NFTs: New Asset Class (Non-Fungible Tokens) - Beginners' Guide

NFTs: New Asset Class (Non-Fungible Tokens) - Beginners' Guide

Show Video

JPEG’s selling for millions... WTF, right.   While most of us in crypto have already wrapped  our heads around the value proposition of bitcoin,   ethereum, and other crypto projects in  this new developing financial landscape, This jpeg NFT manic euphoria is a  lot more difficult for us to grasp. Hello, I’m Crypto Casey and in this video,  we will lay out a simple, easy-to-understand   framework for beginners and experts alike  that will help us see the current value and   potential future value of this new and exciting  asset class: NFT’s or non-fungible tokens. This particular video explanation was  inspired by a Twitter thread posted by   economist and entrepreneur Natasha Che. So  be sure to check out and follow her Twitter   account for more interesting macroeconomic  ideas she applies to the crypto world. If you haven’t yet, please check out  my beginners’ guide that breaks down   what NFT’s are for beginners’  by clicking on the link above.  

You can watch it before or after this  video and either way, you will vastly   and more deeply understand potential new  investment opportunities in this space. This week’s episode is brought to you  by, an exchange with over   100 different cryptocurrencies and  over 20 different fiat currencies. On’s mobile app, you  can buy crypto with bank transfers,   credit, debit cards, or crypto  at true cost with no markups.  

They also have a desktop exchange that  is solely for crypto-to-crypto trading. If you use the link below to sign up  for, you will receive $25   worth of cryptocurrency for free when  you use the referral code “CryptoCasey,”   all while supporting the channel. Also, every Wednesday I conduct a weekly AMA or  an “Ask Me Anything” at So use the link to my one and only  official Instagram account listed   in the description area to follow me and  ask me anything you want, every Wednesday.

Awesome. So let’s explore the value  proposition of NFT’s, or Non-Fungible Tokens. We will break down this  framework into two 2 simple   sections with a few concepts within each section. Section 1: Assets So what is an asset? An asset is just a fancy  financial term that refers to something useful   or valuable whose ownership can be transferred to  another person or entity, across space and time.

It can be something physical like gold,  it can be something digital like bitcoin,   it can be something abstract like expertise,  it can be a financial instrument like a 401k, or it can be anything that  helps you generate income,   like a computer or cell phone, for example. So there are important concepts  we need to understand about   assets. Let’s break them down together. Concept 1: Valuation of Assets The value of an asset or the what an asset’s price  is based on is determined by a few variables: 1) how well they are able  to preserve value over time;   2) how efficiently ownership of  the asset can be transferred; 3) Supply versus demand of the asset;   4) its ability to generate income or produce  cash flow over time, like cash flow from rental   properties or income you can generate using an  asset like a computer or machinery like a tractor. 5) and how risky the asset is, art NFT’s currently  bearing a relatively high degree of risk due to   their speculative nature, while investing in US  treasuries or Amazon stock is relatively low risk.

And 6) liquidity, which is just a  fancy finance term that is twofold:   one, it describes how quickly and efficiently  you are able to convert the asset to cash; And two, it describes the  level of activity in a market,   or how many people are buying and selling  in a market and at what frequency; So, houses typically have low liquidity because  it takes longer to convert them into cash, while   bitcoin has high liquidity because there are a lot  of buyers and sellers trading at a high frequency,   so you can sell it instantly with the  tap of a button, for the most part. Cool. Now that we know what an asset is  and what variables determine its price,   let’s move on to the next concept of assets.

Concept 2: Fungibility vs Non-fungibility Fungibility describes an asset’s ability  to be evenly swapped with another asset   of the same type. So a fungible asset  is something that is interchangeable. For example, a $100 dollar bill is fungible  because, if I have a $100 dollar bill,   and you also have a $100 dollar  bill, we could interchange the bills,   or I give you mine and you give me  yours, and the value doesn’t change. Ethereum and bitcoin are  both fungible assets as well.   One whole bitcoin is no different from  another one whole bitcoin. Same goes for  

ether. One ether is no different than  another ether, as the value is equal. Non-fungible asset is something  that is not interchangeable   and not divisible for the most part. It’s anything that cannot be copied or replicated.  For example, your pet dog is non-fungible,  

because let’s say you have a pet dog, and  I have a pet dog, and then we swapped dogs. Even if we had the same exact type  of dog and they looked the same,   each of the dogs harbor their own unique  personality, memories, and abilities. Real estate like land, houses, and buildings  are also non-fungible assets because no two are   exactly the same or perfectly interchangeable  value-wise. Same as with used cars. And thinking back to divisibility, our pet  dogs, our houses, and used cars can’t be   divided and spread out amongst multiple people.  You can’t buy 30% of a car or half of a house. However, US dollars, bitcoin, and ether are  divisible and have different denominations.   For example, $100 US dollars can be  broken down into smaller dollar bills,   and a dollar bill can be broken down using  quarters, dimes, nickels, and pennies.

Sweet. Now that we understand the difference  between fungible and non-fungible assets,   let’s move on to the next  section of the framework. Concept 3: Store of Value What is a store of value? Well, assets are  stores of value and there are three qualities   that both make an asset a store of  value and the degree to which the   asset is a good pristine store of value  versus a less desirable store of value. Quality 1: Limited Supply Assets with a limited supply are better stores  of value than assets with unlimited supplies.  

Assets with limited supplies include  gold, diamonds, bitcoin, and NFT’s. While assets with unlimited supplies include  fiat currencies like the US dollar. Limited   supplies of assets allow the asset to retain  its value and hopefully appreciate over time.

While an unlimited supply degrades  the value of the asset over time.   The more US dollars are printed into circulation,  the lower its purchasing power becomes. For example, imagine we have one whole pizza  that represents the value of the US dollar.   And then imagine the government keeps cutting   the pizza into smaller and smaller  pieces to try and feed more pizza.

Yeah, so cutting this pizza into one million  pieces is not going to satiate one million people.   Hence the degradation of the asset over time. There is a limited supply of gold and  real diamonds on our planet and also   a limited supply of each that has been mined  and readily available for actual physical use.

While the limited supply of NFT’s  is programmed, enforced by code,   and logged transparently and  immutably on a decentralized   blockchain, which means it cannot be  altered or destroyed for the most part. Nice. Let’s move on to the next  quality of stores of value: Quality 2: Durability Durability of an asset refers to its  ability to retain value over time,   be transported across space, and exchanged  between buyers, sellers, or inheritors.

So diamonds are chemically stable and strong,  making them physically durable. They have been and   continue to be desired by the marketplace because  they are attractive in the jewelry industry and their physical durability is useful in making  tools, like diamond tip drills or diamond edge   saw blades, which represents a more abstract sense  of durability in retaining its value over time. In terms of NFT’s, their transparent and immutable  existence on a decentralized blockchain ledger   makes the digital assets extremely durable  from the standpoint of its ability to exist, because the nature of the  blockchain makes it hard to destroy   while also making it easy to transport and be  exchanged between buyers, sellers, or inheritors. Nice. Moving on to the final and most  interesting quality of stores of value: Quality 3: Social Agreement Social agreement is simply when  a substantial amount of people   agree that something is valuable or has value. Diamonds have formed a ton of social agreement  over time due to their durability, usefulness in   tools like diamond edged saws, and their beauty  and desirability from a jewelry standpoint.

Gold is another example of an asset  that has stood the ultimate test of time   as a good store of value from  a social agreement standpoint   as a hedge against inflation, its  use in jewelry, and in technology. In modern times, it’s actually extremely difficult  for social agreement to form around potential   new digital assets like cryptocurrencies  and NFT’s because it requires a near-perfect   storm of variables coming together  at the right time in the right place, Things like laws, regulations, institutional  recognition and adoption, retail recognition   and adoption, and psychological phenomena  surrounding the new potential asset,   as well as trusted technological platforms  capable of maintaining the new potential asset. So as social agreement of the original  digital asset bitcoin has formed and   solidified over the past decade, it  paved a way for the value of new,   up-and-coming digital assets like NFT’s  to start gaining social agreement. NFT’s have secured and continue to secure the  social agreement quality of stores of values   by forming strong communities that  continue to expand and solidify. Digging deeper into social agreement, there  are some abstract factors to consider in   certain factions of these NFT communities like the  extrinsic and subjective value of any given asset. I break down subjective versus  objective value extensively in   the NFT guide I recommended checking  out earlier because it’s one of the   hardest concepts to understand when  watching the million dollar jpeg mania, but will also likely be the ah,   eureka moment that creates more social  agreement of NFT’s among us all.

Concept 4: Subjective Value So, subjective value is the idea that an   item’s value to a person is dependent on that  person’s beliefs, perceptions, or preferences. Which is why there are people willing to buy a 100  year old printed paper of a Ty Cobb baseball card,   and why others are willing to shell out over $2  million dollars for a football card of Tom Brady. Would I pay any amount of money for those  sports cards? No, because I don’t really   like sports cards, it’s not my thing. But there  is clearly a market for it out there, or simply   a substantial group of people willing to  buy, sell, and invest in sports cards. So clearly within the social agreement realm   there are factions of communities that place high  subjective value on some of these jpeg NFT’s.

But Casey, how is there durability  of a jpeg’s ability to maintain its   value over time when you can simply  screenshot or make a copy of the jpeg? Sure, well we can make that same  argument about having replicas   or copies of famous paintings,  statues, or other types of art. Except in this case, it’s digital,  which when you think about   famous photographers taking photos  that people pay money for, yeah,   I can just as easily find any of their photos  and put it as my computer background for free. So yes, I know it still seems ridiculous  that jpegs are selling for millions,   but in the next section of this framework, we  will go through and illustrate the long-term   macro background that is creating the perfect  storm and environment for NFT’s to exist   and thrive as an investment vehicle. So before you say, ah Casey people are buying and  selling NFT’s to themselves creating false trading   activity, and ah Casey people are using NFT’s  to launder money, and ah Casey it’s all tulip   mania that is headed toward a certain demise, and  ah this will just never work, this is insanity.

Sure, we will have market corrections, but hear  me out in this next section as we explore the   macro backdrop of this framework outlining  the value proposition of NFT’s going forward. Section 2: Long-Term Macro Backdrop Once we understand and accept the current  reality and long-term macro backdrop the new   global financial system will operate within,  everything we’ve discussed so far will come   together and make a lot more sense as far as why  NFT’s will become a powerful investment vehicle. Concept 1: New Generation of Wealth Here are a few things to consider: one,  millennials, gen Z, and gen alpha are getting   older and closer to being the recipients of one  of the greatest wealth transfers of human history. And two, they aren’t interested in physical bars  of gold; they aren’t interested in hanging the   original Mona Lisa in their homes; they aren’t  interested in owning precious gems and stones; the new generation of humans  largely lives in the digital world.  

These currently static jpeg NFT’s will  eventually have other attributes added to them   like the ability to move and interact within  virtual reality worlds and metaversuses, And digital value within gaming ecosystems   have long been proven decades ago  with games like World of WarCraft. And smart savvy business people and investors  know this and see the writing on the wall.   I mean let’s think about it, just this week: 1 - Sotheby’s Brings in $26  Million with Bored Ape NFT Bundle Sotheby’s, a british-founded  american multinational corporation   found in the year 1744, one of the world’s largest  brokers of fine art, jewelry, and collectibles… Why would they auction off jpeg NFT’s of  cartoon apes? Because they are determined   to survive in this new macro environment  that is unfolding right before our eyes.

They know gen y, gen z, and gen a  probably had no idea what Sotheby’s was   until they got into the NFT space, and  they know what we discussed earlier, which is all the wealth in the  world is being transferred to   people that largely have no interest  in Sotheby’s original line of business,   that being real physical art, jewelry,  and other physical collectibles. On Sotheby’s part, this is an  act of marketing, resilience,   early adoption of new digital assets, and  a host of other things that will give them   an edge in an eve-rchanging environment and will  probably help them survive goin forward, for now. Nice, let’s move on to the next concept  of the long-term macro backdrop. Concept 2: Global Asset Shortage If you’ve watched my previous videos, we’ve  discussed how there is a massive shortage of   pristine collateral like US treasury bills,  which is why banks are choosing not to lend,   and why they would rather park their cash  somewhere, in exchange for actual collateral. If you haven’t yet, check out my video  explaining the structure of the current   financial system that breaks this all  down by clicking on the link above.

So what is the global asset shortage? Since the early 2000’s, there has been a  massive shortage of assets on a global level.   Let’s explore why this happened  and how it will continue to happen: The long and short is the available  supply of assets is not keeping up   with the increasing global demand  for assets by retail investors,   institutional investors, insurance  companies, banks, and governments alike. Why is it so? Because the GDP  of emerging markets like China   and India are growing at an exponential rate. What is GDP? GDP stands for Gross Domestic   Product and it’s just a fancy economic  term that refers to the total value   of all of the goods produced and services provided  within a country during a specific period of time.

For example, if a country’s total output  for the year consisted of selling 10 pizzas   for $10 each and performing 5 car washing  services for $20 each, the total GDP,   or gross domestic product for  that country would be $100. Simple enough right? So when emerging markets  like China’s and India’s GDP increases,   that means the amount of wealth circulating  within their countries increases as well. When people, companies, and governments  with newfound wealth start operating within   the global economy, they want to preserve  that wealth through investment vehicles. This exponential increase of demand  by investors with new wealth,   in a world with a stagnant supply of high-quality  assets, has created a global asset shortage.

But Casey, aren’t these emerging  markets creating more assets?   Shouldn’t there be an equal amount of asset  production as wealth is being generated? Not necessarily. Even though emerging markets’  GDP’s are increasing by the creation of more   goods and expansion of new services provided,  they still have trouble creating quality assets. This is because, like we discussed  earlier, creating a new asset requires   a near-perfect storm of various legal, regulatory,  technological, social and psychological variables. Since emerging markets have a difficult  time creating high-quality assets,   the demand for existing high-quality assets  created by more advanced economies like   US treasury bonds increases substantially. In fact, this global asset shortage played a  huge part in the 2008 global financial crisis.  

Mortgage-backed securities were created to try  and satisfy the growing demand for collateral   by basically morphing multiple mortgages  together, chopping them up into pieces,   and reselling those pieces to  investors as “high-quality assets.” When in fact, as we all know, it was just all  garbage debt that was doomed from the start.   But the fact that these new mortgage-backed  securities were accepted and adopted so   quickly without much investigation  into the underlying collateral, illustrates just how much demand for  quality assets for stores of value   and value transfer that existed during that time.

And since the 2008 financial crisis when those  mortgage-backed securities were wiped out,   the global financial system has  still not recovered from the   global asset supply shortage and  it just continues to get worse. One of the most important aspects  of the long-term macro outlook   is the ever-decreasing social agreement  about valuations of traditional   “high-quality assets” like the  US dollar and US treasuries. Regardless of what generation we came  from, people and institutions are losing   faith in the US dollar and US treasuries  ability to preserve wealth and store value. Social agreement is one of the most  important aspects of stores of value.  

As we discussed in previous video,  when the US went off the gold standard,   our country transitioned  from an equity-based economy, where real hard cash from savings backed  dollar to dollar all of the debt people   and companies were using to grow their  businesses to increase economic output. We went from an equity-based to debt-based economy  that uses fractional reserve banking - which means   instead of debt being 100% backed by cash, debt  is backed by only a small fraction of cash. So as the debt-based US economy continues  to go deeper and deeper into debt   and continues to print more US  dollars to circulate in the economy, the value of the US dollars slowly decreases  over time, which destroy important qualities   that make assets valuable: the ability to preserve  value and the social agreement surrounding it,   which is arguably the most  crucial feature of any asset.  The slow degradation of trust  in traditional financial assets,   in the midst of the largest global asset  shortage in history, and ultimately as wealth   transfers to younger digital-savvy investors,  paints the current long-term macro backdrop. What does the confluence of these  realities in the long-term macro   backdrop lead to? Well, much like how quickly  mortgage-backed securities gained popularity, any new asset class that can prove to do what  high-quality assets do best, which is what we   outlined throughout this video: store and transfer  value, will grow substantially and quickly.

So you can see how, in this context, the  success of crypto asset classes are inevitable.   Specifically, let’s talk about  the NFT crypto asset class   and how it will grow and become quality assets. And here’s one of the most exciting  aspects of NFT’s as an accepted, adopted,   and investable digital asset class. Remember how we discussed the difficulties  emerging markets face when creating   high-quality assets? Well, with  the nature of the blockchain   NFT’s are ultimately created, transferred, and  stored on, the creation of assets is democratized.

Basically, everyone, regardless of your country,   now has the ability to create durable, limited,  verifiable, digital assets that can be easily   owned, stored, transferred, bought, and  sold on a global decentralized database. So sure, they are just jpegs for now, but  the jpegs and people behind them create value   through their stories, provenance, lineage,  and social agreement within communities. NFT’s will and currently are  taking the digital world by storm,   bringing rich, creative, and interesting  features to the digital asset realm. Awesome. Thank you so much for watching and I hope  this video gave you more clarity about the   potential future value proposition of the  exciting new digital asset class of NFT’s. If you enjoyed the content, please  make sure to like this video and   subscribe to my channel for more crypto content.

So what do you think about these crazy jpegs now? Can you see how NFT’s could become a vehicle  investors use to preserve and transfer wealth? What do you think about our  long-term macro backdrop? Let me know in the comments  below. Be safe out there.

2021-09-17 12:50

Show Video

Other news