We dive into the world of NFTs and the metaverse, covering everything from Bahaman virtual embassies to Bitchcoin, Sotheby’s to Snoop Dogg.
Guest:
Michael Greenwald – Director and head of Digital Asset Education at Tiedemann Advisors; Belfer Center Fellow.
Josh Burek: This is Immutable, from Harvard Kennedy School’s Belfer Center for Science and International Affairs. I’m Josh Burek. In today’s episode, we sit down with Michael Greenwald. He’s a Director and head of Digital Asset Education at Tiedemann Advisors, an investment and wealth advisory firm. He’s also a Fellow at the Belfer Center, where he writes frequently on global finance, digital currencies, and the art market. Michael and I dive into the world of NFTs and the metaverse, covering everything from Bahaman virtual embassies to Bitchcoin, Sotheby’s to Snoop Dogg.
Josh Burek: Michael, welcome to the Immutable. Great to have you here.
Michael Greenwald: Great to be with you, Josh. Thanks for having me.
Josh Burek: Last week, Michael, my 12-year-old daughter asked me to explain what cryptocurrencies are really. And I thought, “Oh, here’s a good chance for me to showcase my good explanatory power.” And I spent a few minutes talking about Bitcoin, Ethereum, and so forth. And after a few minutes, she intervened to say, “Dad, wait a minute. Are you telling me that with crypto people basically take their real money and get fake money in return?” I thought, either she’s hit the nail on the head or I’ve done a very poor job. It was straight out of a Seinfeld episode. And I thought, I should probably have a better stock answer when she asks me what NFTs are next week. Now, you lead digital asset education for Tiedemann Advisors, which means you get lots of practice answering questions like this with some of the leading family offices and investors around the world. So I’m turning to you for help, Michael, to start things off. How do you define non-fungible tokens, NFTs, in simple terms that people can get.
Michael Greenwald: Well, first, I do feel that episode every day and I would say, Josh, first with the universe of digital assets, I try to simply break it down. How did we get here at this digital asset inflection point? What does this period of transition mean? Where are we going? What are the opportunities, challenges, regulatory, and geopolitical?
And then I break down the three buckets of digital assets. Before we get to NFTs, the decentralized finance space, which is Bitcoin and Ether and Cardano and Avalanche and others, stable coins and central bank digital currencies. So to turn to NFTs, let me just say that over the year-plus, we’ve seen, Josh, large auction houses like Christie’s and Sotheby’s – who I like to refer to as the central banks of the art world – legitimize digital assets. Now, what does that mean? For example, when you have a Banksy physical piece sell in November 21 at Sotheby’s for $14 million in itself, not in U.S. dollars, not in Euros, but in Ether, you have a digital asset Ethereum, in that moment of that sale, enter the legitimate basket of currencies on the screen at Sotheby’s. So with that, let’s define NFTS for your daughter: non-fungible tokens, NFTS, they’re individually unique. They cannot be interchanged with other similar tokens. So unlike Bitcoin or Ether, which are fungible. And each coin can be exchanged for another coin of the exact same value.
NFTs are each unique. And I like to think of them like trading cards. So NFTs can be created for anything. Think of music, video clips, art images, and the list goes on. So while there can be many copies made of digital assets, the blockchain network enables there to be only a single NFT for a certain asset, similar to replicas of a painting, where there can only be one owner of the unit.
Many people, Josh, believe that NFTs will be the future of art collecting or trading cards, sports memorabilia, while others – and we can discuss this today – believe they are a fad or one of the main items currently that can be widely purchased with cryptocurrencies. I believe they’re not a fad and I believe they are here to stay. And I look forward to that conversation.
Josh Burek: I’m trying to project my daughter being here and I can envision her asking, “So Michael, if somebody pays $14 million for an NFT, are they trading real money for fake art?” What exactly does somebody get when they acquire an NFL?
Michael Greenwald: So the NFTs we see, Josh, they’re digital pictures or they’re memes or videos or interactive documents we like to call smart contracts, and they’re visual representations of unique underlying cryptographic data that’s built on a distributed ledger called blockchain technology.
And NFTs’ data is stored on immutable blockchains, usually one called Ethereum to which data can then be added, but not removed. By contrast, the fungible tokens such as cryptocurrencies were also built on blockchain technology, they’re interchangeable. So just as one U.S. dollar, Josh, is exchangeable for one U.S. dollar and one Bitcoin is worth one Bitcoin.
To help conceptualize this for your daughter how NFTs’ data is stored in the blockchain, I want you to imagine box cars containing information rather than dry goods, permanently linked together as a linear train. More box cars carrying additional information may be added to the back of the train, but not to the front or the middle. And the data on board can never be removed.
Each train, Josh, is unique and therefore not interchangeable with another train. So anyone can see the train or the NFT exterior. But only with the permission can one see the ownership data or other content carried inside each container. So one may know, for example, that Damien Hirst created or minted in current parlance an NFT picture featuring his famous, multi-colored dots.
But the ownership information of each NFT is only as public as the buyer decides to make it. In the future, Josh, of NFTs, the metaverse economy, and the global creative economy, it’s truly going to be about ownership.
Josh Burek: This concept, Michael, of authenticity is one that predates the digital era in the art world. Art experts for centuries have been employed by collectors to help them discern originals from highly skilled counterfeits. The Internet in its essence is a giant copying machine. It might be fair to describe the emergence of blockchain as a giant recording machine, creating indisputable authenticity. And that’s a big deal because now you create trust where it didn’t exist, where skepticism was the default approach to highly valued art. Is that not right?
Michael Greenwald: That is right And I think that is going to be the unique aspect, Josh, of this creative metaverse economy that continues to emerge.
Josh Burek: You mentioned it earlier, this idea of NFTs potentially being a fad and there are certainly observers who think it is. 2021 undoubtedly was the year NFTs went mainstream. Want to ask you to bring your crystal ball out, Michael, and help us make sense of what we might see in 2022. Where do you see this domain going? What underlying trends should we be watching to understand what further disruption might lie in store?
Michael Greenwald: It’s clear, Josh, we’re at this inflection point in the global art market right now. Sotheby’s, Christie’s, they’ve had record years and there has been an entire new audience of collectors, not just contemporary art. Not only is this groundbreaking for digital content linked to blockchain technology, but it’s an entirely new group of buyers that had been welcomed into the art market and ones, some who have no particular interest in really the prior icons of tangible contemporary art. Furthermore, this places blockchain technology front and center in helping bring transparency to the traditionally opaque, unregulated, gray art market.
So it’s not a fad. It’s a new segment of collectors of the art world. Now, some are whales who I like to define are huge investors that own most of the market that are using the NFT market, Josh, to legitimize digital assets and some who view NFTs and the larger, metaverse as this new frontier in the art market and the art world.
To speak about the future and the NFT value proposition, I think beyond obvious supply and demand variables, you know, art valuation would depend mostly on the authenticity and the provenance. I just watched a great documentary on the lost Leonardo, on the Salvador Mundi, which talks all about provenance and NFTs provide clarity on these matters. Each time an artist mints an NFT, he or she establishes the work’s authenticity, which is recorded on that underlying blockchain. Each subsequent trade is also recorded on that blockchain establishing a secure chain of title. It’s inherently desirable in this highly litigious trade that’s routinely marred by disputes over ownership. But just as an artist’s signature creates value for a fine art photograph that could be worthless as a digital print or a signature, the NFT value would depend upon the integrity of that signature.
So I think this year, Josh, you’re going to see greater acceptance and credibility of cryptocurrencies as legitimate exchanges of value that are bolstering the values of NFTs. And with the vast majority of Western nations discussing proposed regulations around digital assets in a whole new asset class and every country, Josh, in the G20, except for Argentina, exploring a central bank digital currency pilot, this is going to become more mainstream.
One of my predictions for this year is you’re going to see people buying more virtual land and real estate in places in the metaverse, like the Sandbox. I just had a friend the other day, buy, land near the Mets in the sandbox if you can believe it. So the question is, will the Fifth Avenue of virtual land start to emerge in 2022.
Josh Burek: I have to believe location, location, location, is still the coin of the realm in the metaverse. And we’re going to talk about the metaverse in a bit, but I want to stay with the art market for a minute. Michael, you mentioned growing accessibility, and this is fascinating because people who aren’t well acquainted with the art market may not know that it is arguably the world’s oldest and largest asset class today.
It is bigger than the global oil market there than the global gold market. some people have put its value north of $30 trillion, but it is also highly illiquid. Only a tiny fraction of that value is traded. And it is traded among a very elite class of collectors, but NFTs could be changing that; I dare say democratizing the art market. But this is a massive untapped asset class.
Michael Greenwald: It is massive and it’s a massive unregulated class and we’ll see some more regulation come out, through the Senate and the executive branch, first, hitting, the antiquities market and then the contemporary art market, and then the digital asset and art market.
But Josh, the confluence of the art world in the digital world. It may seem confusing and for good reason, I mean, artwork is an artifact in the most traditional sense. It exists in physical form. It’s tangible, it carries intrinsic value that digital world appears the near opposite. However, digital currencies and NFTs, they’re not new to the art worlds. Various platforms that sell traditional artwork, as well as NFTs through the blockchain, they’ve been around since the early part of the last decade. Andy Warhol: he explored digital art in the 80s. So when one of the oldest and most respected art auction houses, like Christie’s and Sotheby’s – the central bank of the art world – opens its stores to NFTs and digital currency, but does so with a blockbuster transaction, like the Beeple $69 million sale, it’s hard not to see it as a confirmation that digital assets and digital currencies are here to stay. You know, Christie’s, Sotheby’s Phillips, those central banks for the art world, if you examine it more closely, specifically art as an asset, it becomes easier in my view, Josh, to understand why this is such a ripe moment for expansion in the digital space. It helps expose parallels with other markets, which will likely recognize similar benefits and open its doors as well.
And we’re seeing that with companies like Nike and Patagonia go into this space. At its core, though, artwork is an expression of one’s creativity captured in form. It’s also going back to the earliest form, a medium of exchange and a store of value. And it derives value from demand. And there is great demand from this new audience of buyers and demand at scale is founded upon these attributes, established stylistic and aesthetic standards, originality, authenticity, provenance – all of these areas.
And these are the central tenants of that blockchain. So. Yes. You mentioned numbers. I mean, NFT collectibles, they’re an outgrowth of this art market, 21st century, really a march towards technology and democratization and commodification, and they’re here to stay. So to give you some numbers, approximately as of late 2021, the sales of NFTs and the art market totaled $774 million yet before COVID-19 Josh, most art collectors had not heard of NFTs. And those who had largely dismissed the digital assets as bad art or vehicles for dirty money or both. So, when I look at this, Josh, I say, you know, what’s changed?
Why would anyone pay for digital images that they could download for free? And what should our collectors consider before buying an NFT? And I really look at five factors. First, you know, COVID-19, the art world changed our broader society’s physical isolation and the rapid adaption in the digital world.
And that led artists to really come up with new engagement strategies. Second, market makers recognized this moment. They recognize that NFTs, immutable signatures, they solved two issues that bedeviled the art market: proof of artwork authenticity and ownership. Third, reputable entities mainstreamed NFTs, including with the Beeple sale at Christie’s in that March timeframe. Fourth, independent experts really started educating art collectors about NFTs. And then fifth, it’s really this growing population of digital natives with disposable incomes, giving rise to more adoption of virtual assets. So it’s quite an explosion we have on our hands here.
Josh Burek: Are artists themselves excited about this or is this just going to further enrich a small class of collectors? How might this affect the creator economy?
Michael Greenwald: Artists are excited about this. And I do think it gives them a new opportunity to bypass the original barriers that the art market held up for artists getting into galleries or Art Basel or certain shows. So I do think this is a very important movement. I mean, let’s remember – Beeple couldn’t break into the traditional art market.
And now Beeple is selling physical and nonphysical forms of art. And so artists view this in the democratization sense. They view it as a new form of expression. They view it using smart contracts to be able to give, to impact causes, and to have a piece of their piece of art, whether it’s physical or nonphysical for generations to come.
if you sold a Basquiat painting in 1984, Josh for $4,000, today it’s worth at least $30 million. That piece of Basquiat in ‘84 may have sold 10 different times between 1984 and 2020. But the Basquiat Foundation only got that from the first sale. Smart contracts will allow artists to have a piece of that sale every step of the way.
So--
Josh Burek: They’ve been excluded from the secondary market for years, and now they have a chance to actually capture some of that economic upside.
Michael Greenwald: That’s exactly. And I think that artists are welcoming this and you’re seeing artists, of all forms, some contemporary, really get into this. And I can imagine that if Andy Warhol was around today, he would be cheering from the sideline.
Josh Burek: Michael, as Director of Digital Asset Education at Tiedemann, you have a professional responsibility to track this, but it’s clear you have a personal passion for art. Can you tell us a little bit about when you caught the art bug?
Michael Greenwald: It really came from my parents are contemporary art collectors and I saw how much they enjoyed it, growing up and traveling with them to different auctions and galleries and really seeing that affinity they had together. And then as I worked overseas in the Middle East and Europe, and I saw the power that art played, not only in an economy, but at a geopolitical scale with museum diplomacy, it really hit home what a powerful force this was. And then I really started collecting on my own with my wife, Nolan, and we both have families that love art, appreciate art, and this was something for us to do together. And I love the intersection of art in geopolitics and art in the financial world.
And so it’s just a passion that I look at. And I also look at, Josh, from the barometer of where the economy is going, not just in the United States but from an emerging market perspective as well.
Josh Burek: You mentioned at the top, Michael, that NFTs are really just one element of a broader class of digital assets. And you mentioned real estate, music, the metaverse. Can you give us a little 30,000-foot tour of this ecosystem and what might pop into headlines in the coming year?
Michael Greenwald: Sure. So I think first, you are going to see companies and you’re starting to see this like Nike and Patagonia and Adidas partnering with the Bored Apes NFT club. They’re going to really start to deepen their virtual land footprints in the metaverse. And so they’re going to really see this as a whole different era of marketing and advertising for music.
You know, musicians, they’re artists too. They want in on this digital asset revolution and they’ve already taken a lot of steps. Musicians have taken a distinct interest in this space and they’ve developed a following for blockchain projects. You’re going to see more musicians use platforms like the Solana network and align the interests of artists, fans, node operators, through that platform.
I think for real estate, Josh, I mentioned, I had a friend just purchased virtual land in the Sandbox. I think those developments of the metaverse are really going to pick up. And I think when you look at the metaverse, over the course of pandemic, interest in luxury, Bahaman real estate, increased dramatically. And you’re seeing the Bahamas, you know, they created the Sand Dollar, the first retail central bank, digital currency. And you’re going to see some embassies like The Bahamas, which are small countries, they’re going to buy larger virtual embassies to have a more global footprint. So this has also a geopolitical lens as well.
Zoe Weinberg wrote a great piece in The New York Times and the end of last year about how, embassies are going to start to get more involved in this space. And I see that as part of the real estate space, especially with embassies, so The Bahamas are a great case study in that. Meanwhile, in the metaverse, Josh, there’s been an explosion of transaction volume, and that’s combined value in the purchase slash I would say sale of digital land. So a couple of examples that you may appreciate: the artist Snoop Dog sold three virtual estates for more than a million dollars, and a single plot of land in Decentraland, for you know, 618,000 MANA, which is a native token to Decentraland and that’s around $2.43 million at the time of purchase. So to break that down, you know, but for the sake of time and space and to explore the affinity of Decentraland in the Sandbox, this is going to become more common. And I think going into the new year, you’re going to see the metaverse play even a more important role than some NFTs will, as we saw that.
Josh Burek: Michael, I’m thinking here again of my daughter, who could probably explain to us what the metaverse is but for those of us who are new to the concept, are you referring to just a walled garden of Facebook or a broader generic concept?
Michael Greenwald: It’s broader. I really am looking at this, Josh, as the full nature of the creative economy. When we look out at where this is going, it’s really important for us to define what that is. The notion of the metaverse recently entered most people’s vocabulary when the CEO of Facebook, Mark Zuckerberg, announced his intention to transform Facebook into a metaverse experience and Meta. I think while the term metaverse was originally used by gamers referring to a large-scale virtual environment in the online space. Really, Josh, many see the future of the metaverse that goes well beyond gamers, well beyond Facebook’s definition as a virtual parallel to our own, where people work, buy sell, interact with each other. So the metaverse is going to be a whole new future ways of interacting socially and professionally with each other going forward.
Josh Burek: And I’ll encourage any Immutable listeners who want to learn more about the genesis of the metaverse to read Neil Stephenson’s novel, Snow Crash, something of a legend in Silicon Valley circles. His imagination ran wild about 25 years ago depicting this virtual world. And I have to say as a reader, it wasn’t exactly a world I wanted to spend a lot of time in, but, I have to break into a personal tangent and that is, a few months ago, you and I had the privilege of playing tennis together at Longwood Cricket Club. And, the experience stayed with me for one reason. And that is, at the end, only one of us was perspiring excessively. And that was me. I remember asking you, “How did you play with such discipline and handle those angles so well?” And you said, “Well, you know, a lot of people are just watching the ball and reacting to the ball. And in this case, you know, I was able to just watch your feet and basically anticipate where the ball would be.” And that lesson has stayed with me. And it seems to me that there may be a lesson there for those of us who think about tracking new technology and trends. How can those of us who want to be better consumers of information in this space, not just react to the ball, but watch people’s feet?
Michael Greenwald: Well, Josh, your feet are pretty fast. So I don’t think you give yourself enough credit, but, I would say that my version of looking at someone’s feet is that I pay very close attention to what is underlying the information who is backing it – sources of information that allows me to tell the difference between a fad and something that will have a lasting impact.
So as someone who used to work in the intelligence community with Treasury, to me, it’s all about the veracity of sources and the information to stay five or more seconds ahead. So I try to stay very closely connected with a diverse set of contacts, whether it’s in global central banks, the art world, the gaming community, and specifically artists, because it’s really about that underlying information.
But also we’re in this moment of really a renaissance in digital assets. And when I talked to my peers and new colleagues, we all need to share information because things are happening so fast. And so I think that’s incredibly important. And even if we can’t convene as much together in person because of COVID, we need to do whatever we can to continuously share information.
Josh Burek: Even a renaissance comes with risks. What do you see as some of the lurking, dangers and risks?
Michael Greenwald: Well, what continues to worry me, and I’ve highlighted this, is the lack of regulation in the art market and the opaque nature. So, while the art world has had tremendous success in legitimizing digital assets for use across the industry landscape, it’s still facing really an impending regulatory crackdown from central banks globally.
And I think the opaque nature of art ownership and beneficial ownership and sales, and the relative ease, really Josh, and hiding financial flows. It leads to a natural skepticism from state actors and a growth from bad actors. What worries me is this collision of anonymous ownership in the art world, and a lack of knowledge about how to conduct the transactions in cryptocurrency that would create really a difficult environment for regulators and it really demands guidance. So the path that the art regulation takes in the coming months and years in my mind will provide a roadmap for other industries seeking acceptance of digital assets. But what worries me the most is that we may see a Pandora Papers moment of global arts sales – which oligarch owns which piece, what type of sales are coming out of Asia.
Do we understand, the ownership there and, while firms like Chainanalysis and Elliptic are doing great work, I do think that we have a gap in information and intelligence of how illicit the market actually is.
Josh Burek: One of the most overused words in modern journalism is unprecedented. The idea that any new technology has no analogs or precedents I think is contrary to the historical record. And at the Belfer Center, we place a premium on a subdiscipline of history we call applied history. We try to look for lessons from relevant precedents to make better sense of an emerging trend. In this case, I’m struggling to identify what could be relevant precedents in terms of this confluence of opening up a financial market with a breakthrough technology, new stakeholders – does anything come, come to your mind? I realize I’m putting you on the spot, but it seems to me we currently lack this kind of historical framework for making sense of digital assets.
Michael Greenwald: You’ve heard this a lot, that the technology uptake in the 1990s and whether we’re back in the 1998 Netscape moment. And if you look at some of the headlines criticizing Netscape and they’re very similar to today. I think the latest, truly innovative and novel invention that was adapted by the masses were the protocols connected to the Internet.
And so I think between 1990 and 2000, you know, information became more accessible at the click of a button. Websites exploded. And e-commerce began to establish itself enabling consumers, really Josh, to make a choice between buying something from their home and visibly going to a store. It did take some time for people to begin adopting this technology.
More traditional forms of communication started to come together. Accepted protocols of the Internet have become a central part of nearly all of our lives, but this transition takes time. And I think this is exactly what must occur with digital assets. And I think if you look at the digital asset umbrella uptake in the 2020s, you know, through the Internet inherently made communication and access to information and the purchase of a sale easier than ever before.
And I think really this goes to three categories. I mean, first it’s infrastructure, you know, as of new technology, we need a sufficient backend to support its use. Which means people must have access to electricity, consumer products that provide ease of access. There must be knowledge, must be widely available and education.
So the public for individuals, really Josh, to understand the utility and the safety of this new technology, ultimately encouraging them to adopt it for their own use. But I think going forward, privacy, equity, inclusion, these will all be very important topics for this new generation. And then breaking down social norms and tradition, this requires time, really in critical mass. But also, if you look economically at this moment of the S&P where we were in the late 90s, it’s a bit eerie how similar the growth is right now than it was in the late 90s. There are obviously a lot more controls in our financial system than there were before, and we’re more regulated, but there are very similar representations. The other thing I would say is in 1990, Josh, if you wanted to play online poker in the United States, you wouldn’t have been able to, you wouldn’t have been able to upload in 1990, but you could have gone across the border. I still feel like we’re in that online poker stage where we’re not sure it’s still gray.
We’re not sure what cross border looks like yet. But I really believe, Josh, that 2022 is going to be the year of central bank digital currencies, pilot programs starting to take across the United States and globally.
Josh Burek: Michael, final question, we’ve talked about provenance, technology, regulation, investment, liquidity, et cetera, but those are ultimately peripheral to art, whose primary value is the emotional connection we have with the piece. And I think you put it really eloquently when you said, you know, art is ultimately an expression of creativity made concrete.
It’s imagination put on canvas. It’s an expression of the soul. If you could commission your favorite artist living or past, what would you have him or her paint for you?
Michael Greenwald: That’s a good one, Josh. You know, my wife and I enjoy collecting some more traditional contemporary artists like Keith Haring and Rauschenberg and Damien Hurst and Motherwell and Wesselmann to name a few. And we recently purchased – she’s called the Wall Street’s crypto artist. Her name is Sarah Meyohas. And we purchased some multi-colored butterflies and she also does NFTs and even has a coin, called Bitchcoin.
So watch out for her name in 2022. I would probably have her commission a piece that spoke about this geo-economic moment, Josh. And so looking at different images and words, globally, that talks about the intersection between finance and foreign policy. But also how authoritarian regimes like China and others are looking at this moment so that we could reflect back and see how it’s represented. Because one of the things I really love about the art world is the historic nature.
Josh Burek: We’ll have to wait to see if that piece gets commissioned. We’ll stay tuned. Michael Greenwald. I’m genuinely grateful for your time and insight today. We’ve learned so much. I thank you. My daughter thinks you, as well.
Michael Greenwald: My pleasure, Josh. It’s great to be with you on the podcast.