Cryptocurrency, crowdfunding, and NFTs are redefining how we see value in the marketplace.
Millions of dollars are changing hands and values are spiking in these fast-moving sectors. Decentralization is disrupting traditional industries and cutting out the middleman.
Clearly, we are moving into a new era of more profit for creators and even more transparency for customers.
Or are we? Read on to learn more about the shared ups and downs of cryptocurrency, NFTs, and crowdfunding. Hint: Yes, we are.
Blockchain technology is the foundation for cryptocurrency and NFTs. Without getting into too much technical detail, we can say that blockchain is a transparent, public record with built-in cross-checks.
There is no central, private database and it’s almost impossible to alter a previous record. In fact, the blockchain eliminates the need for the middleman.
Traditionally, the intermediary adds a layer of cost and control. Examples of middlemen include banks, brokers, art dealers, and venture capitalists.
The blockchain stores historical records of transactions. Non-fungible tokens, or NFTs, are an example of a type of blockchain record that is disrupting intermediary and other industries.
NFT stands for non-fungible token. Something is fungible if its value can be divided. You can break a dollar to make change.
A fungible item is not unique; you can interchange one value for another of the same value. For example, you can use any dollar in your wallet to pay for a pack of gum.
Examples of fungible items are crypto coins, stocks, and commodities.
Something that is non-fungible is unique. You can’t divide it without losing value. Let’s take the example of a Van Gogh painting.
A Van Gogh painting is one of a kind. You can’t trade one painting for another and assume the value will be exactly the same. Furthermore, when a painting by a famous artist is exposed as a fake, its value diminishes to zero.
The value of the painting cannot be divided. If you were to cut a Van Gogh painting in half, the value decreases by more than half of its original worth.
So now you know what the NF in NFT stands for. What about the T?
We can go to a museum and see a variety of paintings. If we trust the art experts, we assume that the paintings are original.
The challenge with digital assets is that they’re intangible and easily duplicated. Examples are digital artwork, online text, digital video, and music. Creators of unique digital assets need a way to establish themselves as the creator of the original work.
Over time, technologists developed the idea of tokenizing digital assets. A token creates a code that describes the features and creation date of the asset.
The token is not the asset - it is like a digital label for a non-fungible asset. Once the creator logs the token, it’s transparent and traceable until the end of time, or the end of the blockchain, whichever comes first.
So that is what NFT stands for: non-fungible token.
Any digital asset can be an NFT. An example from the sports world is the NBA selling NFTs for iconic jump-shot video clips from past games. An NFT can be created for a physical asset, too, as long as it’s non-fungible. Buyers can purchase NFTs with fiat or cryptocurrency.
Artists have always had a vested interest in protecting the right to sell or commercialize their work. The other advantage of minting an NFT of their art is that, similar to royalties, they can receive a percentage of the resale of their work, for as long as it exists.
It may be hard to understand why someone would spend money on something that they can't hold in their hand or hang on the wall ... especially if there are already millions of digital copies floating around the internet.
Let’s go back to our Van Gogh collector. Why would she pay millions of dollars for an original, when the museum gift shop sells thousands of postcards every year with the same image?
We pay extra money for original artwork because humans assign value to something that is one-of-a-kind. No matter how many copies, there is only one original.
It’s important to know that NFTs are not just for artists. Almost any product or service that currently has a “middleman” between the company and the customer is a ripe field for NFTs.
Much like equity crowdfunding streamlines investing and opens up access for new investors, NFTs remove the gatekeepers. Industries launching NFT products include gaming, travel, and entertainment.
In 2012, the JOBS Act allowed private startups to raise money from a wider public base using crowdfunding. This had not been possible due to the Securities Act of 1933 which restricted startups to raising money from institutional investors and accredited individuals.
Even so, it still took four years for the SEC to iron out the regulations to allow this to happen.
Entrepreneurs and companies can now solicit a bigger pool of investors. However, they still have to go through a broker-dealer or a regulation crowdfunding portal.
Using cryptocurrency with smart contracts helps to automate some of the fundraising processes. It also can document the company's progress in a transparent way.
All that sounds good, right? However, some sources say that the SEC is still hesitant to approve equity crowdfunding that includes cryptocurrency. This seems to be evolving, as a few crypto companies have raised capital via equity crowdfunding.
The current NFT boom would not exist without the communities around the artists.
Like artists before NFTs, successful NFT artists cultivate fans and powerful influencers around their brand. NFT communities collect, trade, sell, and engage in conversations about NFTs.
Crypto communities are similar. Some have charismatic founders who contribute to the tone of the brand. Communities build trust, help develop and drive the adoption of cryptocurrencies.
Ego plays a big role in community, too. We value our possessions for what they say about us to our community.
NFT and crypto community members appreciate belonging to a group of like-minded people. They also value what their affiliation with community currency says to the world about them.
In the past, geography limited how and when community members could connect. Beanie Baby fans lined up outside stores for new releases; baseball card collectors gathered at conventions.
With the internet, millions of people can gather around a creator without having to leave their respective sofas. Beeple, the artist that sold an NFT for $69 million, would not have been able to make that sale without his huge community of 2.5 million followers online.
A large engaged following is very valuable for an equity crowdfunding launch, too, to help spread the word and increase the final amount of funds raised.
This is a very important concept to understand for people considering buying NFTs or Crypto as investments. Is the creator’s community growing? How engaged are they? Get to know the audience around the creator and the asset, because the community can make or break the value in the future.
So the current system of how we transact business is changing into a middle-man-free nirvana of transparency, decentralization, and crazy profit margins, right?
Cryptocurrency, NFTs, and crowdfunding face similar uncertainties in the marketplace.
One big question mark is future regulation. SEC chairman Gary Gensler, a former MIT cryptocurrency prof, is exploring how to exert more oversight.
Unlike equity crowdfunding, the SEC does not regulate NFTs. Yet.
With all the speculative, record-breaking sales activity around NFTs, some people believe that NFTs are actually securities that the SEC should regulate as they do other markets.
The second serious problem is not solvable by one person or even one government. Blockchain technology has a very negative environmental impact. At a time when climate change is an urgent problem, scaling blockchain technology requires massive amounts of electricity and fossil fuel energy consumption.
Investors in crypto and NFTs benefit from a system that still externalizes key costs. For example, energy subsidies shelter blockchain users and NFT investors from the true costs of network maintenance and growth.
No one knows exactly where cryptocurrency, NFTs, and crowdfunding will be in five or ten years.
What is certain is that future progress will continue to maximize the value of community. Large groups of people that interact, promote, and ultimately add value are an important advantage.
This is a new, exciting world. Well-prepared companies stand the best chance of success. We provide a platform to help companies become investable through crowdfunding by providing education, community, and expertise for founders.
In just six weeks, Beanie & Blazer’s Test The Waters program can help you prepare and launch a trial investment crowdfunding campaign. We leverage the best practices from dozens of successful investment crowdfunding efforts and hundreds of investor discovery calls to help creators build investable companies.
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Beanie & Blazer does not provide investment advice and is not a registered investment advisor or broker-dealer. Investing in startups is risky, never invest more than you’re willing to lose.
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