“Computers are useless,” Pablo Picasso exclaimed more than 50 years ago. “They can only give you answers.” No doubt he would roll in his grave at today’s alliance of computer programs, tech companies, and digital artists banding together to create non-fungible tokens (NFTs). It’s a rapidly evolving and potentially very risky world for filmmakers, producers and others looking for new ways to raise funding, but it should be approached with caution, research and a good look at recent history.
NFTs – in case you need a reminder – are digital works of art and images, often broken down into bite-sized tokens, that rely on blockchain technology to prove ownership. The explosion of interest and speculation surrounding NFTs and the broader cryptocurrency craze that has been heating up over the past decade has now imploded spectacularly over the past six months, wiping out more than $2 trillion. The bursting of the digital asset and decentralized finance (DeFi) bubble has drawn acute attention, but also pain for millions of investors, as more than 16% of the American population had bought into the crypto craze by mid-2021.
While all of the people interviewed for this report had no problem with the underlying robustness of blockchain technology (essentially a digital ledger that is duplicated and distributed across a network of computer systems), its effectiveness depends on the purpose for which it is used becomes. And while blockchain and cryptocurrency are two distinctly different technologies, they are inherently connected. Cryptocurrency works through the blockchain as it is also a decentralized, digital system but designed for and enabling the trading of digital or virtual currencies.
Among the many crypto skeptics is BlackRock founder Larry Fink, who quipped in 2017 that “Bitcoin just shows you how big a demand for money laundering is in the world.”
Digital asset evangelists like Silicon Valley tycoon Marc Andreessen, who is responsible for backing several crypto startups, famously made a revisionist claim that “any failed idea from the dot-com bubble would work now.” The recent bursting of the economic bubble does not confirm Andreessen’s theory, as crypto underlying financial constructs, let alone currencies, has fallen like dominoes, never to see the digital light again.
Things can get tricky even when currencies are designed to provide stability, as in the case of TerraUSD and Luna. Terra was valued at $1, which in theory it wouldn’t go below as it was held at that level by its sister coin Luna. When the Terra price rose above $1, investors could decommission Luna coins (a practice known as burning) and exchange them for new TerraUSD coins, bringing the cost back down to $1. Luna’s price should increase as coins become increasingly scarce.
However, the system only works if Luna has actual value. For a period after its launch in 2019, the price skyrocketed, in part due to an aggressive offer to pay 20% interest on savings held in the currency, peaking at $120 in April. But once the crash hit, investors started taking out their money to cover losses elsewhere… and Luna collapsed. This set off a “death spiral” as people converted Terra into Luna, driving up the price of Luna. Each round of redemption just saw Luna fall lower and lower. In just a few weeks, the value of the Luna coin fell to fractions of a dollar. The whole game was over.
“Whatever the fate of decentralized cryptocurrencies, forms of crypto and blockchain technology will remain,” says Eswar Prasad, author of The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. The challenge is diverse, but calls for sophisticated regulation. Here’s the rub: “When an industry cries out for regulation, it typically craves the legitimacy that comes with it, while trying to minimize oversight. The biggest risk regulators need to guard against? Giving the crypto industry official imprimatur while subjecting it to light regulation.”
It’s a bewildering conundrum for filmmakers flirting with the market. “Let’s face it — there’s a good reason the celebrity-driven crypto and NFT scam market has collapsed,” says Oscar-winning writer and producer James Schamus. “To paraphrase Matt Damon, ‘fortune doesn’t favor the gullible’, which may be why the average NFT selling price has fallen by 92% over the last six months. But all things considered, there are still potentially legitimate uses for some of these technologies, including perhaps digital rights management, royalty and leftover tracking, and more. As with any hyperfunded derivative commodity, there will still be speculators and gamblers and crooks pumping up the markets for special price-for-you-certified-unique-digital-what-stuff-lookers – but I would let us take advantage of the potential don’t write off these technologies just yet.”
Taking Schamus’ cautious positive note one step further, delving into the terrain underscores the strong intersections between NFTs and the world of video games, rather than directly to live-action films and television (although animation is another matter). “Video games have a clear utility because buying NFTs is on an emotionally driven, first-person investment basis,” says Web 3.0 blogger and digital entrepreneur James K. Wight. “The clear message is that you buy because it’s fun and gives the user a sense of completeness. On the other hand, there’s nothing an NFT can do that a great video game can’t do better.”
Producers have long been drawn to potential new financing and creative products, and therein lies part of the problem. “Producers are salespeople at heart, and are desperate for new and alternative sources of funding,” said Brian Beckmann, CFO of Arclight Films. “As a result, they run the risk of believing their own bullshit and therefore that of other people.”
However, some savvy producers have taken it upon themselves to step into the hoops and examine the binge eating first-hand. Award-winning film producer and Red and Black game developer John Giwa-Amu traveled to San Francisco from Wales earlier this spring to attend the Game Developers Conference. He had already had the less than exciting experience of turning his first feature film, White Little Lies, into an NFT opportunity that was a “total waste of time.”
“Once you get past the gold rush hype and the 20-year-old [then] As millionaires, you realize that this market is very young, has suffered from major mistakes, and has a fundamental misunderstanding of how finance and risk relate. The key takeaway is that digital canvas IPs are the tangible element behind NFTs, but the quality of that creative work really counts,” he says.
High-profile filmmakers were drawn to the possibilities but approached the burgeoning sector with enough caution to keep their shirts. Emmy-winning StudioNX, a British-Canadian animation studio, felt the rush of demand when it launched Gorecats, combining an animated series with the launch of 1,111 NFTS at $100 per token on Magic Eden via the Solana network. The first round of NFTs sold out in 45 seconds. Since that heady start, founder Adam Jeffcoat has deployed a financial payout manager to “address the volatility and changing values, not to mention some solid financials! I see great potential, but the ups and downs made me think I only want to include part of our business, not the whole pig.” Jeffcoat emphasizes that the key is that animated NFTs “need to be supported by great storytelling, which in turn is much more appealing to people.”
Scratch the surface of game developers turned Web 3.0 entrepreneurs and there is a lot of creative work underway that is already redefining what the metaverse could offer us all. Developed by award-winning games and augmented reality (AR) developer Tiny Rebel Games, the Petaverse Network is the first cross-chain platform that created the next generation of “immortal” pets across the metaverse. “Cool things are possible,” says co-founder Susan Cummings. “Cats do things! We can make a cat walk in space and make it interesting.” Petaverse’s creation of virtual pets works across games, AR, VR, wearables, and social media. Cummings says their pets evolve based on the nature of their specific DNA and the nature of their bond with you — a kind of reflexive animal-human dynamic, if you will.
A key motivation for Cummings and her partner Lee Cummings was the wasteland of virtual pets once revered but abandoned over the years: Neopets, Tamagotchi, not to mention the 24 million Nintendogs that were bought, loved and then thrown away when technology was moving inexorably. “We like the idea that anyone can own it and take it with them, and it will still be relevant 30 years later – a digital heirloom to send to your grandkids.”
By combining gaming, XR and Web 3.0 and housing the project on the Ethereum blockchain via the Polygon platform, Petaverse has defined an open standard that allows other projects to connect and create new experiences alongside the virtual pets . “This is about creating an open, sharing community that benefits from an easy-to-use transportation system,” said Cummings. This philosophy is far from the winner getting all the competition in Hollywood and Silicon Valley.
But while some smaller clapboards are finding ways to tame and use crypto and NFTs, there is still too much volatility and questions to go mainstream in the entertainment business until the next big funding thing comes along.