Are N.F.T.s All Scams?

Stephen DUBNER: I know you take your mayoral salary in Bitcoin, or at least did. Is that still the case? 

Francis SUAREZ: I still do.

DUBNER: If you were to run for U.S. president and win, you think you’d be able to get your salary in Bitcoin?

SUAREZ: I’m not sure. That’s a good question. I’ll tell you what, that would be a heck of an innovation. I think just having a president that would want their salary in Bitcoin would be wonderful for this country.

DUBNER: Because why?

SUAREZ: It sends a signal that the President of the United States understands the transformational nature of the technology. There are technologies that have a generational impact: the internet, cell phones, things like that. This is one of those technologies. I understand at the beginning, people are afraid of it, they don’t really understand it. But I promise you that as you delve more into it, it becomes easier, more intuitive — and certainly the generations that follow us, it will be simple for them.

DUBNER: Has there ever been a technology in the history of civilization that most people weren’t scared of at first?

SUAREZ: I can’t think of any. I can’t think of any.

Francis Suarez is the mayor of Miami. And he wants to make Miami the cryptocurrency capital of America.

SUAREZ: My thesis is that we have to be on the forefront of the innovation tsunami. We’re starting to see a generational passing of the baton from the baby boomer generation, which is my dad’s generation, to our generation. I think that is important for cities.

DUBNER: Now your dad, who was mayor of Miami as well — obviously a really accomplished and bright guy — when you first started to talk to him about blockchain and Bitcoin, what was his response? 

SUAREZ: Well, you have to understand my dad’s story a little bit. He’s the ninth of 14 kids. My dad graduated summa, mechanical engineering, full scholarship in undergrad, has two graduate degrees from Harvard. So, my dad is a genius, essentially, and even he struggles understanding some of this stuff. To people in his generation, it seems somewhat abstract.

DUBNER: What does your dad call you? I’m just curious.

SUAREZ: Son.

DUBNER: Okay, did he ever say to you, “Son, this sounds like total B.S. This sounds really good if you’re in charge of some exchange or currency, but no, this is not something, especially from a family of elected officials, that we want to be getting involved with. It’s too risky.” Did he ever say anything like that?

SUAREZ: He didn’t, and I’ll tell you why. Because he once told me that about the internet itself. So, once he was wrong about that, he lost a lot of credibility with me. I think he realized he can’t go 0-for-2 on a major disruption like this.

Francis Suarez remembers how he felt when he first heard about blockchain technology.

SUAREZ: I can remember the specific moment. I just understood very easily and very intuitively the concept of there being a decentralized system of authentication, a decentralized system of data management, and a transparency mechanism that allows anyone to see it.

And this understanding has led Suarez to a deep confidence.

SUAREZ: A big part of our economy is going to be based on crypto technologies.

DUBNER: How big do you see it becoming?

SUAREZ: Oh, I think it’s going to dominate — 80, 90 percent.

DUBNER: Wait, 80, 90 percent of what? 

SUAREZ: Of the total economy. 

DUBNER: Come on, seriously?

SUAREZ: Oh yeah.

DUBNER: Draw that picture for me. I’m not following.

SUAREZ: Well, remember, every single company is now a tech company. And so the question is, to what extent are people going to be a byproduct of jobs that are created through these technological systems that we see? I think it’s going be a very high number.

“A very high number.” To be fair, the entire cryptoeconomy is stuffed with very high numbers. The billions of dollars that venture capitalists are investing in crypto and blockchain firms. The trillions of dollars that individual and institutional investors have spent bidding up Bitcoin and other cryptocurrencies:

Chuck TODD: The crypto market — it exploded in 2021. The total transaction volume grew by more than 550 percent. It reached $15.8 trillion.

The general sentiment was that anyone who wasn’t buying crypto was an idiot.

CONFERENCE GOER: This is the Woodstock of the metaverse. If you’re here right now, it’s the equivalent to being there in 1969.

Although as you may have heard, since we spoke with Mayor Suarez, there has been a reversal. Some people are calling it a crash, even a Crypto Winter.

NEWS ANCHOR: Tonight — a massive sell-off of cryptocurrency. Erasing more than $200 billion from the entire market in a single day.

One cryptocurrency, TerraUSD, had been positioned as a so-called stablecoin, a blue-chip investment pegged to the U.S. dollar. But it suddenly crashed, its value dropping to nearly zero. The Wall Street Journal called the Terra crash “a reminder that crypto … is often little more than a casino, with weak regulation and few means of recourse for the losers.” Terra is based in South Korea, and prosecutors there have banned the company’s employees from leaving the country while they investigate the collapse. All this chaos leaves some people — like one economist we heard from in last week’s episode — with a less-confident view than Mayor Suarez:

Eric BUDISH: There’s some chance that we’re in the midst of a massive speculative bubble. 

On today’s show — the second episode in our three-part series on blockchain technology and cryptocurrencies — we will pick through the carnage of the recent crash and try to figure where things are headed. And we’ll focus on N.F.T.’s, non-fungible tokens, which have gone through their own boom-and-bust cycle.

Tom SACHS: Yeah, most of what’s for sale is terrible. Absolute garbage. 

But amidst that garbage, there’s some glory …

Chris GIANCARLO: We call it a smart contract, but we’re really talking about programmable money. 

The glory and the garbage, the scammery and the sublime, that’s coming up.

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DUBNER: Vitalik, where are you geographically?

Vitalik BUTERIN: I am in Montenegro right now.

DUBNER: Just so I have it, can you say your name and what you do? 

BUTERIN: I’m Vitalik Buterin. I am the founder of the Ethereum project. 

If you don’t know much about cryptocurrency, you probably don’t know about Vitalik Buterin. But if you do, then you know that Buterin is the one of most famous people in the cryptoeconomy and that his Ethereum platform is the second-most-valuable blockchain in the world, after Bitcoin. In our previous episode, we heard several smart people describe what blockchains are and how they work. But I have to say, Buterin’s description is more entertaining.

BUTERIN: Blockchains, they’re a form of money, but they’re not just a form of money. Blockchains have some properties of things like nation-states, courts, and even religions. 

So that would make Buterin not just a crypto inventor but a central banker, a king, a judge, maybe even a priest. He certainly has fans who consider him all that, and more. While the Bitcoin blockchain came first, it is primarily a database that keeps track of one thing: who owns Bitcoins. The Ethereum blockchain is essentially a database of code; it is therefore more complicated and more versatile.

BUTERIN: I talk about Bitcoin being a pocket calculator, like it’s a device designed to do one thing and one thing well. And the protocols that appeared in between Bitcoin and Ethereum, things like Mastercoin, for example, as a Swiss Army knife. So, they’re designed to do 12 things reasonably well. Ethereum-style blockchains, I think of them as being like smartphones. They can do a whole bunch of things and whatever application you want to make, you write up the logic of that application as a piece of code, upload the code onto the blockchain, and you have an application. All you need is to download a piece of code and your device has just gained a new ability. So you can keep on being able to do new things and different things without having to change the underlying infrastructure, which is amazing for making more innovation possible.

DUBNER: And was that distinction what made you want to create Ethereum in the first place? Was it a frustration with the limited capability of Bitcoin? 

BUTERIN: A frustration with the limited capabilities of things like Mastercoin, actually. I was in the Mastercoin project before I started Ethereum, and I eventually realized that like, “Hey, you can fold three different features into one if you add more parameters. You can fold ten features into one if you add a mini-programing language.” And I just kept on taking that train of thought and eventually got to the point where I realized, “Wait, just make a fully programmable system.”

What are the upsides and downsides of creating a fully programmable system? That question can’t be answered now; it’ll take years to play out. For now, let’s try to understand how we’ve gotten to where we are. Bitcoin — and the ensuing blockchain gold rush — was invented in 2008 by someone calling themselves Satoshi Nakamoto. But very little is known about the identity of that person or people. Vitalik Buterin’s biography, meanwhile, has become legend. He was born in Russia and moved with his parents to Canada when he was six. When he first heard about Bitcoin, during high school, he saw its appeal — especially the fact that it was a decentralized computing system. His favorite video game, World of Warcraft, had recently weakened the powers of his favorite character. “On that day,” he later wrote, “I realized what horrors centralized services can bring.” In 2012, he enrolled at the University of Waterloo. But he didn’t stay long.

BUTERIN: The eight months that I spent in university were actually very valuable. I learned this really amazing level of computer science, linear algebra, and background math relevant to cryptography.

Soon after dropping out of college, Buterin published a whitepaper for the Ethereum blockchain. It praised Bitcoin but argued that digital currency in and of itself wasn’t much of an ambition. “The more important part of the Bitcoin experiment,” Buterin wrote, “is the underlying blockchain technology.” Which, in his mind, had almost limitless potential.

Arianna SIMPSON: Ethereum is a really rich design space and is where we’ve seen a lot of interesting applications and projects built.

That is Arianna Simpson. She’s a partner at the huge venture-capital firm Andreessen Horowitz. They have invested billions of dollars in tech firms like Facebook and Airbnb — and, more recently, in crypto startups.

SIMPSON: Bitcoin was the first cryptocurrency that really caught the mainstream eye. But Ethereum is fundamentally different in that it was really designed to be a blockchain computer in the sky that allowed developers to build different kinds of applications. Way back in the day, there was a Bitcoin developer named Mike Hearn, who was a senior engineer at Google — really, really deep-tech guy. And he built a crowdfunding platform on Bitcoin and it took him eight months. Once Ethereum was launched, you could literally build the same thing in a couple of hours.

The Ethereum blockchain, like the Bitcoin blockchain, issues a native cryptocurrency, or token; it’s called Ether. But here again, there are some fundamental differences.

Christopher GIANCARLO: Ethereum and several others, like Solana and Cardano, are programmable cryptocurrencies on which you can write smart contracts. 

That’s Chris Giancarlo. He is a former chairman of the Commodity Futures Trading Commission, one of the agencies that has started to regulate the cryptoeconomy in the U.S. Giancarlo’s nickname — and the title of his book — is CryptoDad. The other blockchains he mentioned, Solana and Cardano, are essentially copies of Ethereum, and Vitalik Buterin’s biggest innovation: smart contracts.

GIANCARLO: We call it a smart contract because it’s actually a good analogy, but we’re really talking about programmable money.

A smart contract hinges on what programmers and logicians call a conditional statement, or an if-then statement: If this happens, then that happens. Buterin’s idea was to allow people to build that logic into a blockchain.

GIANCARLO: I’ll give you a really fun example. Let’s say you’re a septuagenarian, you’ve got some wonderful grandchildren, you’ve had a successful life, you want to leave them some money. Well, from the medieval era to now, the way you do that is — you go find somebody younger than you and you appoint them a trustee or an executor. And you say, “Here’s what I want done when I’m dead.” Now, the only thing you’ve got to hold them to it is that they’re trustworthy. That’s why they’re called the trustee. They might run off with the money. You’re dead. You can’t do anything about it, right? Well, what if you use programmable money, instead of an executor? Let’s say your instructions before you died were, “Provided my grandchildren get college degrees and are sober and drug-free — they each get $100,000.” Then you die. Instead of going to the trustee and saying, “I promise you, I’m drug-free,” they actually breathe into their mobile device, their college degree is uploaded to the mobile device, and suddenly there’s $100,000 in the mobile device. It was programmed into the money.

Here’s another example.

GIANCARLO: I live in New Jersey. The ownership of my house is recorded in a county registry, at the county courthouse, that says, “Chris Giancarlo and his wife own this house.”

Recording that ownership on a blockchain, even a less programmable blockchain like Bitcoin, would be an upgrade over the file cabinet at the county courthouse.

GIANCARLO: The breakthrough of this technology is you will be able to record to a universal ledger — out of your country, around the globe, that can’t be forged or changed.

But Vitalik Buterin’s smart-contract idea extends that advantage by allowing automatic updates to the ledger. Today, when a piece of property changes hands, there is a complicated routine involving title searches and lien searches, with lawyers holding money in escrow to make sure no one’s getting ripped off. Theoretically, Buterin says, a smart contract could clean up that mess.

BUTERIN: A lot of those things could just be done much more easily if there was a clear “on chain” thing. Now, some of those things are technically not gains from decentralization — they’re gains from automation. And so, you could conceivably do it with a centralized, automated system. But I do think that doing things on the blockchain does have some actual benefits in terms of verifiability, authenticity, giving people the ability to independently challenge the results if the system gets hacked, for example.

From the beginning, Buterin envisioned a variety of non-financial use cases for the Ethereum platform.

BUTERIN: The Ethereum whitepaper talked a lot about decentralized autonomous organizations. 

Decentralized autonomous organizations, also known as DAO’s, or D.A.O.s.

BUTERIN: And these days there’s like a D.A.O. for pretty much everything. There’s a D.A.O. for life-extension research, there’s a D.A.O. for Ukraine. There’s like a D.A.O. for pretty much every topic at this point. 

So that hasn’t been very surprising to Buterin. Nor have many of the financial use cases he discussed in the whitepaper.

BUTERIN: I talked about stable-value cryptocurrencies and options and different things like that. Today, that all exists. It’s called DeFi.

DeFi meaning “decentralized finance.”

BUTERIN: Obviously, the word DeFi didn’t really exist until around 2018 or 2019. But what we have now does actually feel not too far from what was envisioned there. Outside of finance, I feel like there have been more surprises. For example, N.F.T.s have been a total surprise, right? 

SIMPSON: N.F.T. — what it stands for is non-fungible token, which is different from a fungible token. 

Arianna Simpson again.

SIMPSON: So, for example, you have the Ethereum blockchain and then the units of that blockchain — meaning the tokens that are native to that blockchain — are Ether. One Ether is functionally similar to another Ether, meaning they’re interchangeable or fungible. 

Fungibility is useful if you want to use a token as a currency. One Ether is the same as another Ether; the same goes for dollars.

SIMPSON: An N.F.T., on the other hand, is a distinct, unique token. So it could represent a piece of digital art, and that is the type of N.F.T. that has become most well-known and what most people think of when they think of an N.F.T.

To date, most N.F.T.s live on Buterin’s Ethereum blockchain. And this, as he was telling us, came as a surprise. 

BUTERIN: I totally did not predict that people would be paying $3 million for a monkey and that this would be one of the use cases of the blockchain.

Ah yes, “paying $3 million for a monkey.” Buterin is talking about a set of N.F.T.s called the Bored Ape Yacht Club. They are cartoon images of apes wearing funny hats and sunglasses. Celebrities like Justin Bieber, Tom Brady, and Paris Hilton have bought and promoted them. Does it surprise you that the creator of Ethereum is also surprised about N.F.T.s? This is worth paying attention to. If you are a blockchain or crypto skeptic, N.F.T.s may represent the purest example of financial froth, of runaway enthusiasm. The first Ethereum-based N.F.T.s were created in 2015 but didn’t get much attention. By 2020, the conservative estimates put total N.F.T. sales at around $83 million — and a year later, at $18 billion.  A lot of that money was flowing to celebrity-hyped projects like the Bored Apes or CryptoPunks. But over the past several months, the N.F.T. market has soured. While the N.F.T. community itself calls it a slump, The Wall Street Journal noted that “the N.F.T. market is collapsing,” citing a massive drop in trading activity.

BUTERIN: Watching the N.F.T. space grow has been fascinating. It’s this big mixed blessing for the crypto space because like on the one hand, it’s really legitimized it and it’s really brought in people who are very different from the kinds of people who were in crypto before the N.F.T. boom. But at the same time, there’s a whole bunch of people going, “$3 million pictures of monkeys? W.T.F.” Personally, I have some hopes for the space, like one of the things that’s kind of excited me since the beginning is this mechanism designed for public goods. If we can somehow get $3 million monkeys where the proceeds go to giving anti-malaria bed nets to people in Africa, that’s an amazing social technology, right? I really want to try to push this toward more of that kind of stuff. We’ll see.

Arianna Simpson from Andreesen Horowitz is more bullish about N.F.T.s.

SIMPSON: It just expanded the type of people who could be interested in crypto.

Simpson’s support shouldn’t be surprising. Her firm invested nearly half a billion dollars in Yuga Labs, the developers behind the Bored Ape Yacht Club.

SIMPSON: This was the first time that a lot of people who had never really gotten crypto — it clicked for them. They were like, “Oh, this is a unique thing that I own. Nobody else can have it. It’s mine. I can move it around. I can do different things with it.”

DUBNER: Do you think that the attention paid to the first big public wave of N.F.T.s, which seems to have very much subsided now, do you think that hurts the long-term development of more broadly applicable N.F.T.s? Or do you think it’s just one of those things that happens in the development of a new technology, and it’ll be forgotten in a couple of years? 

SIMPSON: I don’t think it was negative, nor do I think it will be forgotten. It was the biggest wave of new entrants into the space that we’ve seen. And as we continue to see this technology develop, that’s really important because ultimately for it to reach its ultimate audience, we need to not just have a bunch of crypto nerds. I actually think right now in the mainstream conception, an N.F.T. is a very limited set of things, whereas in reality, what we expect to see is an ever-growing and richer universe of what a non-fungible token can actually be. So you could, for example, represent a membership pass with an N.F.T. Or you could represent a credit score with an N.F.T.

BUDISH: So I’ll admit, my very first reaction when I came across N.F.T.s was like, “Oh, this seems kind of bubbly.”

That’s Eric Budish. He is an economist at the University of Chicago.

BUDISH: My second reaction was more positive. I don’t quite get spending a million dollars on a CryptoPunk, but I think it’s creative and new.

In our previous episode, Budish was the economist who cast shade on the Bitcoin blockchain and cryptocurrencies:

BUDISH: I think there’s some chance that we’re in the midst of a massive speculative bubble that we’ll look back at as sort of a Tulip Mania. 

So why is he more charitable toward N.F.T.s? 

BUDISH: It seemed like at least a genuinely new use case. One of the things that seems neat about N.F.T.s is you can track ownership and provenance really easily. So you can keep track of like, “Oh, I bought this rare Air Jordan digital image, and I just sold it to you, and you sold it to the next guy.” That would be great for concert tickets. It would eliminate fraud.

Budish has done research on the market for concert tickets and other live events. We discussed this in an earlier episode, No. 311; it was called “Why Is the Live-Event Ticket Market So Screwed Up?” So why is it so screwed up? Budish says most tickets are actually underpriced, because artists and sports teams don’t want to be seen as greedy, and they want to keep things affordable for fans. But: if there’s a lot of demand for a particular live event, those underpriced tickets get bought up by ticket brokers for resale.

BUDISH: And then this fervent resale market, where all of the profits from the underpriced tickets, instead of going to fans — go to ticket brokers or go to StubHub.

Which means the average fan is priced out anyway — and the artists and teams don’t even benefit.

BUDISH: I think you have to let artists and sports teams ban or restrict resale if they want to. So, you have to make it possible for Bruce Springsteen to set a $75 price for his tickets and have that ticket be something that you literally cannot resell to another human.

But what if each ticket were an N.F.T.? This would allow the artist or sports team to control that ticket from the moment it’s issued until the event.

BUDISH: You could have a different non-fungible token for each seat in a stadium, for example. If I sell you my ticket, we could confirm the transfer, you could confirm the legitimacy of my ticket.

Not only would this allow the artist or sports team to capture most of the profits, rather than the ticket resellers. It could also help prevent ticket fraud — which, at the recent Champions League final in Paris, played at least some role in a pregame disaster.

BUDISH: The Champions League final: Liverpool versus Real Madrid. About 60,000 Liverpool fans show up at the game, and there’s some mix of fans with real tickets, a lot of fans with fake tickets.

The French government initially claimed that there were 40,000 fake tickets. That number has since been walked back — it was probably closer to 3,000. Still, the fake-ticket problem contributed to the general mayhem around the event; there was also some outright thuggish and criminal behavior; all of this prompted an over-the-top police response involving tear gas, arrests, and even more mayhem.

BUDISH: And they were paper tickets that were easily enough counterfeitable. And so clearly, some kind of counterfeit-proof technology would be useful there. And a blockchain is a natural solution to that problem. A tokenized ticket would allow very easy verification of who owns what. It’s just good data integrity. If I’m buying a ticket on the secondary market, I could confirm that I bought a legitimate one. 

So Eric Budish, an economist who’s generally skeptical about cryptocurrencies, is provisionally enthusiastic about N.F.T.s because he sees their anti-fraud potential. But let’s be honest: There has been a ton of fraud in the N.F.T. market itself. Consider the Bored Ape Yacht Club N.F.T.s. One was recently listed for resale on OpenSea, the biggest N.F.T. marketplace, for $1 million. Hackers managed to buy it for $300,000; OpenSea only offered $30,000 in compensation. Another $3 million worth of Bored Apes were recently stolen in a phishing attack. Plagiarism is also a big problem. OpenSea has a tool that lets anyone mint their own N.F.T.s, which is great for artists who want to turn their own work into a digital asset. But OpenSea admits that this tool has also been liberally used to create fraudulent and counterfeit N.F.T.s. And there’s another category of rip-off known as a “rug pull.” This is the digital equivalent of the old con where you sell someone a piece of swampland by showing them pictures of the new golf resort that’s supposed to be built next door. So how does the N.F.T. equivalent work? Here’s an example: in January 2022, the developers of a new N.F.T. collection called Frosties raised money by pitching investors a video game, a huge digital community, and special merchandise for early investors. They sold out within an hour, raising more than a million dollars. The Frosties developers promptly transferred those funds to themselves and wiped all Frosties materials from the web. In 2021, these rug-pull scams are estimated to have totaled nearly $3 billion. It’s enough to make you think that every N.F.T. is a scam. Coming up: We talk to a real artist who’s launching a real object into the N.F.T. space.

SACHS: To me, it’s all sculpture. The N.F.T. space is another medium, like oil painting.

And: is crypto trading a smart profession?

Christian CATALINI: I would recommend, actually learn computer science or learn economics.

*      *      *

In last week’s episode, we started to hear about a new N.F.T. collection from the artist Tom Sachs. It is a model-rocket project.

SACHS: So the rocket is 9.25 inches tall, and about an inch in diameter.

Sachs is a sculptor, a maker — and a troublemaker. His work can be found in some of the world’s best museums and collections. His interest in crypto goes back a while.

SACHS: I was interested in cryptocurrency about a decade ago when I first heard about it, and everyone talked me out of buying Bitcoin when it was $110.

DUBNER: Who’s everybody?

SACHS: My accountant. My family.

DUBNER: And they said to you what?

SACHS: They said it’s too experimental and it’s too risky because we don’t know what’s going to happen with it.

As of this recording, Bitcoin sells for around $20,000. So, yeah, Sachs has some regrets about not buying at $110. Why did he want to buy back then?

SACHS: Because I started to understand how it worked, the idea of decentralization, of doing commerce outside of the traditional banking system, I understood immediately its potential for changing the world, for having a peaceful revolution, for getting the money out of the institution into the hands of individuals. To not depend on this completely slanted, immoral banking system that makes the rich get richer and the poor get poorer.

DUBNER: Could I invite you to speak your mind a little bit more fully about the banking system?

SACHS: It’s racist and classist. It’s not the way I want the world to be. And my commitment in my art is not representing the world the way it is but making the world the way I want it to be. The most important thing that any of us can do in the N.F.T. space is engage in it. In other words, if you make pizzas, accept cryptocurrency. If you make sculpture, find a way to do it as an N.F.T. And then it becomes real, because money is an illusion. An illusion by which we all live and die, but it works because we all believe that piece of paper that says “1” on it, is worth 1. And the one that says “100” on it is worth 100 — because we all agree on it. And that’s why N.F.T. is working — because enough people agree on it.

DUBNER: But what if I say to you, the fiction or the illusion of money has been around for quite a few centuries now, to the point where all the systems and beliefs around it are so entrenched that you don’t really have to wonder. Whereas with cryptocurrency, I’m conducting zero of my life using cryptocurrencies. And therefore, to me, it’s not “real.” To me, it’s a gated community where the gate is built by the people who stand to profit most from it. Tell me where I’m wrong there.

SACHS: Well, you’re right in that it’s new and not trusted. And trust is built only through time and experience. You’re wrong in that no one’s controlling the gate. The data is spread across the entire blockchain, so no one can go in there and fake it.

Tom Sachs didn’t want to fake it as an artist, either. So he tried to come up with a crypto project, an N.F.T. project, that felt worthwhile. And he did. It’s called the Tom Sachs Rocket Factory.

SACHS: The ultimate purpose of the Rocket Factory is for the studio to engage in a project that’s totally authentic to what it’s been doing.

“The studio” being Sachs’s art studio in lower Manhattan, where he and his team have for years engaged in old-school design and manufacture.

SACHS: The values of the studio that we’re always promoting are the handmade. So there is a physicality to the rocket. We’re really trying to humanize this experience and make it something that’s not staring at a concrete-cinder-block wall all day in the basement, making billions on crypto — but to connect with the real world. Because if crypto is going to work, people have to feel. People have to have an emotional connection with it.

At first glance, the Rocket Factory collection looks like any other collection of N.F.T.s, like the Bored Ape Yacht Club of maybe even Frosties. Last summer, Sachs minted 3,000 model rocket parts; more precisely, 3,000 cartoonish drawings of rocket parts, each one an N.F.T.: 1,000 nose cones, 1,000 bodies, 1,000 tail assemblies. This is all happening via code on the Ethereum blockchain. But in this case, the virtual N.F.T.s also had a physical component: 3,000 actual model-rocket parts that corresponded with the N.F.T.s. And, Sachs being Sachs, the parts were hand-painted with a variety of logos of well-known brands.

SACHS: There are 30 different brands, like Budweiser, Chanel, Trojan, Skippy, NASA, Hello Kitty.

DUBNER: And these are chosen by you?

SACHS: I chose all of these brands to represent who I am.

DUBNER: Which part of you is Hello Kitty?

SACHS: Hello Kitty is the sweetest part of me. She also represents my faith because she’s the ultimate merchandising icon. She has no voice. She is just perfection. She was born in London. She weighs about three apples. She’s someone who’s been with me since adolescence, and I love her. 

DUBNER: Okay, so people could buy these rocket parts and there are two types of rocket they can assemble, correct?

SACHS: Right. So there are three parts, but you could assemble a perfect rocket — three of a kind, like three Marlboro nose cone, body, tail. Or you could do a Frankenrocket, which could be a Marlboro nose and a McDonald’s body and a Budweiser tail.

DUBNER: What would you say is more desirable — a Frankenrocket or a perfect rocket? 

SACHS: I would argue strongly for Frankens. They’re way more interesting because you slam three of these brands together that don’t belong together. My secret formula to success is one plus one equals a million. And choosing just the right-wrong two things to put together is how you come out with magic. 

So, while most N.F.T. projects are purely digital, the Rocket Factory project has a physical component that leads to a process best described as transubstantiation. Because once you assemble the three parts of your N.F.T. rocket — whether a perfect version or a Franken version — you can select a launch date. At which point the Tom Sachs Studio assembles a physical version of your model rocket and launches it a few hundred feet into the sky. They film the launch, the parachute popping, the gentle return to earth. At this point, the rocket owner can claim possession of the physical rocket; they can choose to donate it to a trophy case that is bound for a major museum. Or, if they don’t quite believe in transubstantiation, they can have Tom Sachs shred the physical rocket. So far, out of the more than 800 rockets that have been assembled, only 16 have gone to the shredder.

SACHS: Even though it’s kind of a conceptual project, it has a physical manifestation that’s very important. And in this age of the metaverse and virtual everything, we’re really dedicated to the physicality. 

DUBNER: As N.F.T. projects go, yours strikes me as particularly complicated and robust and involved. And I use all those words as compliments, truly. There’s the physical manufacture, there’s a decorative and branding component, there’s the rocket launching — and quite a bit more. So I guess the question is — why go to all this trouble? Why did the Tom Sachs Studio not just do another Bored Ape Yacht Club series in Tom-Sachs style? 

SACHS: Well, it’s because we’re idiots. Yeah, you’re so right. We should have just gone the easy route. You should always do the easiest cash grab possible. We’re just not wired this way.

DUBNER: So I’ve read that around $30 million in value has been exchanged via rocket-part N.F.T.s on OpenSea since the project started. Does that sound about right? 

SACHS: I think it’s probably more like $50 million. But it depends on the value of Ethereum, which goes up and down wildly.

DUBNER: And how much of that money is actually captured by the Tom Sachs Rocket Factory?

SACHS: 10 percent. And that’s in the smart contract — every time a rocket is traded, 10 percent goes back to the maker and that’s us. 

In a series we did some months ago about the art market, we discussed one of that market’s greatest perversions. When an artist like Tom Sachs sells a piece for, let’s say, $50,000 — and that piece is later resold at auction for $5 million, the artist typically doesn’t participate in that capital appreciation. In other words, they don’t get a penny from the resale. In a way, that makes sense: an architect who’s hired to design a building doesn’t get a cut when that building is later resold. But for an artist, especially a living artist, resales can seem unfair. One major feature of a blockchain-based smart contract — whether it’s for an artist like Tom Sachs or, in an example we heard earlier, for Chris Giancarlo’s grandchildren — is that the contract can be programmed to specify that a given share of a transaction goes to a given recipient.

SACHS: This is the first time ever that artists have shared in the secondary market. And the power of that isn’t just about the money, it’s about being engaged. And it’s not just artists. This notion could apply to everything else. I think we’re going to look back in 10 years at this space and be like, “What was CryptoPunks?” Like, no one’s going to care, because it’s not going to be about art anymore. It’s going to be that the artists brought the utility to other things. And it’s going to be real estate or something. I don’t know what it’s going to be, but it’s funny that it’s art right now. I think we’re going to look back and laugh. 

CATALINI: Hopefully they’ll allow creators, whether it’s journalism, music, media, or art, to retain more of the value of what they create.

That’s Christian Catalini. He’s the founder of M.I.T.’s Cryptoeconomics Lab.

CATALINI: The type of communities that are emerging around digital art could not have been sustained under old technology. And to some extent, all of these crypto assets only have value because people believe they have value, and they build a community around it. So it’s challenging for economists because we tend to give some of these things for granted, but if you talk to a sociologist, they’ll tell you, “Well, of course money is just part of your tribal affiliation. And these N.F.T. communities that emerge are exactly the same.” People converging around interests, passions, and beliefs about the future. 

DUBNER: So do you think that economists — I’m asking you to indict yourself, essentially — do you feel that economists are in a good position to think through all these implications and especially the market designs for crypto? Or do you think that the way you’re trained, you may have too much attachment to the standard system? 

CATALINI: I think you captured the essence of it, which is conditional on economists being able to take a step back and realize that some of those assumptions may be imperfect or incomplete. I do think that economics as a profession has a lot to add to this space. Just to make it more robust, more resilient, more thoughtful.

DUBNER: What would you say are the biggest misperceptions around N.F.T.s?

CATALINI: I think there’s a lot of misunderstanding around N.F.T.s that actually resembles the early misunderstanding around Bitcoin and other crypto, which is like, “Why should these things even have value?” I think what’s challenging with N.F.T.s today is that you do have some actors that come in and just want to ride the wave of attention and speculation. But on the other side, you have very serious founders that are trying to create something different to emancipate creators.

DUBNER: Do you ever feel that the hype or the intense attention on cryptocurrencies as a speculative asset, and now N.F.T.s as something that many people think are Ponzi-ish or speculative or potentially fraudulent — do you think all that attention to those elements of this new technology are hurting the larger blockchain cause generally?

CATALINI: If you look historically, every major wave of technology — they generate some frenzy. Whether it’s railroads or steam engines. So, I don’t think this is any different in that sense. It’s just that we see a lot more digitally. If you had a set of start-ups in any field, and you’d be able to see the value of their equity in real time, you’d probably say, “Oh, wow, solar is extremely volatile.” So what’s unique here is that you almost get to see under the hood. And so that has also attracted, of course, all sorts of market manipulation and bad actors that take advantage of retail investors looking for the next big thing.

DUBNER: What would you say to a 15-year-old who decides right now to give up their education and career path to become a crypto trader? 

CATALINI: Crypto trading is extremely volatile and extremely challenging. I would recommend, actually, if you’re really passionate about this space, learn computer science or learn economics and try to make a difference through your work. That’s going to be, actually, a lot more profitable, I think, than trading. These markets have crushed souls before.

DUBNER: Did you say these markets have crushed souls before? 

CATALINI: Yes,  when it all crashes down to zero, hopefully, they don’t take it too personally.

Of all the noise that’s happened around the crypto revolution to date, perhaps the noisiest moment — the one that really entered the public bloodstream — was an N.F.T. auction in March 2021.

NEWS ANCHOR: The online auction for Beeple’s “The First 5000 Days” just wrapped up at Christie’s. Final sale price: $69.3 million. That’s more than most Picassos, Monets, or Warhols. Now, to repeat, that’s $69 million for a digital token. Stocking. Insane.

Who was it that paid $69 million for the N.F.T. of a digital artwork by a previously unfamous artist known as Beeple? The buyer, it turned out, was a crypto investor named Vignesh Sundaresan, who had recently bought 20 other Beeple N.F.T.s, bundled them together, and offered portions of the bundle for sale via a blockchain token called B20. Sundaresan kept 59 percent of the B20 tokens; Beeple himself owned 2 percent. After that historic $69 million auction purchase put Beeple’s name in headlines around the world, the value of B20 tokens increased 60-fold — and then plummeted. Today they’re worth almost nothing. You can understand why the average person — you, maybe — would consider N.F.T.s, and perhaps all crypto assets, including cryptocurrencies, to be suspect at best, and perhaps a total scam.

SACHS: Well, I think it’s kind of like country music.

That, again, is the artist Tom Sachs.

SACHS: Most of every genre is terrible, but even country music has Patsy Cline, Hank Williams, Dolly Parton, Merle Haggard. Yeah, most of what’s in crypto space is terrible. Absolute garbage. 

DUBNER: I think a lot of people who dismiss or dislike cryptocurrency do so because it feels scammy or hustle-y, as if the primary purpose is to just extract as much ‘real money’ as possible. How fair or unfair is that assessment?

SACHS: Yes, like in anything you can make money if that is your goal. But I can’t do anything about that. 

DUBNER: Well, except try to make good ones?

SACHS: I think all we can ever do is do the best we can do — to have the most integrity as an artist, as a lawyer, as a broadcaster, as a storyteller. It doesn’t matter what you do, it’s how you do it. So, this space is happening with or without me. This train is going. I want to get on it and make the space better because I can. 

DUBNER: Now I’m looking here, Tom, at all the different brand rockets that are represented. So the strangest thing about this chart is I don’t see a Freakonomics Radio rocket. Is that an oversight?

SACHS: Yeah, absolutely. We really wanted to include Freakonomics as a rocket. We love the brand. 

DUBNER: But?

SACHS: The hardest thing about this project, and I took three months to lay out these 30 brands, were a lot of the ones that fell on the floor.

DUBNER: So, Tom, do you think there’s any way you could remedy this oversight?

SACHS: Well, I’ve got an idea.

DUBNER: Yeah?

SACHS: Why don’t we launch a rocket together?

DUBNER: Ah! Yes.

And that’s how we found ourselves heading outside, toward Bryant Park in the middle of Manhattan, with a Frankenrocket representing Freakonomics Radio, although it didn’t go quite as planned.

SACHS: I’m not running. I’m just leaving. I’m leaving. I’m sorry.

Next time on the show, can we finally get Tom Sachs’s Freakonomics Radio Frankenrocket N.F.T. off the ground? And what does the crypto future look like?

Antoinette SCHOAR: Crypto will take over everything and the traditional financial system will just wither. I don’t think that is how the future will play out. 

How about DeFi?

Kristin SMITH: DeFi is moving so quickly we’re not totally sure what that’s going to look like at the end of the day.

And what about Web3?

SCHOAR: We don’t want to be the person who in 1993 says, “Why do we need the internet?”

That’s next week, in the third and final episode in our special series about blockchain and crypto.

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Freakonomics Radio is produced by Stitcher and Renbud Radio. This series is being produced by Ryan Kelley. Our staff also includes Neal Carruth, Gabriel Roth, Greg Rippin, Zack Lapinski, Rebecca Lee Douglas, Julie Kanfer, Morgan Levey, Eleanor Osborne, Jasmin Klinger, Emma Tyrrell, Lyric Bowditch, Jacob Clemente, and Alina Kulman; we had help this week from Jeremy Johnston. Our theme song is “Mr. Fortune,” by the Hitchhikers; the rest of the music this week was composed by Luis Guerra. You can follow Freakonomics Radio on Apple Podcasts, Spotify, Stitcher, or wherever you get your podcasts.

A previous version of this episode included an incomplete characterization of the role that ticket fraud played in the mayhem at the Champions League Final in Paris. That portion of the episode has been updated to include additional context.