How NFTs Will Change Business #InvestingOnPurpose

Hi everyone.

Welcome back to capitalism.com I'm Ryan Daniel Moran. Today I'm going to be sharing another episode with my new podcast project Investing on Purpose. I partnered with my dear friend and mentor JP Newman to talk about emerging trends and places where we're putting our attention and our capital in order to stay on the forefront of all the change that is happening in the world, especially with projects that are creating meaningful changes. And Today's topic is NFTs and we're talking about it from the perspective of the implications that this new technology can have in solving challenges, in building community and in building wealth. Most of the talk around NFTs is about speculation about art projects and making quick cash. That is not our focus when we are looking at non fungible tokens. Instead we're looking at how this technology is can help us create more change and by looking at it from that lens, be able to predict how this is going to impact businesses and where we might want to pay attention to invest in new projects or new opportunities that use this technology. So I hope you will enjoy this more down to earth and reasonable discussion about NFTs. Please enjoy. Oh and by the way, if you enjoy this episode, please please subscribe to the Investing on Purpose podcast feed. We're sharing the first few episodes here on capitalism.com, just so you're aware of it, but this is its own podcast, so please look that up and subscribe to that podcast to get everything that we release on the Investing on Purpose podcast.

Welcome to Investing on Purpose, the show about making your money matter. On this show you'll be introduced to.

Emerging trends and entrepreneurs who are creating change through business.

Join JP and I every week as we explore how to use our money to create an impact and make the world a better place. Now onto the show. JP, I wanted to chat with you about NFTs today. We sort of finished the last episode talking about it. Yes, but I want to dedicate some time for it because I think there's still a lot of people who are wondering why the heck would I ever buy an nft? Just like people would say why the heck would I put my credit card on the Internet to make a purchase, right? 20 years ago that was the case. And we're in the same sort of transition now where I think NFTs are about to be that for our society they'll be very normal for my kids. But for our generation there's still a lot of people who are questioning what the heck is going to happen.

Well, a lot of people don't know what NFTs are yet. I know a lot of people think they know what they are, but they don't really understand them. So I'm hoping, Ryan, maybe today we can not even just explain like mechanically what NFTs are, but since we are investing on purpose, I think exploring the ramifications of new ways that we can connect and in community with each other. And I'd love to kind of explore that from my 14 year old and kind of connecting it to video games and avatars and new kinds of communities all the way through what you're doing and real estate and beyond. It has so many different applications.

The misconception is that it's art and it is that or can be that can be that. But that is not where it ends now. Right now.

Correct?

Yes.

All new pieces of technology have a speculation phase. They have this period in which people are in it for the money. We were talking about this at the beginning of the E commerce boom. You had people come in and just the first person to sell something, they won. There's an incentive for speculators to come into a space and to drive the market value of something until it is legitimized.

That's what's happening in NFTs right now.

Yes. So you have this crazy speculation period in which people are bringing in the capital to build the infrastructure for that as a system. But what you're seeing is that only a few of those projects will win as art, but it will pave the way for other things to exist in this technology. So a kind of a good example right now is the Bored Ape Yacht Club. Are you familiar with this?

Of course.

So Bored Apes are I think, the second most popular NFT and they've gotten very expensive. They've gotten very expensive because they are a community now. It started as a stupid art project, but because they were first there was the speculation period and now if you own it, it gives you status. And because you have status, you are able to do other things. And that is, for example, some of the members are starting bars or coffee shops and you need to have a bored ape in order to get into the bar or the coffee shop. They're starting T shirt lines, they're starting e commerce businesses. So it's a community that has formed and now it's the who's who.

Right.

So if you're in that group, you're really buying a networking group. You're, you're really buying access to a group of people. Now that's that group of, of NFT holders. If you try and duplicate that value to, to every single nft, it will fall apart. So there's lots of people trying to do bored pig and bored toad. They will go to zero, right? But the groups that have already built status and ip, they are now winning. So, like, that's how we're seeing this.

Start to play out.

There are gonna be many more applications. That's kind of the first utility that exists of why someone would buy an nft.

Because let's make. I feel like a lot of people I talked about NFTs don't fully understand what an NFT is. They think of cryptocurrency or digital currency being here in one corner and NFTs being in the right corner, when really they're really the same thing with just a little, little bit of a difference. So can we just do two minutes into like, the basics of what the structure of the NFT is so we could dive into these communities?

So I don't have a technical way to describe it, except that an NFT is you are buying a record of, of something, right? It's like you are buying a receipt, you're buying the rights to something. But the way that I've described it to a friend or a family member that didn't understand it is you're familiar with season tickets for a sports team, right? Well, if you own season tickets for your favorite sports team and you ever.

You.

If there's ever a time in which you don't want to be a season ticket holder anymore and there's demand for your tickets, well, there's only so many season tickets available, right? So you can sell the rights to your season tickets to someone who's waiting in line. So there's a long waiting list of people who want to buy Boston Red Sox season tickets, right? There's more people waiting in line than there are people giving up their tickets. So there's a marketplace for this where people are buying the rights to have season tickets.

Can I make it one step easier, please? Super us if I can. Bitcoin is basically a digital currency. It's a bitcoin and essentially that is a fungible token. What does that mean? It's a fungible token. A bitcoin, even though it doesn't really exist, it's just ones and zeros. But we've all seen this gold bitcoin, but like a dollar bill, it's all the same. It's like it has one value that value changes. But let's just say the value is 50,000 on one day you could have 20 bitcoins, they'd all be worth 50,000. They do one thing and they do one thing and you can replicate what they do. A non fungible token, unlike a bitcoin that's replicable or dollar bills, it has some unique characteristic that currency or other fiat currency or other things do not have. So it's representing a non fungible, which simply means one of a kind. It's a one of a kind blockchain. So for instance, a piece of art, a title to a car, a piece of real estate, a collectible, anything that's collectible. Which is why NFTs have gravitated towards the collectible. Because just think of one of a kind versus replicable. I think that's the easiest way to explain both on a blockchain just having different purposes.

So in my example, you have uniqueness because of the seat that you have rights to at the stadium.

Right.

So I have bleacher level H and seat number 37 and I own rights to that season ticket, Right? Absolutely. That will be an NFT.

Soon 100.

The Boston Red Sox, the New York Yankees will create NFTs for the rights to their season tickets. It just makes sense. And here's why it makes sense, because it immediately creates a secondary market for the rights to that.

Absolutely.

That will be an nft.

Yes.

But not only will that be an nft, not only is art an nft, but anything that can be tokenized will be tokenized.

Any, anything that needs a transaction, that needs to be to make sure you're not being frauded. So there is a, a basically a replicable proof, a blockchain that proves that you own those bleach receipts would basically fall into that category.

That's right. And anything that has true limitation, true scarcity, Right.

Or collectability.

Correct.

It's only collectible if there is a limited number of resources. Right, Right. So this, this is why people say, well, it's just a jpeg, I can screenshot it and I can use it. You are now assuming that we're only talking about art. You think the value is in the picture, it's not. The value is in the rights that that gives you. So in the Bored Ape Yacht Club, it gives you rights to be a part of that community. It gives you the rights to show that you are part of the in club in the NFT world and place it as your profile picture.

Right.

When the New York Yankees tokenize their season tickets, you have rights to that seat. These will all be NFTs I think.

What'S going to really do is it's going to give you like a digital identity of like, like, you know, we talk about avatars. It's kind of like you're going to have a more of a digital identity that represents you. Sometimes we do that in the real world with our shoes, our clothes, our cars. And I think in a way it's like you're getting a chance to build and I mean on, on that side, like, like I'm a Yankees fan, I'm a Cleveland fan. This is how like you are expressing it. And the crazy thing is on a blockchain, the whole world can see it. I mean, I don't know if you can see it or not. You're kind of telling the world, this is who I am.

So I will buy NFTs so that I can showcase them in my public wallet.

Right.

You can look at my public wallet and see what NFTs I own. And you'll see, oh, this person is a Cleveland Indians fan. Oh, look, he owns row C, seat 37 behind home plate at Progressive Field in Cleveland. And you'll see that I own the rights to this fan club or this gym, which creates status for both me and the things that I am investing in.

Right.

So there will be a status element to this. But the thing that is actually exciting to me about this space is for the first time in my lifetime, we now have real financial incentives to create community. Yeah, we now have an incentive for the creators of a project to invest in the community specifically because there is value to this. So at capitalism.com, we're concerned considering how do we tokenize the different areas of our business? Because our business is community. We have events and conferences and we take sometimes equity stakes in our students businesses to help incubate them and help them get capital. There is a real community element that happens@capitalism.com so how do we tokenize this? When we tokenize it, it's the best thing for our customers now. It's buzzworthy right now. We'll probably get pressed for it as a result of doing it, but the reality is that it is the best thing for our customers because it creates an asset out of what they are buying from us.

It's taking an expense like a conference to capitalism.com and it can turn it into it basically. Like I know you mentioned this before, more into equity.

That's right.

Which makes sense.

So if our, if our events have a real capacity of a thousand attendees, I think the most attended event we ever had was like 650 people or something like that. But let's say we had a fixed capacity of a thousand seats. I can now go to my audience and say, when you buy the nft, you have the rights to come to my conference every year. And there's only a thousand of them. So you can either buy a ticket on the secondary market or you can buy an NFT and own the rights to the ticket every year. Now why would I do that? I would do that because I now have mostly guaranteed sales for my conference, but I also now have a community that is built of people who want to come to my conference. And now I've got real built in marketing for my conference. Because if you own the rights to come to my conference, we are all incentivized to make that conference as wickedly cool as possible.

Right?

Because now if the secondary market goes to $10,000 a ticket, you might want to sell your ticket and just get a ridiculous return.

Or you may not want to sell your ticket, but appreciate the value that instead of paying for the same conference every year, you've actually built equity. It's almost like home equity. It might be worth 50,000 the membership and you're still not going to sell it.

That's right.

But like you've actually made money because you believed in the community and invested in that community.

That's right. I'm getting so pumped up right now talking about this because now I'm thinking I absolutely need to tokenize my conference.

You do.

So I need your community, Ryan.

Like, like, like a capitalism is a perfect kind of company where you're really trying to bring people together and there really is a reason for people to come together. Obviously, if I'm saying this right, with like capitalism, it's a lot of entrepreneurs who are looking to build businesses with purpose. Right. And then you're kind of the mentor for them for that. That's a very specific purpose driven, but not all things. Like for instance, you may make socks. I don't know that socks need to be. I don't know if Hanes, the socks manufacturer, needs to be an nft. I'd argue that it probably doesn't need to be an nft. But I do think this natural idea, especially in a world right now where we are, in some ways, people feel like we are more disconnected from each other. Technology is pulling us away. How do we create community? And it's not in our churches right now, it's not in our temples, it's coming from different places. And the exciting Thing you know, Ryan, when you really think about what you're saying is it could create a new way for people to connect in ways we've never even.

That's right. I mean in economics we would say that trade creates peace. When you have two countries that are trading with one another, you tend to have a pacifying effect. People who trade with one another very rarely go to war with one another. So commerce bridges a gap. Commerce brings people together and NFTs are doing that with communities. When I have an aligned incentive with you, I don't care what your skin color is. When I have an aligned incentive with you, I don't care what political party you're a part of. I care about us being committed to our aligned incentives for this community to win. And now we have this opportunity to build communities around just about anything. Gym memberships, concerts, coming to conferences, membership sites, art are all now creating communities because they're assets and we have aligned incentives to be able to make that asset profitable. Also because we're on the same team.

Even real estate, I do understand how virtual like the Ready Player one. I think we'll have our own version that actually virtual real estate and meeting in cool spots and chat rooms where like there'll be this, like going to your conference. There'll be virtual conferences that your avatar will either, you know, will want to go to in certain clubs that will also be membership based.

So I will confess, I don't. My head doesn't go there just yet.

As a real estate guy, Ryan, I'm already thinking about virtual real estate.

What's that you're already thinking about? Virtual real estate?

I totally get virtual real estate. I didn't get it. I wasn't a believer. I have woken up. I am now woken up to virtual real estate. Understand how it's going to play.

I want, I want to hear about that in a later episode on purpose.

Going to be so interesting and it's. It's actually so easy when you think about it, how it will work and how it will not work. I don't think it works. It doesn't exactly translate from physical to virtual. But there's so many places where I think it's an amazing. It'll be an amazing translation.

So NFT is as they are create the structure for communities to come together. They create these aligned incentives for people to win. They create status based on what you own because it's shown in your, in your public wallet. But it also is just an easier way to create liquidity for assets that don't have a secondary market. It comes back to that Boston Red Sox, New York Yankees example where now I can shop online for the NFT to buy from someone in order to get rights to that, that seat. So it is, it is a way that we are going to create new marketplaces and new communities for things that people didn't previously have access to. That's why NFTs matter. And they're way more than art.

And if I can jump into like taking it one step further, I'm going to go to capitalism and the purp. Like with capitalism, as we know mostly the way companies have started, it's kind of like one of our earlier, you know, episodes. It took a big vc, it took somebody with a lot of money, an angel investor. And usually you gave up half your company or 40% of your company day one because you had to go to a VC. And most VCs just like how Walmart would have to buy your item. Most VCs were like, they were, they'd basically hold you back from getting your thing launched because they were the gatekeeper. They're the gatekeeper. But you think about this whole world. All of a sudden we already have crowdsourcing, but now with NFTs, it's almost taking crowdsourcing of just random strangers being organized through the Internet. And now you're saying we're coming together around a purpose. So it's almost like a shareholder of a stock, but in a way it's kind of more organic because the shareholders are way down the road at that point. They just want to earn returns. Their, their shared purpose is return on investment, essentially is what a shareholder is. It's kind of limited. But you think about it, if you're part of that community of an NFT and you come in that early, you're an angel. You're actually an angel. A new way of creating seed money for an entrepreneur in a way that can be a lot less extractive than the way it is now. 40%, 50%. You're not even started yet and you've already given away half your company. And I'm sure you've seen that a bunch of times. Ryan, on your side, how much is given away before you've even proven your concept?

Well, let's go through an example of how this is playing out in my professional life right now.

Let's do it.

So I. You've mentored me in helping raise a fund for E commerce businesses. I am now starting to prepare for fund two, the second fund. And what we are considering doing is raising A much bigger fund than what we did previously. And right now in our fund we have these meetups twice a year with all of our investors and the brands that we've invested in. And they're wonderful people.

Went to the last one, it was awesome.

People love coming to them. And the brands present to the investors on how the brand is going. And I call it the only mastermind where people have an incentive to have an exit together. There's no other mastermind like this because everybody's investing together. So it would make sense for us in our next raise for Anyone who invests $250,000 or more, let's say to be airdropped an NFT totally. Now that nft you say, well, it's worthless. You just airdropped them nothing. Well, if that NFT is access to the mastermind now, it means something. So if someone invests a million dollars into my fund and they get airdropped four NFTs, they now have four spots into this mastermind of other investors and brand owners that are working together to have exits. So now this investor has a choice. They can keep their NFTs and bring themselves and three business partners, or they can keep the NFT for themselves and sell the other three to people on the outside who want to be part of this mastermind so they can sell their ticket, essentially. And if this is a mastermind that has high rollers and investors and successful brand owners and great experiences, I'm now incentivized to create that community of these investors. It helps my investors, it gives me status, it brings in new partners to mentor the brands that we've invested in. And that person may sell those NFTs for $250,000 each to somebody who wants to be part of the club. So what that does now is it allows my investors to reduce their basis and still own the same amount of equity in my fund than they had. That if they had kept all million dollars in there so they sell their three NFTs, they could get $750,000 back and have the same amount of equity and the same amount of access to the mastermind as they had before. But now their basis is only $250,000. So we are creating assets out of thin air. This also gives me leverage if I want to go hire an employee and I'll say, we'll airdrop you an nft. And now I'm weighing in my head, does that create less scarcity in the marketplace? But it gives me an asset to incentivize someone to work for me it opens up this whole new asset class that is a real asset that creates all kinds of new opportunities for people to be plugged into the community.

Well, just to blow your mind a little bit more, think of what you just said in that exact example. You may decide as you have multiple funds as you're launching new funds that like there could be a threat in your funds, that a certain percentage of your funds profits can go to the NFT holders like you could have a shareholder might only be 1 or 2% but not only now they invested in your conferences, invested in investing in the fund. But in a way you almost create this profit sharing in a way even just a small amount. But what you do by that is you really bring now every stakeholder Ryan. Like you think about it, it could be from an investor to a young entrepreneur who's just breaking in for someone who just wants to meet you for the first time. And everyone's having these aligned incentives where the real I'm throwing this place since I'm a real estate guy, I got to plug in the real estate Ryan. So imagine now what is the most popular video game that the average I can, I know my 14 year old's playing, you know, but what's one of the hottest video games right now?

I don't know.

Madden.

It's the only one I play.

Okay, well let's go a little more like we'll do Madden or whatever. We can pick Halo. Let's pick Halo because I know my 14 year old loves to shoot things and in Halo. So imagine going into this physically that you go into your conferences virtually. But imagine now, excuse me, physically you go to your actual conferences. But imagine virtually the Halo where everyone from Halo goes. But now there's stores in this area and places to meet. There's bars, there's chat rooms. Now people want to go where other people are. It almost creates another form of community. So you think about it like let's say there's a million or 10 million people going to the Halo store and you want to like one of your entrepreneurs wants to launch a product that's really like relevant. Maybe it's a new dress, like a new dress for women or a new shirt for guys and it's kind of attracting that same 20 year old males who you want, you might want to be in the Halo area, rent a store and pay rent, like triple net, just like a physical store and just so you can show off the product to people in three dimensions what your new product launch is gonna be.

I think what you're saying is I could almost rent product placement in the video game Halo in order to get exposure for my dresses and T shirts.

It's all gonna cross the physical and virtual and you're gonna pay rent for that. It's not just a promotion anymore.

So I would buy an NFT to have rights to the digital real estate in Halo. Yeah. So that I could advertise my stuff.

You can keep playing it. Oh, keep playing. So all of a sudden, like, I don't know, like, you know, I'm not to the point where you're gonna buy a house in the suburbs. I don't think that translates yet. But since people like people and people want to be with communities, I really think you're already seen it now, but I think you're gonna see more and more of these virtual communities. And just the way now you have affiliate marketing. This will be the new version of affiliate marketing, essentially, where you're just gonna go in with these NFTs and you're gonna have rights to certain geographical locations and communities you want to be in.

Okay.

Does that blow your mind a little bit?

A little bit, yeah. I need a cigarette.

So, jp, why don't we wrap this up by talking about how this will impact people's lives? Because right now we're talking about how it might impact the marketplace. But the first thing that I'd say is if you're a business owner, it would behoove you to start thinking about how we could create assets for our customers. Right now, the technology and the laws do not exist to be able to make this easy. Like you mentioned, profit sharing. If somebody owns an nft, I would love to create a profit share agreement for the members of my mentorship community so that if you owned an nft, you got a piece of the profits for my community.

Right.

As of right now, that's a security in the eyes of the government. Right now, this will change. There will be some. There will be some examples that maybe go to jail, and I will let other people figure that one out. But right now the laws don't exist to really draw the lines on what's okay and what's not. But one day that will change and you will be able to give profit distributions to the owners of your nft.

Right.

So can you start thinking about that in your business? Examples would be if you're launching an E commerce company, you could do an NFT drop to your first thousand customers that also gets 1% of profits forever.

Right.

So you discover a new coffee line that you love. You're one of the first thousand customers, you get the NFT drop. You're now an investor in that brand. Exactly. You are now incentivized to promote the heck out of that brand to everybody that you know.

And think about that. This is back to one of the things we've talked about for the show, Access. We talk about one of the most incredible things that's happening during this revolution of capitalism and we say access. So imagine a little boy in a foreign country who meets you, Ryan, virtually on the Internet and invest early on and it becomes part of that 1%. Like maybe it took us. He got it early on. This is the way my 14 year old is down the rabbit hole of watching YouTube and like listening to what's going on. So now you're giving access to a lot of people that wouldn't have access before to invest in things that they would have never had access to.

Yes.

And that's pretty incredible too, because all you really takes these days, as you know, is a cell phone, which most of the world pretty quickly has A cell phone or a smartphone could literally not only open up your world to communication and information, but now access to different investments that you.

That's right. So here would be a good example. So when I was first out of college in 2009 or 2010, there was this girl on YouTube who just did acoustic songs and her name was Valerie Poxleitner. And I just thought this girl was immensely talented. And so I downloaded her first episode and found out she was going on tour and was coming to my city. So I bought tickets. And once I bought tickets, she blew up. She took on the stage name Lights. She opened for Owl City. She's now really big in the EDM space. She has a big following now. Well, back then, if NFTs had existed, she could have issued airdropped NFTs along with her EP downloads.

Right.

So support this young artist on YouTube that you just discovered and you're basically investing in the upside of her career today. If that had existed, my NFT would be very valuable because it supported this young artist that will open up all kinds of unique investing opportunities for brands that you believe in early for podcasts that you want to support for artists that are up and coming in their career. And you'll be able to bet on these emerging brands and artists before they become big.

Right.

That will be a new asset class.

With what you're saying, Ryan, by having people in these communities form on the front end as things are emerging as opposed to the back end, which is more of a traditional stock shareholder. I think you're going to have different interests. When you talk about communities like shareholders, I don't think have always been. I think sometimes they're corrosive for capitalism and companies just because I don't always think that what a shareholder values is necessarily what's best for a company. I think, you know, a lot of times, John Mackey, conscious capitalism talks about that companies tend to make really bad long term decisions when they have shareholders because the shareholders want productivity quarter after quarter and that isn't always in alignment for the company. But if you've got a, if your money is coming in early and it's more organic money that really believes in the product, that's not just about a spreadsheet and that's it. Even raise the next round that way potentially maybe that, that conflict that I think has really has been bad for capitalism in some ways that the shareholder transforms to being a more immersive shareholder who actually cares about the product, the service and the community. They're a stakeholder as opposed to someone who's just trying to draw. Because right now for most shareholders your only goal is to make money. There's no other. There's nothing else behind it. With what you're talking about, you get in early, you felt the company, you're talking to other people about it, you're growing it, you're making votes on it, you're a little more vested in it than might just be. As I went on this ebay, not ebay, excuse me, I went on, what am I thinking of some online, you know, account brokerage and I just bought this share, I'm holding it.

E trade is that you're trying to.

Think of I'm going on ebay and buying stock? No, you're going to E trade and just kind of like very unemotionally doing something. It has a potential. We don't know for a fact if it'll go that direction, but I think that is definitely a promise of what NFTs can do.

So if you are a business owner, you will be looking at assets that you can create. You'll be looking at communities that you can create. If you are a layperson or just an investor, there's a whole new asset class that is going to open up. And regardless of if you're a part of those two groups or not, how this will affect your life is that.

The things that you buy will become.

Assets and you will have aligned incentives with the communities that you are a part of correct. And that is going to open up a whole new world of opportunities.

Yes.

What a fun world.

JP it's pretty exciting where we're going.

Okay. I want to hear all about virtual real estate in our next episode.

Oh, yeah.

Because you just blew my mind today.

It's going to get really fun.

Okay, my friends, thanks for listening.

Thank you.

We'll see you on the next episode.