Skip to content
InTechnology Podcast

#75 – What That Means with Camille: Non-Fungible Tokens (NFTs) Part 1

In this episode of Cyber Security Inside What That Means, Camille Morhardt jumps into the non-fungible token (NFT) conversation with Mic Bowman, Senior Principal Engineer at Intel. The conversation covers:

  • What an NFT is, with several examples.
  • How an NFT is purchased and traded.
  • How owning an NFT is different from owning the asset the NFT is connected to, and potential issues and opportunities that arise from that idea.
  • What an NFT could become in the future, and where we might be headed.

And more. Don’t miss it!

The views and opinions expressed are those of the guests and author and do not necessarily reflect the official policy or position of Intel Corporation.

Here are some key takeaways:

  • NFTs, or non-fungible tokens, is a tradable representation for digital assets. It’s like the title for your car – it conveys a sense of the vehicle and ownership, but the vehicle itself is separate from the title.
  • NFTs are pretty much only bought with cryptocurrency. And the NFT itself, the asset, cannot be subdividable (even if we can have partial ownership). For example, multiple people can own a piece of art together, but you can’t cut up the work of art.
  • Although digital art can be copied and downloaded, what NFTs really focus on is that we create value in ownership and where it came from. What makes it valuable is our belief that it has value because of who created it, where it came from, or what it is.
  • Digital marketplaces have existed in video games for quite a while. In World of Warcraft, you can buy certain characters or levels or things that will add value to your game. What the NFT does is allow the marketplace to be open. It becomes more about investment and market dynamics, and could create more opportunities for making these things happen. It moves the marketplace outside the game.
  • The music industry is using NFTs in creative ways as well. Beyond just purchasing a song or an album, an NFT can allow for different ways to get revenue from the artists’ clientele. Perhaps you can get credits for purchasing better tickets, or being a part of a fan club. It’s about the ownership more than the thing itself.
  • In terms of who makes the money, in some ways it is the companies and the businesses who are taking taxes or transaction fees or licensing fees. In others it is the creators. In others, it’s investors and external people. It’s an economy with every complexity that goes into any economy. 
  • The majority of things being traded as NFTs right now are digital (images, videos, events, items, etc.). But once we have the NFTs and that abstract representation of a tradable interface, it can be bound to anything, even the non-digital.
  • For some NFTs, you can only see the asset if you are on that platform. The platform will manage who has access. However in an open market, there isn’t a guarantee that you will be able to always access it from the platform that sold it to you. Some people are told to make a copy of the asset quickly, before it goes away.
  • In some cases, when you buy an NFT, it comes with a licensing agreement that tells you what you can and can’t do with the asset. Are you able to collect fees or royalties on someone else using it? Can you trade it or resell it? It is very case-by-case, and is often not defined. You own the NFT, you don’t necessarily own the asset. This could become future legal battles in the future. 

Some interesting quotes from today’s episode:

“Really what you’re purchasing with an NFT is provenance. It’s kind of like when you purchase an antique, you can buy an old dresser and it’s kind of an old dresser. But if that old dresser once sat in George Washington’s mansion, then it’s a very different thing, right? You can come up with other dressers that might be the same, but the fact that it came from George Washington’s mansion is what really adds value and creates value.” – Mic Bowman

“It’s not that the tweet itself is that interesting. It’s that Jack Dorsey created the NFT for it. So anybody can go out and make a copy of the tweet. Who cares, right? We can all go back and look at it. But only one person can own Jack Dorsey’s NFT that he created for it.” – Mic Bowman

“It goes back in some sense to that notion of collectibles. It’s what makes the Honus Wagner baseball card worth $2 million. It’s a piece of cardboard, right? What makes it valuable is that people believe it has value.” – Mic Bowman

“What makes an original Monet worth $50 million? Is it because the painting itself is worth $50 million? Maybe for some people. But it’s the ownership of the Monet. That’s really what it’s about.” – Mic Bowman

“It’s a marketplace for connecting value and value chains. And once you have this NFT, what you can trade is almost universal.” – Mic Bowman

“An NFT is nothing more than a unique identifier. Think of it as a serial number.” – Mic Bowman

“In some cases, the artist can retain the copyright. An artist could potentially make revenue every time you trade, or show, or make available the asset. So, the asset is existing independent of your ownership of it.”- Camille Morhardt

Share on social:


Camille Morhardt: Welcome to this episode of What That Means in Cybersecurity. I’m really excited about the topic today, it’s non-fungible tokens or NFTs, and those are being thrown around a lot, including by Mark Zuckerberg and his description of the metaverse that he released fairly recently. We’ve got Mic Bowman from Intel labs. He’s a senior principal engineer, and runs the Trustworthiness Distributed Systems lab. 

We go way back. And in fact, we have another What That Means audio episode of What That Means: Blockchain featuring Mic. We brought him back in to talk about non-fungible tokens.  How are you? 

Mic Bowman: Not too bad. It’s snowing today, which is kind of interesting 

Camille Morhardt: That’s cool. Okay, the first thing we’re going to do is the same as you did for the blockchain; could you just define “non-fungible token” in a couple of minutes? 

Mic Bowman: A non-fungible token technically is pretty boring. It’s just basically a unique identifier that can be assigned to some digital asset, like an image that way. The analogy that I’ve used, it’s like the title for your car; the title conveys a sense of the vehicle, but the vehicle is still something that’s completely separate. So the non-fungible token is really a tradable representation for digital assets like pictures and videos, and pretty much whatever you want it to be these days. 

Camille Morhardt: And it only works on cryptocurrency, right? You can’t buy a non-fungible token with fiat currency can you?

Mic Bowman: No. The existing markets for non-fungible tokens are all driven by cryptocurrencies or some internal currency that can be purchased using kind of fiat currencies. So whether it is a standalone currency that could be used to purchase other goods or whether it’s sort of unique within a particular domain, depends on the application in the marketplace.

Camille Morhardt: This is really a way to own a digital thing, a digital asset, a way to have it be unique. Whereas I guess with cryptocurrency, one Bitcoin or one Ethereum, one whatever it is you want to talk about is always going to be equal to another one of those, they’re fungible. Whereas if you’re talking about a non-fungible token, this is some kind of thing that is unique and, while you can trade it or sell it, it is its own specific thing.

Mic Bowman: Be careful about the “unique;” it can’t be subdivided in any way, it can’t be separated out in broken out into things. We think of a Bitcoin as something we can continue to subdivide almost infinitesimally small. But non-fungible tokens usually refer to something that cannot be subdivided. Again, going back to the car, you can’t break the car into multiple pieces and sell them as a car, you might be able to sell those parts, but you can’t really sell them as a car. And so the non-fungible token usually has a reference to something like a digital image, which is not really subdividable. Let me put some caveats on that; the image may not be subdividable, but ownership of the token, maybe subdividable.  

Camille Morhardt: Okay. That kind of makes sense.

Mic Bowman: We’re going to have partial ownership, but the asset itself, the assets that it is referenced by; that is not something that’s subdivable. 

Camille Morhardt: That makes sense to me because multiple people could go in on a work of art together and own portions of it, but you can’t cut up the work of art.  

Mic Bowman: It’s just a non-subdividable asset. There may be multiple instances, right? Maybe the most famous and visible of the NFT marketplaces is Top Shot where you have basketball cards in video. And so you take these NBA video clips and you own them when they mean these virtual “baseball cards” using the NFTs, they may mean 500 of a particular clip, or they may mean 5,000 of another clip. So there may be 5,000 of the same, generally you don’t subdivide them.

Camille Morhardt: That brings me to a part that I struggle with because when you’re talking about a painting, let’s just say obviously the original is different than a print, even to the point of, if you own the original you could destroy it.

And the original doesn’t exist anymore. There may be lots of prints of it, but you know, there is something about the owner of that original. Whereas when we’re talking about digital assets, a lot of the time you’re saying clips of MBA, or even multiple things, even if you destroy the original, there would still be identical copies around.

Mic Bowman: This notion of digital scarcity of somebody whose assets is kind of a tricky thing to imagine. And again, just kind of using some analogies, There’s a really famous baseball card, which is the Onus Wagner card that I think sold five or six years ago for $2 or $3 million. I think there’s like five or six of them in the world left right now. But it’s a very unique physical thing. And either it exists or it doesn’t exist. With digital assets it’s kind of a little tough because we can purchase the image, and take ownership of that image. But what prevents somebody from continuing to whoever sold the image from continuing to have the image? There were some interesting things that go along with the problems for them, but really the core of the NFT and this notion of collectibles in NFTs. Let’s come back to the binding between the NFT and the image and the digital scarcity in a couple of minutes.

Really what you’re purchasing with the NFT is provenance. It’s kind of like when you buy an antique, you can buy an old dresser and it’s kind of an old dresser. But if that old dresser once sat in George Washington’s mansion, then it’s a very different thing. Right? Come up with other dressers, that might be the same, but the fact that it came from George Washington’s mansion is what really adds value and creates value. 

Camille Morhardt: This is why Jack Dorsey’s first tweet goes. 

Mic Bowman: That’s why that’s exactly it. It’s not that the tweet itself is that interesting. It’s that Jack Dorsey created the NFT for it. So anybody can go out and make a copy of the tweet, who cares, right? We can all go back and take a look at it, but only one person can own Jack Dorsey’s NFT that he created for it. It goes back in some sense to that notion it’s collectibles. It’s what makes the Onus Wagner baseball card worth $2 million. It’s a piece of cardboard, right? What makes it valuable is that people believe it has value. And it’s no different than the cryptocurrencies. We talked in our conversation last time about blockchain and cryptocurrencies. What makes a Bitcoin valuable is that the community believes it has value and acts that way.

And the same is true. The actual tweet that Jack Dorsey made his first tweet and the text in it and a picture of it, whatever anybody can get that. What makes it valuable is somebody believes that something Jack Dorsey created as an NFT has value and, and that’s what drives the marketplace.  

Camille Morhardt: Well some of these things do have, I would argue some have, I don’t know, maybe intrinsic value. Yeah. Let’s not use that word, but some things I think have value. Let’s take it in a video game or something somebody creates a special avatar or a special super power outfit. Let’s say they coded it and it took time, effort, skill, and talent.

And then they make that in an NFT. Now, if I purchase it, I really do have something. That you’re saying maybe it’s not subdividable. I might argue it’s unique. Maybe it could be recreated, but at this point it’s got something that’s going to get me to the next level of the game. That’s clearly valuable to anybody who’s playing the game.

Mic Bowman: Yeah. There were a number of those things and there’s some cool things happening with the gaming companies. There have been marketplaces for a long time for game, assets. You can buy gold for World of Warcraft on an open market and somehow or another it got moved into your account, and you could level up much faster. You can buy sort of pre-leveled characters for it as well. Some of this marketplace has been in existence for a long time and it didn’t require NFTs. What the NFT for these does is it allows the marketplace to be open in some cases. I can do speculation, even if I never play World of Warcraft.  I can treat the marketplace for Warcraft items as a place where I can do speculation or investment or other kinds of market dynamics that way. So we had these marketplaces for useful digital assets before.  The NFT just really opens it up and really creates new opportunities for making these things happen. So there is some something to be said for that.

The other one that I think is really interesting is some of the musicians trying to come up with new ways to monetize their music that allows them to get much more direct revenue from their clientele. So it’s not just about buying the song, as you would point out has some notion of intrinsic value because I like listening to the music.

But because it’s an NFT and the NFT has a smart contract with it. We can do more things than just buying the song to play it. It can give us credits that we can use for accessing or purchasing better tickets. It can give us some sense of kind of community participation in the fan club for it.  The intrinsic part of this thing with games, yes, music, yes, maybe art. Although what makes an original Monet worth $50 million? Is it because the painting itself is worth $50 million, maybe for some people. But it’s the ownership of a Monet, that’s really what it’s about. 

Camille Morhardt: It seems to me, the more we move into this vision of metaverse where you have an alternate reality. You have an online world now where buying parts and renting parts, even plots of land or office space or whatever it is, buying your way into certain rooms or locations that if you’re not in that room or location, you don’t have as much access to all different kinds of information. Then I can start to see where, well, this is, it’s like replicating the real world.

Mic Bowman: Marketplaces for digital goods within a particular domain is something that’s existed. If you want a really good example of it, go back to second life, you know, from 15 years ago, there was an entire marketplace where creators of artifacts could sell clothing and avatar shapes and really fun little items, whatever they wanted, and you could buy and sell land that way.

And there was a marketplace in the world and you have these kind of Linden dollars, which were a cryptocurrency, maybe whatever? Let’s not split hairs about definitions on that. What’s different about NFTs is not our ability to fund or create marketplaces in a single game. What’s unique about the NFT is that it moves those marketplaces outside the game. Now we can talk about being a creator. I’m using the second life example, which is old, but it’s kinda cool.There’s a Decentraland, which is being funded by NFTs today, which is very similar to it.

The goods in the marketplaces can be sold by individuals and potentially projected into multiple applications or multiple games. Right? So you purchase a unique outfit and have that unique outfit be something that you could use in second life and Warcraft and something else. And that really kind of points out cool problems that need to be dealt with and is being talked about today for NFTs, how do you externalize these assets outside of these fixed domains? So can I buy that really cool avatar and use it in each one of these domains that I have? So what’s unique about NFTs is it’s the externalization or the opening of the marketplace outside of just one little domain that way. And that allows all these economics to come into play.

Camille Morhardt:  I was just going to ask you about that. Who is making money off of the creation and sale and transfer of NFTs? 

Mic Bowman: Oh boy. So there are a number of ways to answer that, right? Dapper Labs is doing business on Top Shot. Anytime there’s a sale made they’re taking essentially a tax or a transaction fee. Anytime one of these things get exchanged, they make money when they mint some new clip, and the NBA takes their licensing fee off it as well.

In some ways this is a new opportunity or a new pipeline for the NBA to monetize their brand. And then there’s this other part of it. As we saw with cryptocurrencies, went through this transition from a socially interesting thing to a financially driven thing. People look at the skyrocketing prices on some of these NFTs and they’re not in it to own the NFTs, they’re in it to own the margin from one to the next.

It’s an economy, right? With all of the complexities that go with that economy. You have core producers of goods, and those core producers are finding new ways to monetize. You have consumers of those goods, who in some cases are getting intrinsic value from them. Then you have the ones who are really the market makers, the ones who are taking advantage, they don’t really care as much about the particular details of what’s being traded as long as they can predict the value exchange of what’s being traded and make money off of it. It really is an economy that way. And that’s the cool part about it. We’ve talked for years about how we would build a data economy and one has emerged, and it has some rich and interesting dynamics that go with it.

Camille Morhardt: So, is it kind of the natural evolution of cryptocurrency where at that point you’re using this digital currency to trade physical assets and now we’re saying, well, naturally you can wholly exist. Well, no, because you’re saying you’re going to take it external again, I’m thinking it’s bringing us more into the digital and you’re saying, well, it’s actually extending it’s extending the digital into the non digital world.

Mic Bowman: That’s actually a very interesting future potential for the NFTs, right? The vast majority of things that are being traded as NFTs today right now are digital- it’s music, videos, images, random rare events and things like that. For the most part, it’s these digital media almost exclusively what’s driving it kind of as the coordinator type.  As you pointed out, once we have the NFTs it is a really nice abstract representation that defines a tradable interface. Here’s something that you can do. What it’s binding to who cares. Right. It can be bound to anything. 

Camille Morhardt: Pork bellies. I mean, there’s lots of trading done on pork bellies that may not result in delivery of a pork belly. It’s just a way to speak to

Mic Bowman: That’s exactly right. It’s a marketplace for connecting value and value chains. And once you have this, not what you can trade is almost universal.  It depends a lot on how much you trust the owner to manage the corresponding asset.

Right? There are pros and cons to that, there are a number of situations where we’ve talked about somebody purchased a digital image from somebody else, and that person who created it just had the image up on their website and as soon as they sold the NFT, they took the image down. And so now I own an NFT and the image that it corresponds to doesn’t exist anymore. This is not hard to do, so there needs to be some transactional relationship between purchasing the asset and purchasing the good or having access to the good that corresponds to the NFT. 

Camille Morhardt: I feel we should just back up just a little bit. I just want to make sure it’s clear what NFT is in the sense of it’s cryptography right associated with a thing. 

Mic Bowman: It’s actually not really. We tend to back them by cryptographic systems, right? An NFT is nothing more than a unique identifier. Think of it as a serial number. Again, back to the title for your car analogy. There are two interesting things. There’s the identifier for the title, and then there’s the VIN number for the car. Right? The identifier for the title, this there’s something on there, which sort of makes this paper interesting, right. There may be a seal of validity or a notarization of it or whatever it is, or a signature on it.

And there’s a government record that keeps that and tracks ownership of it. So if I ever lose my title, I can get back to the government and ask for another copy. And then that title is bound to the actual vehicle by the VIN number that’s in the title for it. NFTs are very similar to that. The NFT itself is like the piece of paper, frankly, technically it’s boring. Can I generate a unique serial number? And the cryptographic systems allow me to do that, that we have, and then I need to have whatever the VIN number is. It may be a URL for an image, or it may be an identity of an image of this being stored in IPFS. Or in the case of closed systems like Top Shot, Decentraland and others, it may have a meaningful reference to something that’s part of a game or part of another digital system. 

Camille Morhardt: Wait, I have a quick interrupting question. I imagined in my own mind that if you actually owned a digital thing, it would be on your hard drive or something. So even if you were offline you can listen to that song. You can see that piece of art. You’re now telling me that’s not necessarily accurate? 

Mic Bowman: And that is exactly it. Every one of the NFTs that you manage is going to have a different way of binding the tradable token to whatever the asset is on the backside. Some of them like Top Shot or Decentraland, the binding is very tight.

Camille Morhardt: And you can only see it if you’re in that platform. 

Mic Bowman: Yes, you can only see that when you’re on that platform. They can control both the token and the asset that it corresponds to and they can guarantee and make availability for it. For a lot of these open markets, that’s not necessarily the case, there’s no guarantee that you’re going to be able to get access to the asset once you’ve purchased the token, once you purchase in the NFT for it. One of the things is if you bought that image, make a copy of it real quickly, unless you know where it’s stored and how it’s being stored, it could definitely go away. 

Camille Morhardt: That’s very interesting. That brings new light on what you were saying if you could take whatever the digital asset is and use it in different environments crossing over among Metaverse, or other kinds of platforms. 

Mic Bowman: Yep, interoperability. We trade NFTs and we have a well-defined notion of ownership of an NFT. Basically some blockchain has a record that says this serial number maps to this person and they’re the owner. That’s the core technology and it really is  a little more complicated than that, but not much more complicated than that. How we go back and look at the connection between the VIN number, and the connection between those two things, and how we manage it gives us a sense of ownership. What does ownership of the NFT mean for the rights that I have to the asset that corresponds to it. Dapper Labs has created this token licensing agreement. The core of their licensing agreement is if you own the NFT, then you have the right to resell the asset that goes along with that NFT.

Surprise. Surprise. That just basically means that my NFT is tradable. What are the rights on that asset that go along with ownership of the NST? When Jack Dorsey sold his tweet, somebody purchased that. What do they get to do with the tweet, now? In some cases, there are real licensing agreements that go with it. Especially in the closed systems, if I buy the NFT for a chunk of land and Decentraland, then I have the right in the game to go do some operations on that land, on that space. Or if I buy an avatar, I have some rights to do that. But if I buy an image what rights do I have? Do I now have the rights to take the image and sell it to some advertising agencies so that they can use it.  Do I have the rights to sub-license and collect fees or royalties on that? Have I purchased the copyright for it? Every one of those NFTs is going to have some different dependencies for it. 

Camille Morhardt: It sounds like it’s different too. In some cases, artists can retain the copyright, whereas you own it. 

Mic Bowman: You own the NFT, you don’t actually own the asset. 

Camille Morhardt: And that artist could potentially make revenue. Every time you trade or show or make available the asset. The asset’s existing independent of your ownership. 

Mic Bowman: Yeah. And that’s really okay.  This is about the power and the weakness, right? The weakness is there’s an awful lot that we don’t know about what ownership of the NFT means. And frankly, I’m sure the lawyers are getting hot and heavy, looking forward to all of the lawsuits that are going to come about appropriate use for these things, and how we resolve these ownership rights, and what we choose to do with it and redefining ownership as some royalty or some licensing makes it possible for new kinds of business models.

Camille Morhardt:   I’ve been speaking with Mic Bowman, He’s a senior principal engineer at Intel Labs, and runs the Trustworthiness Distributed Systems lab.  We’ve just scratched the surface on NFTs.  In part two of our discussion, Mic and I explore how NFTs can and are moving beyond artwork and collectibles and into data sharing.  And we dig deeper into what ownership means in the world of NFTs.  Join us for Part 2 of “What That Means: Non-Fungible Tokens” next week.  Thanks for listening.

More From