HBR Asks: What Are NFTs, and Why Should They Matter?

0:28This episode is brought to you by Google Chrome. It's a bridge to the people and places that matter most. It's how you show up for your family, your community, and everyone else that depends on you. That's why for 125 years, Firestone has been building tires with one thing in mind. To deliver products that are as reliable as you are. Firestone. Always dependable. Since 1900. I'm Ramsey Khabaz, an editor at Harvard Business Review, and today I'm going to be trying to understand What are NFTs? I've been seeing this new acronym in the news a lot lately. NFTs seem to be everywhere. Everyone's talking about them.

1:08But I'm having a really hard time understanding, like, what are these things? How do they work? What's the point of them? And what are the implications on business? So in order to unpack it, I called up my colleague, Tom Stackpole. He is a senior editor of technology here at HBR. Tom, NFTs, explain them to me. Absolutely. They are kind of confusing. NFT stands for non-fungible token. And basically what this means is it's a digital object and it's one of a kind. Can you explain this term non-fungible? Because aside from just being kind of a fun word to say, I feel like it's kind of a key term in this acronym.

1:46Right, totally. So yeah, fungibility is kind of the key here, right? So fungibility means you can exchange something for something that's exactly the same. Like dollars are fungible, but like the Mona Lisa is not. It's like there's one Mona Lisa, you know, you can look at replicas or posters of it, but like, there's really just one of them. Could you explain to me how NFTs relate to two other kind of key tech buzzwords, Bitcoin and blockchain? What's the relationship between those three terms? So NFTs and Bitcoin or sort of cryptocurrency in general are built on blockchain. Blockchain is a term we hear a lot, but it basically means a technology that uses a distributed ledger.

2:36So the trick about a distributed ledger is it basically means the same information is stored in a bunch of different places. With cryptocurrency, it's a way to verify that digital money is real, that it's worth something. And it's not just like, I don't know, a PDF that I made that says I have this much money. With NFTs, basically you get a stamp that says, you know, I bought this gift and this is the original gift. This is like, you know, this is the real one. So in real world terms, the blockchain is basically just creating like a certificate of authenticity that you would get with any expensive piece of art or expensive collectible.

3:16Yeah, exactly. And the way that it works is that it's stored in a bunch of different places at the same time. So it's like you can't forge it because it's on all of these other computers.

3:28Can you give us some examples of where NFTs are popping up in real life? I mean, basically the reason they're in the news is because people are making a ton of money. A piece of art by an artist named Beeple was sold at Christie's for like$69 million. Also artists like Grimes have been making NFT pieces of art that they've sold for bunches of money. The NBA is getting in on the game. they've been making these like trading card style NFTs called moments. So like, you know, like you're an NBA guy, right? Like you, you collect cards. I used to collect cards, but I don't know if I'm going to be getting into the Top Shot craze.

4:09So basically it's like, you know, with Top Shot, it's, it's, it's basically like clips that you can find on YouTube, but like they have, they're sort of an authenticated, you know, part of a series. So yeah, basically like there's this new sort of collecting craze and people are are like burning through cash are the people spending on nfts right now and putting their money in there are do you think that they're doing so because they see like a real collectible value in these things or do you think it's a more cynical you know just kind of money move and they're just going to plan on flipping and riding this wave uh i think a lot of people are asking that question and so like if you think about collecting and like why people collect they collect for all kinds of reasons and on some level like most of them this episode is brought to you by google chrome you think you know a browser but gemini and chrome that's new it can help you with practically anything on the web like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks gemini and chrome is here for it ready to make anything online make sense there's no place like chrome check responses set up required compatibility and availability varies 18 plus real value shows up in reliability you don't have to second guess like a set of Firestone all-season tires they're designed to deliver confidence inspiring wet weather traction and a quieter ride no matter the road season after season Firestone all-season tires for durability you can count on just like people count on you Firestone always dependable since 1900 some are irrational right like beanie babies uh you know are like a couple dollars of or like maybe not even that but like a little bit of like fabric and like stuffing and like those were worth a ton of money at some point like a michael jordan rookie card is just like paper and ink but like you know some people are investing in it some people maybe are just like super into basketball like like the history and like the fact that they own an object that other people like can't get their hands on.

6:18I think the thing that's driving this is like scarcity. So if you think about the digital economy, you know, up until now, scarcity has been really hard to create, right? It's like, I make a funny GIF would give me some credit for like trying to do that. But like, let's say I made a GIF that's like, great, you know, and it went viral. With NFTs, all of a sudden, it's like, you can, you can get, you can create scarcity, you know, on the internet. You know, like the, the, the like flying pop tart cat with a rainbow, Nyan cat. Yeah. I don't know how to say it. I think that's how you say it. I don't know either.

6:51I hope it's how you say it, but, um, but like now you can be like, oh yeah, I like own Nyan cat. Like everyone can see it, but like, you're the guy who owns the, like the Nyan cat gift. What happens if people stop believing that the scarcity actually makes these things valuable? Yeah, I mean, that is a great question. I think if people stop believing in it, then the price of these things is going to come crashing down.

7:20What are the implications of all of this? Because it seems like the applications of NFTs is kind of endless. As you're explaining this to me, I'm imagining so many different possibilities for this technology. So what do you predict is going to be the biggest story to come out of this craze? You know, I think that it shows a couple of things. I mean, one of which is it's one of these kind of use cases for how you use a blockchain that we've been hearing about for a long time, you know, that like blockchain can do all these things. And we're finally, you know, seeing a new example other than cryptocurrency.

7:54You know, this is an interesting case of how you create value and how you can really lean into the distributed nature of this technology, right? That like you don't need gatekeepers. You can, you know, kind of make art, you can, you know, find a way to sell it yourself, which people have obviously been able to do, but like it's sort of upping the scale. You know, I also think that NFTs possibly do have kind of more mundane business uses. And so, you know, that's something that I'm curious to see if people look at this and they're like, well, you know, if this works for a flying rainbow cat, then maybe like I can find a way to sort of use this for contracts or sort of securities or, you know, there are probably kind of more mundane business uses for this.

8:37So just moving forward, do you think that this is a story that I, as someone who isn't really a tech specialist, should I keep an eye on this? Like, or is this one of those things that I can just kind of scroll past the next time it comes up on my newsfeed? To me, NMT is kind of a, you know, this whole hype thing is kind of a fun thing to watch. It's people engaging with blockchain in a new way outside of cryptocurrency. And so I think it is bringing this a little bit closer to the mainstream and it's helping people kind of understand the multitude of uses that blockchain really has. But don't cash out your retirement to fund your NFDR collection quite yet.

9:12Well, all my money is tied up in Kevin Durant rookie cards anyway. So it's a safer bet. Stick with Kevin Durant. Yeah, I'm sticking with paper for now. Tom, thank you so much for chatting with me. This has been really helpful. Thanks for everything. I'll see you on Flap.

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