NFTs and the metaverse…

They’re two of the biggest tech trends we’ve put on your radar over the past year.

That’s because they’ll change what we think of as the “internet” forever.

And if colleagues Jeff Brown and Teeka Tiwari are right, they’ll unlock fortunes for early investors.

But what the heck is an NFT (non-fungible token)? And what does it have to do with the metaverse?

Those are two of the questions I (Chris Lowe) put to Jeff and Teeka yesterday here in Washington, D.C., at the third annual Legacy Investment Summit.

It’s where our experts and about 350 subscribers get together to think about the big themes shaping today’s markets… and how we can profit as investors.

So instead of your usual Friday mailbag edition of the Cut, I’m sharing with you an excerpt from that conversation.

If you’re interested in NFTs and the metaverse… but still haven’t fully wrapped your head around them… this is a great introduction.

And don’t forget, you can email any questions or comments you have about it to [email protected]. I love hearing from you and your fellow readers. So don’t be shy.

Q&A With Jeff Brown and Teeka Tiwari

Chris Lowe: Jeff, what’s an NFT?

Jeff: An NFT is a digital asset that holds value. It’s something we can trade. We can track ownership on blockchains.

I think one of the biggest misunderstandings about NFTs is that they’re just digital art. That they’re just pixels on a screen that are somehow worth millions of dollars, and everybody involved will lose their shorts.

If you can get your head around the fact that the collectibles market is worth hundreds of billions of dollars… there will be a next generation of collectables market that may take this digital format. And they can also have physical attributes.

A great example is what Nike (NKE) is doing right now. You can buy digital sneakers, which sounds silly. But when you buy that NFT, Nike will ship a real-life version to your home.

We can apply NFTs to events. You can buy access to a favorite band. In fact, the band Kings of Leon has done this already. Its NFTs give people access to a concert, front row seats, and entry backstage every tour.

So it’s not just about pixels on a screen. We’re just scratching the surface with how we can use NFTs to transact, and for us to exchange, experience life, and receive physical goods.

Chris: So Teeka, what is the metaverse? And how does that fit in?

Teeka: When I first saw the NFT trend take off, I dismissed a lot of what was going on in the space and had a very boomer attitude about it.

What turned me around and made me understand the value of this tech was this new idea called the metaverse.

The metaverse is just another way of interacting with the internet. But instead of interacting in a 2D way through your phone or computer, you interact with your whole body. You put on goggles and see a world around you. You can touch things and search for things. You can speak to friends via digital representations, or avatars.

A computer mouse is the functional equivalent of the metaverse. It lets us interact with the computer through this screen. Anyone who’s played role-playing games, like World of Warcraft or Second Life, those were early iterations of what the metaverse hopes to be.

The metaverse will be a place you can actually go into and experience with your eyes, body, and sense of touch. And you’ll be able to interact in the digital world in a way that you never have before.

Look at the way we interact with screens now and amp that up.

Instead of getting dopamine boosts from likes, you’ll be in this world… You can wear special gloves or a special jacket that has feedback on it. Somebody hugs you and you feel it. Somebody kisses you and you feel it. Your brain won’t be able to tell the difference between the real thing.

I got excited about NFTs when I realized the world will move to this. We’ll spend an inordinate amount of time there. People spend hundreds of billions of dollars a year, and a massive amount of time, showing off in the physical world. Whether it’s a truck, a car, a watch, a suit, or a pair of sneakers. In the metaverse, you prove the digital watch you have on is the real thing with NFTs.

NFTs provide immutable proof of ownership. Right now, art is the primary articulation of that tech. But that’ll expand. If you like a designer and they put out furniture for the metaverse, an NFT will prove that’s their furniture, not a knockoff. Same with everything in our physical world. The metaverse will spawn a whole new economy.

Chris: Thanks, Teeka. Jeff, what else can NFTs do?

Jeff: There are the two uses I mentioned earlier. We talked about Nike’s sneakers, where you also get the physical object in the mail. And we talked about an event-based application for NFTs, where you get access to an event or series of events.

Another example is a project called STEPN.

It’s a new application of NFTs called move-to-earn. This company produces virtual sneakers that let you earn through walking, jogging, or running.

There’s an upfront cost to buy the sneakers. Then you get paid every time you use them. You have to repair them after you use them a lot, so that costs money. But they can earn you $50 to $200 daily. Quite a few readers have written to thank me for teaching them about this platform. As they make more money, they buy better sneakers with better earnings potential.

This NFT application incentivizes action. This can be a healthy activity, a contribution to a project, writing software code, etc.

This is accelerating adoption and bringing more money into the blockchain industry and crypto space.

Chris: Both of you, what are some ways people can profit from this trend? How does this translate into something you can own in a portfolio?

Teeka: Outside of getting deeply involved in NFTs, which is a lot of work, the next stage is looking at projects enabling this tech. So platforms and people who are providing the picks and shovels, or tokens that are supplying liquidity and bridges across these networks.

It’s very early in this space. There will be booms and busts. So if you feel like you missed the NFT trend, don’t worry. We’ll have a crash. Then you can buy things much cheaper.

And some people who will transform this space are in grade school right now. So this is a long trend.

You’ll have a lot of opportunities to participate.

Jeff: Especially for all of us investing in, as Teeka said, the picks and shovels.These types of projects will win no matter what happens to art fads like Bored Apes or CryptoPunks. The price of those assets will go up and down, but as long as people are minting and trading more NFTs on these projects, they’ll do well. The underlying cryptos for those protocols will also appreciate in value.

Chris: Teeka, you’ve written about Ethereum, the blockchain behind blue-chip crypto ether (ETH). Would that benefit from NFTs?

Teeka: Yeah. Also Solana (SOL), Ethereum, and Binance (BNB). All these major players will benefit.

Jeff: I would add Polygon (MATIC) to that mix. It’s an up and comer in the NFT space.

Chris: Jeff, is there anything you have your eye on that’s coming up that we haven’t understood well yet?

Jeff: One of the most interesting things happening in the industry is the more advanced metaverses. Perfect examples are things like Minecraft or Roblox. If you’ve got kids or grandkids, they know what these platforms are and what these worlds look like. If they play Fortnite, that’s a metaverse that doesn’t have blockchain tech yet. These companies are working on bridging that gap, because they see people spending more time in their metaverses. That means they’ll make more money.

Some of these companies, like Roblox (RBLX), are publicly traded. And more will be. Coinbase (COIN) is launching its own NFT marketplace. It’s one of the heavyweights in the industry in terms of exchanges. So there are stocks you can buy today that benefit from this trend.

Chris: I think it’s important to note the overlap between blockchain and the metaverse. Facebook/Meta (FB) CEO Mark Zuckerberg said Facebook would spend $20 billion a year and become a metaverse company. But I think, Teeka, there’s the Facebook idea of the metaverse. And then there are metaverses built around blockchains. Am I right?

Teeka: Yeah. Zuckerberg’s dream is owning the metaverse, but he won’t. Thank God. These worlds will be on public internet chains that everybody can create on. They’re open and decentralized. That’s exactly what you want.

Chris: Last question for you, Jeff. It blew my mind when I heard people are spending hundreds of thousands of dollars on digital land. How does that work? Do you think it’ll stick around?

Jeff: It’s not a fad. It’ll increase in value. As Teeka mentioned, we’re replicating our real worlds in many metaverses. To participate, we need space. You have to invest in this real estate to build a business, a storefront, a house. You have to invest not only in the land, but also in developing it.

I was really ahead of this. At my Day One Investor research service, we fueled a $75 million capital raise in what was originally the Republic Realm. It became Every Realm. It’s the most successful Reg A+ deal in history. And this caused venture capital firm Andreessen Horowitz to invest in Every Realm.

We made it happen. So thanks to all who participated.

Chris: Thank you both for speaking with me today.