,239
Speaker 1: carbon emissions. Now, I think I might hate n f

804
00:47:34,280 --> 00:47:36,960
Speaker 1: t s for a couple of reasons. I do like

805
00:47:37,040 --> 00:47:40,120
Speaker 1: the ability to support artists who work in digital media.

806
00:47:40,440 --> 00:47:43,080
Speaker 1: That part I think is really awesome. I really like that.

807
00:47:44,080 --> 00:47:46,759
Speaker 1: But just about everything else either kind of irritates me

808
00:47:46,960 --> 00:47:49,120
Speaker 1: in that grumpy old man kind of way, or it

809
00:47:49,239 --> 00:47:53,240
Speaker 1: legitimately worries me. But I'm curious to hear what you think.

810
00:47:53,600 --> 00:47:56,759
Speaker 1: Don't let my bias affect you. I come at this

811
00:47:56,920 --> 00:48:00,080
Speaker 1: admitting that I have a specific point of view, and

812
00:48:00,120 --> 00:48:02,680
Speaker 1: I also admit that my point of view does not

813
00:48:02,880 --> 00:48:07,040
Speaker 1: necessarily reflect what is right or what is wrong. Oh,

814
00:48:07,120 --> 00:48:10,359
Speaker 1: bi Wan would be so proud of me. And that

815
00:48:10,400 --> 00:48:14,080
Speaker 1: wraps up our episode to explain what n f T

816
00:48:14,280 --> 00:48:16,360
Speaker 1: s are and how they work. I hope you found

817
00:48:16,360 --> 00:48:19,480
Speaker 1: this episode useful. I covered a lot of different topics here,

818
00:48:19,680 --> 00:48:23,640
Speaker 1: but they all do tie into the general systems that

819
00:48:23,800 --> 00:48:26,960
Speaker 1: make n f T s what they are, and I

820
00:48:27,000 --> 00:48:30,640
Speaker 1: felt like leaving any of it out would have meant

821
00:48:30,719 --> 00:48:33,040
Speaker 1: that I would have been lacking some context for you.

822
00:48:33,640 --> 00:48:36,239
Speaker 1: If any of you folks have suggestions for topics I

823
00:48:36,280 --> 00:48:38,920
Speaker 1: should tackle in future episodes of tech Stuff, I welcome

824
00:48:39,000 --> 00:48:41,120
Speaker 1: you to send them to me. The best way to

825
00:48:41,160 --> 00:48:44,799
Speaker 1: do that is on Twitter. Please don't make me buy

826
00:48:45,120 --> 00:48:48,040
Speaker 1: an n f T token version of your tweet. I

827
00:48:49,040 --> 00:48:51,719
Speaker 1: don't have that kind of cheddar on me right now,

828
00:48:52,520 --> 00:48:55,960
Speaker 1: but otherwise send it to me the handles text stuff

829
00:48:56,280 --> 00:49:00,000
Speaker 1: H s W and I'll talk to you again really

830
00:49:00,040 --> 00:49:07,719
Speaker 1: you soon. Y. Text Stuff is an I Heart Radio production.

831
00:49:07,920 --> 00:49:10,759
Speaker 1: For more podcasts from I Heart Radio, visit the i

832
00:49:10,880 --> 00:49:14,120
Speaker 1: Heart Radio app, Apple Podcasts, or wherever you listen to

833
00:49:14,160 --> 00:49:15,080
Speaker 1: your favorite shows,