“Computers are useless,” exclaimed Pablo Picasso more than 50 years ago. “They can only give you answers.” No doubt he would be turning in his grave at the current alliance of computer programs, tech companies, and digital artists clustering together to create non-fungible tokens (NFTs). It’s a fast-moving and potentially very risky world for filmmakers, producers and others who are looking for new ways to raise money, but must be approached with caution, research and a good look at recent history.
NFTs — in case you need to be reminded — are digital artworks and images, often broken up into bite-sized tokens, that rely on blockchain technology to prove ownership. The explosion of interest and speculation surrounding NFTs and the broader cryptocurrency craze that has flared up over the past decade has now imploded spectacularly in the past six months, wiping out more than $2 trillion. The burst digital asset and decentralized finance (DeFi) bubble has attracted acute attention, but pain for millions of investors, as more than 16% of the US population had bought into the crypto craze by mid-2021.
While all those consulted for this report had no problem with the underlying robustness of blockchain technology (essentially a digital ledger of transactions that is duplicated and distributed across an entire network of computer systems), its effectiveness depends on its use. of it. And while blockchain and cryptocurrency are two distinctly different technologies, they are inherently linked. Cryptocurrency works through the blockchain, as it is also a decentralized, digital system, but designed for and allows trading in digital or virtual currencies.
Among the many crypto skeptics is BlackRock founder Larry Fink, who joked in 2017 that “Bitcoin just shows you how much money laundering demand there is in the world.”
Digital asset evangelists like Silicon Valley tycoon Marc Andreessen, responsible for supporting multiple crypto startups, famously made the revisionist claim that “any failed idea from the dotcom bubble would work now.” The latest bubble economy crash does not support Andreessen’s theory, as crypto that was underlying financial constructs, let alone currencies, has fallen like dominoes never to see the digital light again.
Things can become unreliable even when currencies are constructed to create stability, as in the case of TerraUSD and Luna. Terra had a value stuck at $1, which in theory would not be lower as its sister coin Luna would remain at that level. If the Terra price moved above $1, investors could withdraw Luna coins from circulation (a practice called burning) in exchange for new TerraUSD coins, bringing the cost back to $1. The price of Luna, as coins become increasingly scarce, had to rise.
However, the system will only work if Luna has an actual value. For a period after its launch in 2019, the price rocketed, partly due to an aggressive offer to pay 20% interest on savings held with the currency, pushing it to a high of $120 in April. But then the crash started, investors started withdrawing their money to cover losses elsewhere… and Luna collapsed. That set off a “death spiral” when people turned Terra into Luna, driving up Luna’s price. Each round of redemption simply witnessed Luna tumbling lower and lower. In just a few weeks, the Luna coin’s value dropped to fractions of a dollar. The whole game was over.
“Whatever the fate of decentralized cryptocurrencies, forms of crypto and blockchain technology are here to stay,” said Eswar Prasad, author of “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.” The challenge, he says, is multifaceted but cries out for sophisticated regulation. The catch is that “when an industry cries out for regulation, it typically craves the legitimacy that comes with it, while trying to minimize oversight. What are the biggest risk regulators to watch out for? Giving the crypto industry an official imprimatur while subjecting it to light-touch regulation.”
It’s a confusing conundrum for filmmakers who flirt with the market. “Let’s face it – there’s a good reason why the celebrity-driven crypto and NFT scam market has collapsed,” said Oscar-winning writer-producer James Schamus. “To paraphrase Matt Damon, ‘Fortune is not good for the gullible’, which may be why the average NFT sale price has fallen 92% over the past six months. But that said, there are still potentially legitimate uses for some of these technologies, including perhaps digital rights management, royalty and residue tracking, and more. As with any hyper-financed derivative commodity, there will still be speculators and gamblers and scammers out there to pump up markets for special-price-for-you-certifiable-one-of-a-kind-digital-whatzyhoosies – but I’d write the potential usefulness of these technologies is not yet finished.”
Taking Schamus’s cautious comment one step further, digging into the terrain underscores the strong intersections between NFTs and the video game world, rather than going straight to live-action movies and TV (though animation is another matter). “There is an obvious utility in video games because the purchase of NFTs is based on an emotionally driven, first-person investment foundation,” said Web 3.0 blogger and digital entrepreneur James K. Wight. “The clear message is that you buy because it’s fun and gives the user a sense of completion. On the other hand, there’s nothing an NFT can do that a great video game can’t do better.”
Manufacturers have long been drawn to potential new financing and creative goods opportunities, and therein lies part of the problem. “Producers are essentially salespeople and desperate for new and alternative sources of funding,” said Brian Beckmann, CFO of Arclight Films. “As a result, they run the risk of believing their own bullshit and therefore that of others.”
However, some savvy producers have made it their business to kick the tires and investigate the feeding frenzy first hand. John Giwa-Amu, the award-winning film producer and game developer of Red and Black, traveled from Wales to San Francisco earlier this spring to attend the Game Developers Conference. He had already experienced the less than thrilling experience trying to turn his first feature film, “White Little Lies,” into an NFT opportunity that “was a total waste of time.”
“Once you get past the hype of the gold rush and the twenties” [then] millionaires, you realize that this market is very young, has made big mistakes and has a fundamental lack of understanding of how finance and risk behave. Most importantly, IPs in the form of digital canvases are the tangible element behind NFTs, but the quality of that creative work really matters,” he says.
High-quality filmmakers have been drawn to the opportunities, but have approached the growing industry with enough caution to keep their shirts. Emmy-winning StudioNX, a British-Canadian animation studio, felt the rush of demand when it launched “Gorecats”, which combined an animated series with the launch of 1,111 NFTS for $100 per token on Magic Eden through the Solana network. The first round of NFTs sold out in 45 seconds. Since that rambunctious start, founder Adam Jeffcoat has appointed a financial payout manager to “handle the volatility and moving values, let alone some solid financial data! I see great potential, but the rises and falls made me think I’m just want to involve part of our company, not the whole pig.” Jeffcoat emphasizes that the key is that animated NFTs “should be backed by great stories, which in turn are much more engaging for people.”
Scratch the surface of game developers turned Web 3.0 entrepreneurs, and there’s a lot of creative work underway that’s already redefining what the metaverse has to offer us all. Developed by Tiny Rebel Games, an award-winning developer of games and Augmented Reality (AR), the Petaverse Network is the first cross-chain platform to create the next generation of “immortal” pets in the metaverse. “Cool things are possible,” says co-founder Susan Cummings. “Cats do things! We can get a cat going in space and make it interesting.” Petaverse’s creation of virtual pets works in games, AR, VR, wearables and social. Cummings says their pets evolve based on the nature of their particular DNA and the nature of their bond with you — sort of a reflexive animal-human dynamic if you will.
A major motivation for Cummings and her partner, Lee Cummings, was the wasteland of virtual pets that were once adored but abandoned over the years: Neopets, Tamagotchi, not to mention the 24 million Nintendogs that were bought, loved, and then dumped when technology was inexorably moved To. “We love the idea that anyone can own it and take it with them, and that it will still be relevant 30 years from now — a digital heirloom that you can send to your grandkids.”
By combining gaming, XR and Web 3.0 and housing the project on the Ethereum blockchain via the Polygon Platform, Petaverse has defined an open standard, allowing other projects besides the virtual pets to connect and build new experiences. “This is about creating an open, shared community that benefits from an easy-to-use transportation system,” emphasizes Cummings. That philosophy is far removed from the winner-takes-all competition in Hollywood and Silicon Valley.
But while some smaller shingles are finding ways to tame and use crypto and NFTs, there’s still too much volatility and demands to go mainstream in the entertainment industry, until the next big funding thing comes along.