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What are Non-Fungible Tokens — NFTs?

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What are Non-Fungible Tokens — NFTs?




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This is one of our Subject Matter Expert interviews, where we try to bring you some specialized knowledge. Christian Flasshoff (https://www.linkedin.com/in/christian-flasshoff/) was a founding member of the International Token Standardization Association (https://itsa.global/). In this interview, we talk to him about what NFTs are and how they may impact the music industry, the art market, and many more aspects of life.

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The International Token Standardization Association — ITSA


The ITSA is an international organization, headquartered in Berlin. Cryptographic tokens running on DLT systems will soon form an integral part of various major economic sectors (e.g. financial markets, information and media, manufacturing and trade). As such they are going to provide utility and value in many different forms to business and society as a whole. Moreover, cryptographic tokens are also on the verge of representing a recognized institutional asset class. Yet, the current token markets still lack a tangible and holistic framework for the identification, classification and analysis of different token types, which leads to economic, technological as well as regulatory uncertainty and a lack of transparency for all players involved.


With the objective of addressing these shortcomings, the International Token Standardization Association (ITSA) e.V. aims at implementing comprehensive market standards for the global token economy.

The International Token Standardization Association (ITSA) is based in Berlin and has more than 100 associated founding members.

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The Video Interview is set to go live on Friday April 2nd, 2021 17.00 CET (Frankfurt / Paris / Zürich / Milano)



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Transcript

Intro

[0:00] Music.


[0:08] That I owe you were podcast and YouTube blog covering the German startups.With News interviews and live events on welcome everybody this is Joe from startupradio your startup podcast and you to block from Germany you may be surprised today’s FridayGod Good Friday and

Christian And Itsa

[0:31] it is not normal that we are publishing on a Friday but this is a special day shortly before Easterit’s a public holiday in Germany meaning a bank holiday in other countriesplus they was all the craze in non-fungible tokens recently and therefore I got an expert here on board a member of the.


[0:55] It’s a Christian how you doing and can you tell us what it’s a really is and what it means yes.


[1:04] Thank you so much for having me here it’s a short name for a long for longer name which stands for international talking standardization this is the ocean,which is a basically a nonprofit organization that brings together players in the blockchain see and tries to establish a standard for.Four tokens that are around in thein the in the space to have a one standard of token IDs and be able to differentiate between different kinds of tokens and get to just bring some,some more standard into this into this field and it has several members companies but also people like me who are just interested in the field and therefore contributing to this.I have just been checking the website because you guys are headquartered here in Germany in Berlin and I already found a full interview Partners any block Analytics.Bond to bid Wala mining kobato main incubator and a few more with and persisted kind of course and a few more you know from our new so it’s like almost,all the people get together in Germany’s to standardizetokens usually they would be interested in standardizing security tokens I assume.


[2:27] All kind of tokens I think security token is just one one topic that has definitely from interest especially for investors but also just in general this is the association helps to have one United view on,how severe or deregulation of tokens should be done and then be able to for example proposed this idea to politics and so forth and it’s not just it’s not just security tokens enough today it’s,to just bring more light into the into the market and yeah and that’s.That’s basically it so it can be something like a utility token that is just used for specific service it could be payment token that is,typical Bitcoin example but also just as you mentioned this is security token,which is used for sto security token offering and other activities and basically has a database.Where we can members but also non-members to some extent can look at the Pacific International Tolkien identification number,the eaten and then being able to identify from this token what is the class of this and being able to.


[3:38] To use this for analysis or what the purpose of getting transparency in the market.I see and people who listen and watch this channel on a regular basis they know I’m a little king of deters anditin or eaten here will be something similar to the icing where you International can identify Securities and many can look it up everywherewith the same idea am I right exactly that’s exactly what it is and now from our D to back a little bit to what we’ve been talking about,

Non-Fungible Tokens

[4:11] the non-fungible tokens let us first talk about what fungibility actually means because.I do believe a lot of people say out there are looking and if T is fungibility what made that mean.


[4:28] Yes so nfts it stands for non-fungible token and as you said the important work you see actually what does fungible mean.


[4:37] And fungible for example is something that is single unit but it’s identical and can be exchanged for another unit.I think the the biggest fungible token or Essa do we know is that I think the twenty dollar bill or $10 bill where we now every child inaudible looks the same feels the same and it’s worse the same,money and into the crypto world this would be for example a Bitcoin which is fungible which can be exchanged and is identically the same.That is the for example like a stock of Citibank of a dime that whatever is out there is one you buy one you get exactly the same they are fungible yes exactly.And this is a concept we use basically basically every day and then if we if we look at the.Other part of the words if we look at nfts.They’re not like hundreds of stocks of a specific kind of hundreds of.


[5:40] Twenty dollar bills that’s just one unique token and this uniqueness makes nfts special and allows.

Nft Use Cases

[5:48] Yeah IDs and use cases they would not not be able to afford to to represent,at the first moment when I understood what an nfts I thought what made this be useful for.Then I realized it can be like the digital twin the digital incorporation of something unique and will always comes to mind is like any type of artwork made be physical maybe digital right yes.


[6:17] So if it’s you you mentioned the virtual digital digital twin with just,which is one version of saying we have an art piece that exists in the physical world and you just have a digital representation of this piece and then being able to trade it and to transfer this asset,I think that is better step one if we think a little bit further and think about our current roles we are most of our life is digital these days so we don’t.


[6:44] Always have physical assets that are related to so we can also just have to be using social media channels like Twitter like,Instagram and other where there’s only a digital representation of an image or,or tweet or so forth and this can then be kind of stored in one,unique and ft and then can someone can have ownership of treat for example or as he said in the art world we have a lot of digital artists whowe don’t paint think they’re sitting on a they’re going to end up in museums or in your living room,they they just producing digital art which only exists on your screen and that is a way of actually storing this ownership,and then being able to trade this ownership to someone else.It’s as I said it’s not necessarily limited to digital ownership digital art digital artwork inany type of form but it would be also applicable for example for an impressionist painting which could be.


[7:48] Like incorporated as an is incorporated right word as nfts.


[7:54] Yes so it is that’s that is in of the day the question what your they’re not really limitations to what you can represent it in Ft I think your limitation is your mind.Because you can you can come up with any concept you can think of and as long as you find someone in the market.


[8:11] Agrees for this is unique and this is for something you will be able to sell it in stored so you can you can.Say okay I have adjusted,kind of a digital ownership often physical art piece of whoever owns that token that owns the odd piece and it just is stored in some kind of Museum or or some physical location and you just have the ownership and it’s just recorded in the chain.Or you could also say that it is not directly the ownership itself so if you look into into tweets for example,your end of the day not owning the tree to Twitter still has that tweet on their on their platform you just have a signature from the from the creator of that tweet.Who then says well I created the street and I I will I will give you a notice in Ft which is the representation of the street,and you can own this on the street which end of the day is the belief into that tweet and into belief that the street is unique and then can be traded,which is a which is an interesting concept and hard to it’s not always possible transfer from the physical to the digital world.

[9:19] But as you said before yes it’s can be physical and digital be before we get to a little bit,

How To Use Nfts In Business

[9:28] how you could apply this like in a business sense and the impact for example I see there will be big one on the Art Market before that let us get a little bit intothe technique AlecTC just a tiny bit the people out there that know that the highest coding level I’ve ever achieved was Visual Basic for applications so we not going to take a deep dive here and II do believe that’s also not necessary you talked about two things I would be happy if you could tell us a little bit more aboutone of them was the chain so basically is there like already a standard,plot shape for nfts out there or are there hundreds or thousands or if is there a blockchain for each nfts and then you talked about.The marketplace and my second question would be are there already standardized marketplaces out there,definitely sir so great questions and coming coming to the first to the to the blockchain technology itself.Let’s let’s dive limit into into history minutes.


[10:37] Two and a half years ago let’s call it history in in the blocks of all that over his history but.The standard was started on this theorem chain so there are several several yeah draft or suggestion for what kind of standards for tokens that can be on the theorem chain and one of them is the ERC 721 standards.And this standard just basically covers the functionality on an on and off a Nifty token and since this standard exist.So the basically the blockchain community in the ethereum community great yes that’s a good way of representing such non-fungible assets on the on the on the chain.


[11:20] It has become it has become stone has been used in several applications.For example the first application was the the crypto kitties which is basically a random generated.Cats that’s that have some functionalities that’s basically it and it’s been traded has been quite popular across composite Community but that was the first application which was built on the theorem chain.


[11:45] And since then is the theorem has been the standard but since it has drawbacks in terms of number of transaction,and we know that the gas price to process transaction is quite High these days due to the proof of proof of work.That is happening so there are several other change that use there are sometimes specifically built for nfts for example the flow chain the Matic chain,and then more small Pacific change that focusing on very specific use cases.Did I used to and even on top of the theorem itself you can also have kind of your own tokens and coins that then represent on,apis like a specific way of presenting these nfts so there are not thousands of chains but,they’re probably at least 50 deaths 5200 but I would say the most used are below below 10 and buy used most used in terms of volume it is still the theorem chain.Just because it started there and it used to be the standard but slowly we are seeing more and more Technologies coming.Popping up and kind of solving issues that if the Orion has experienced for for nfts and we always need to bear in mind is theorem was not.


[12:59] Invented and built our host is on the whole purpose was not in Ft it is just one application that is built on top of it and that’s why it also has some drawbacks and these drawbacks are solved by.


[13:12] It’s a competitors and we will see in the future that is compared us will gain more and more traction and might even suppress the theorem chain attempts off.Numbers that someday.And the marketplace don’t like it that’s it and that’s where that’s where everything comes together and and of the that is also.


[13:32] Where’s decided which chain is being used right so at the beginning Marketplace is usually just use this theorem chain but slowly adapting other chains to integrate so what these Mac Marketplace are doing.So let’s take a step back and look at the architecture for nfts the chain the blockchain the beginning then we have an NFC token contract and then we have the actual nfts.We have kind of three hierarchies or three level of hierarchies and if you’re opening Marketplace or if Marketplace the out they need to First decide okay which change of want to include let’s say including all this theorem.Contraction from the theme chain then you need to kind of find this specific contract.That for example covers one Pacific Pacific use case or as yeah for one case and then you have the the tokens itself.That you can access on the specific.Chain and contract and there are several several Marketplace Open Sea for example is the is I would say the biggest one then you have variables which is for.For more crypto Arts.


[14:40] And there are many many more and they’re popping up each day the popping up new marketplaces and some of the marketplaces then specify on just.One Pacific blockchain technology or one Pacific chain as I said before because each Marketplace need to decide okay what time to invest into.Developing and kind of including a new chain,make it a sensible have a nice user interface and so forth and that is obviously in trade-off between development and profit enough today,and if we if you look at from a VC perspective on to this we can see that there has been some some quite.Yeah some quite substantial Investments be done in the last in the last month and last month in plural and yeah we can see that some VC money is for example 23 million was raised,to open sea develops race 11 millions in a funding round so we can see there’s also the VC capital is flowing into these,into these marketplaces and then we will enough today see who has the most funding and has the best developers and can integrate all of these.


[15:52] Blockchains in the user friendly way what I had in mind when I was.Starting to grasp what nfts are with like for example Christie’s and Sotheby’s they would be just more than happy to have an nfts.Digitally delivered together with the real artwork because it also helps them to verify that it’s the real artwork so basically I do believe there are also like.Players at one point in the future entering the market if they not already have or in the first steps to do so that would bring me to just another topic because the Art Market it’s like.


[16:37] Zillions of awesome artwork less awesome artwork out there wannabe awesome artwork and.Everybody has their own opinion of it and that’s totally fine but can you see like.


[16:53] One two three years down the road that there will be an impact on the Art Market because my understanding is that they’re very specific,painting steady by to hang above your Europa encampment if you have.


[17:10] Picasso painting worth millions you don’t want to forget dear open fire but that’s justdid general idea but there there’s also artwork that is bought and sold just for investment purposes and usually the item stays at something like a free Harbor like a tax-free,interstate between different countries where doesn’t have to be taxed and if you have it in a very safe,place in such a free Harbor then it would be much easier to trade them via nfts you see any impact there,yes exactly I think there’s there’s going to be a great movement and.A lot of impact on to the Art Market when we’ve already already seen it you mentioned Christie’s one of the largest auction houses,they had an auction of the one picture and it was auctioned like one digital picture so one that only existed as an mft which is,basically 5,000 pictures over the picture done everyday one picture over 5,000 days so picture,consisting of 5,000 smaller pictures and this one was auctioned for 70 million u.s. dollars.


[18:24] Which is which is an enormous amount of money if you think of digital art which was not possible before so I think there are two two ways one way is we opening.Completely new marketplaces and completely new new customers to digital art the digital artists.


[18:42] For example over such auctions over like this established auction houses plus there’s a possibility of you don’t do not need to physically.The painting to invest into the right so you can own an nfts ents the ownership of this painting and then you can store this a Nifty in your wallet it safely,and you have another storage provider on the other side who stores the painting and then you can trade it and yes have a.Have a different way of presenting it or if you want to go one step.Further there was also one very interesting example of of a burnt picture so it was a famous picture that was just burnt into ashes and then,this burnt picture which doesn’t exist anymore was then stored on nfts which is obviously in Crazy example and it’s probably not to normality we’re not going to burn all of our,or famous art pieces but it just shows that there’s really no limitation to imagination as long as.You have something that represents value to another person it can be used as an mft and can be used as an also to invest money and hope it’s going to go to increase in money or just store it,what I had in mind I used to work a lot in capital markets and asset management would be to have actually a fund and then move by with investors money nfts and so.You also have again a type of most likely Hedge.


[20:09] Art fund that will be something I know that I’d love is out there with just hate it but.That’s one possible way a lot of artwork will go they get when touch would be if you have the nfts,actually in a fund you can have like the economic benefit in the fund but there is no reason against it as long as it’s stored safely to have the artwork that belongs to a hedge fund display in public museum right,yes exactly so we are opening completely new way of ownership into the into the art world.And also the we going to gain we can gain more transparency about who actually owns Which picture because if we are,for recalling some of the bases on the most of the blockchain Technologies out there have been used our public blockchain,so everyone is able to to have a transparency okay one was this nfts created who was a strated for and for what price that is open to the completely,new way of gaining transparency over over artwork and how it changed ownership.So I think this is also one one definitely benefit for having nfts and,we may add that this nfts in though it sounds totally crazy it’s just a contract it’s like a physical it’s like a digital contract for,an artwork physical or non-physical and basically it’s a contract so how.


[21:37] Would you think it will be used in the future for example in nfts owning,like a digital song like a digital or physical artwork and then you can basically proof it’s yours and you can cash in the royalties you see something like this in the future,yes I think that is seemingly very very good point of the ownership part so we’re giving me giving having the possibility to give the artist of some.Music piece or even videos or whatever we give the possibility to actually.Half the artists owning it and being able to retrieve volte-face and we are we’re also seeing like on the.On the market and say we’re seeing who is backing for example volume music is a big backer of nfts and has already invested money we are also Rumors in the in the new stats.The acquisition from from tidal that square because explaining to to buy.


[22:41] By title is the company is one step into the nft world for for music artist right I mean Skipper square with having one of the largest publicly traded Bitcoin reserves is definitely interested in that topic.And therefore these are all business models that are completely new to us so basically when I when I would then listen to a song I would be able by just.Listen to it would be guaranteed and our everyone could see or could kind of have the transparency that’s there actually was a royalty fee paid to that artists and everyone can see,what royalty fee was paid and we kind of overcoming this issue that there’s kind of a company like Spotify Apple music or so forth between us who has been deciding who.Who are these kids which Cuttin no but everything’s going to be transparent and that that will change the or has the potential to change for example the the way we haveso we share loyalties in the music industry last I can see in the future for example that musician is very happy had enough Crazy Life and wants to retire and put.Albums or see single songs into nfts auctions them out and retires on the money and usually like we know most of the musicians they will be back making music in like five years down the road.


[24:00] Exactly and we have seen the first nfts like being sold already.Kings of Leon has its first album published on on an 8 ft and it is not just a Nifty it’s kind of a combination of the tea and physical world so you can,you can buy or could buy it’s actually already over you could have bought one of the limited number of,golden and if these which end of the day are you can download the songs of the new album and you will also get some kind of physical.Memory of this moment and then you’re the owner of this nfts you can you can trade it.And you have this kind of special connection to your to your favorite band and that is not just,this is something that already exists in the physical world right everyone everyone wants to have that hologram,bye-bye your biggest Idol so why don’t have it on nfts where you can share this online with that is to show how that’sthat’s that’s where we got my signature I’m owning one of the hundred limited albums for example so if already seen.


[25:07] Use cases and I think the more and more we mature in this industry we will see plenty of them or more of them coming up in the future,let us touch one final topic as we said and ft is just digitally Incorporated a contract.


[25:26] Are there already lost out there that this specifically as nfts is enforceable or do you have a private contract and wherever you want to enforce it across the world you have to deal with the local legal system.I mean there’s no there’s no phone no specific nfts regulation writer says this is an ft and that’s how we how we treating it for example I said Lincoln,security token where where we had laws in place and we’re able,to have transaction for everyone it’s sure that this also also legal and we’re doing here since we’re still the beginning it is there’s no clear rules but having said this we already have regulations in place for the.For the blockchain crypto Market in general right so.


[26:09] For example in order to buy a Nifty you need to have a cryptocurrency and how are you getting a cryptocurrency well you need to go to One exchange and is exchange has kyc and money laundering.Regulations in place and this kind of checking your identity before so there’s kind of this entry point at the market is limited Limited.And then it’s it comes to the discussion what is actually an f t is it nfts utility token because you have the ability to use the Pacific.Picture or having access to to I don’t know if you if you do some some backstage tickets to a concert which are stored in nfts and of be utility you can have access to it,or are you actually talking about some kind of acid you’re storing and then if you would Stone acid you would come always into this discussion of.Do you need a custody license to actually run one of these marketplaces,and to be able to store or to kind of have the have the private key to end of the day access This Disaster then you get into the custody that discussion,so think it’s going to be an interesting discussion to see what Regulators are thinking about nfts if they’re going to push it into an already existing category or if they say well this is such a special or.It’s kind of because it doesn’t always hundred percent overlap with existing regulation just has partly overlaps so think it’s going to be interesting to see.If there’s going to be kind of Pacific and if the regulation or if it’s just going to be kind of adapting.


[27:34] Well being being squeezed into the categories are already out there and then,fairy use Katie for example take the use case of art trade art auctions right we already have regulations in place which are which are little bit different from what we are currently experiencing on the on the market itself.For example if you want to sell an art piece in Europe and you want to do this over an auction which are most of the nfts are sold open auction.You need to also ensure Pacific money laundering requirements when you always have to show them but here some more some more specific ones if you have our pieces over 10,000 yours.And these are things that are currently in my opinion not hundred percent in place.And we solve it the biggest auction from Christie’s that’s this auction itself was actually done of chain so it was not done on the Chain it was just.The the ownership was transferred but the ownership was not transferred by an auction mechanism it was the auction was done offline and my my guess on this is this is due to the current regulation and the special kind of,money laundering regulations for house in the in the in the.


[28:42] Good answer for really interesting question I hope to have you back at one point and talk a little bit about how the nfts market evolvedthank you very much so forth for all these shared wisdom and everybody would like to learn moreweíll have a lot of links down here in the show notes wherever you watching this you’re listening to this podcast go down here there is a link to our blog post and that we maintainall the Karen links thank you very much Christine was it pleasure having you.


[29:16] Thank you so much for your time if you are a professional looking at the European startup scene Germany is a place you cannot.


[29:25] Music.


[29:35] Each week most likely you have never heard or read anything only startups before in English but you will in the future be ahead of the curve And subscribe to.


[29:46] Music.


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