Art tokenization — hype or great Investment? We learned the opinion of Pavel Prigolovko, TON Labs Chief Strategy Officer.
Interviewer — Svetlana Sukhova.
- How did you get into the world of cryptocurrency?
I have been involved in venture business for a long time and in very different guises, projects, including being in MNL Consulting financial. Finally, I moved to venture capital on the basis of the financial topic, when we and our partners (including Alexander Filatov) attracted investors to the Industry 4.0 fund. One of the directions was the history related to the blockchain. And just at this time, Telegram thought about its platform.
When we saw that the interest in the Telegram project was significantly higher than in our fund, we decided that there were more prospects in this, and I began to take a closer look at what was happening. However, by the standards of some representatives who say that they bought bitcoin for $80, I got into the crypt late — in 2017. But by current standards, a lot of time has passed.
We were almost at the beginning of the project. At first, with partners, we decided we would help develop the ecosystem around TON. And for mass use, there must be a good toolkit — for the work of the blockchain, developers. So what we finally focused on was Ton Operating System. This is where the history of TON Labs began. And after all the well-known events, together with a group of distinguished comrades, we launched the Free TON project.
- All currencies in the world are mainly based on trust, and the more trust it is, the more expensive it is. NFT tokens are a new phenomenon and are now closely related to art. What is the reason for the ongoing tokenization?
I cannot say that all currencies are the same and are based on trust. Conditionally, trust is an important component of the financial system, since it is an exchange and the expectation of people that by doing something, you will get something else in the future — something of equal value. But still, the financial system is based on the regulatory policy of the state and on the inertia of economic processes. And, of course, cryptocurrency in this sense is a new page in the financial history of humanity.
Everyone knows the words “cryptocurrency” and “blockchain” — they are the basis of the hype. But, in my understanding, they largely carry negative connotations. Because everything that is happening (plus this is 2017, then the so-called crypto-winter and what is now beginning to happen) is still a purely speculative expectation. Yes, this part should exist, all technologies are developing because of the hype, some advanced areas are emerging, but the negative component there is very significant.
I believe this story has a less hyped, but much more significant component in the long term — this is decentralization and a decentralized platform. This is where we entered a completely new technological cycle. But I think it will take more than a dozen years until people finally understand the meaning and value of this concept for the life of society and humanity.
The message is very simple. With Bitcoin, Ether, the concept was proven that there can be some kind of electronic entity that depends on the will of specific people. The simplest case for which this has been applied is money because it is a very simple program, it is a plus or minus. But the current level of development of decentralized platforms makes it possible to launch a very large and complex case on such a platform (almost last year such cases appeared — Free TON in particular, although there are still several of the same modern platforms). And this will bring significant changes.
For example, we all watched with interest how Mr. Trump was disconnected from Twitter, then less noticeable things — a lot of respected and readable gentlemen were also disconnected from social networks and, in fact, deprived tens of millions of people of the opportunity to exchange their opinions, referring to the fact that we have such regulations. In my understanding, the social network is the first place where decentralization should come, and this is a question of freedom of speech in its full original understanding.
Unfortunately, we still like to interpret and interpret the freedom of speech. There are different “but”: these people are doing good things here, but this is not true at all, and it’s like it’s bad that someone is talking about it. These “but”, by and large, kill the word. The only way to adequately respond to the use of freedom of speech by people who, in your understanding, give incorrect information, is to give them an alternative position and information. So, cryptocurrency is hype, absolute speculation.
The vast majority of projects that come out and sell tokens have no technological value. I dare say that these projects will lose this value many times, dozens of times, or even zero in the next few years. In this sense, we will see a repeat of 2017, when everything was sold based on pieces of paper and there was hype, only on a larger scale…
People already hold billions of dollars, and it doesn’t seem as unusual as it did a few years ago. Yes, they are no longer for “pieces of paper”, but for some projects. But projects that, in fact, are clones of each other and do not carry any innovation, scaling potential, capabilities, and no use case.
- Still, in your opinion, is it possible to create a new transparent art market using tokens?
NFT is also a hype, the same difficulties. A certain conditional NFT is the result of easy money that many cryptocurrency owners have received. The numbers are impressive, but they would have looked completely different a few years ago. This is the specifics of the sometimes 10-30-fold growth of some cryptocurrencies. At the same time, NFT, as an approach, is absolutely valid.
By the way, the first project in crypt (before TON), in which I was engaged with partners, was NFT. De facto, they made a platform for issuing digital coins on Ethereum (as a work of art with two sides, not tokens), and it was aimed towards numismatists, collecting coins. We did not launch the project largely because we moved to TON Labs. I don’t want to tell you more yet, but the project is relevant, there are interesting mechanics, we will complete it and, I think, will launch it on Free TON.
Digital art itself has been around for a long time, and this is not new. There were both digital art exhibitions and digital artists. All this has been developing for more than a dozen years. That there was no way to make the corresponding object unique — yes, the market was limited. But the idea of signing ownership of a digital asset has been around for a long time.
The current hype, I think, is because everything has grown and the easiest way to use cryptocurrency is to buy something on the network (blockchain). Since any alternative way, for example, to withdraw $100 billion to a bank account was problematic and will remain so for a long time. And to buy, for example, some cool, unique asset is much easier. Therefore, the current hype is just hype, not a development of technology.
In the current state, everything that we see on NFT marketplaces is still dominated by a very borderline story, when the blockchain and the token itself are used only as the tip of the iceberg. Some kind of link or hash is hammered there, but the digital object itself is stored separately, not in the blockchain. And there is no particular use, in addition to the platform that this object shows. Therefore, I believe that such limited NFTs for some art will remain, but this market is likely to be smaller than mass NFT.
Under all of this, there is no legal basis itself, i.e. you do not sign any contract, there is no agreement, no guarantees. Even if it was possible to sign, then a huge number of questions would arise: in what jurisdiction did you sign it, what arbitration is accepted for this transaction, etc. These questions will drive hundreds of lawyers and ten law firms crazy.
Once there was a Clubhouse discussion, where Marat Gaiman said: “I’m interested, I see money here, but I want to do it right”. I replied: “Dear Sir, you can do it right, but you will spend two years doing it, and in the end, you will most likely come to the conclusion that it is impossible to do it right”.
Again, starting from the question of jurisdiction over which the transaction is being carried out, ending with a huge number of questions: what if tomorrow the author does the same or changes one pixel and puts it up as a new work. There are no answers to these questions, and there never will be, because it’s all too immaterial.
- However, at the famous Christie’s auction, the Beeple collage in NFT was sold for a very round sum. Such sites are very serious about everything, to all legal issues, having existed for so many years…
No one will ever read the documents related to this deal. I assure you it will be written like this: we just guarantee that your digital signature will be on this NFT token. And what is behind this token, we do not know at all and do not want to know. Because nothing else can be written there. You can endlessly look for a black cat in a dark room when she is not there.
Even if someone tried to mess up, make an agreement with the author that the author has no right to do anything — neither change nor publish — this agreement would take 200 pages, and it would take six months to prepare it. Nobody does this and never will. And why, when it is selling well? People just put their digital signatures on some digital objects without guarantees. This is a normal state of the market and it is good that the absence of all these difficulties has given rise to such a developed and interesting market.
All this digital collecting, probably, will eventually come in order, there will be some legal binding of the process — demand creates supply. But it is an important, inevitable, and natural market. The very fact of ownership in pure form is important to collectors. And digital is even better because nothing will happen to it. For the modern generation, which consumes everything in digital form, this is a great and understandable thing.
- And what do they own? Just a signature?
This is a link to an object stored, relatively speaking, in the public domain which anyone can download and publish at home. Even in principle, you can hardly help but allow these NFTs to be placed on your site and say: here we have shown them on the site. This is already in the public domain.
The current market is wild and hype-driven. A more structured collectors market will appear, where there will be not tens of millions of dollars, but some more adequate numbers. Probably, it will acquire some kind of legal kit, everything will continue to live and develop peacefully.
But on the NFT market, there will be a much more important event for the future of NFT and some kind of merging of the physical world with the virtual world — these are NFT games. These are tens, hundreds of billions of objects that can cost dollars or cents, but they can also contain some records of unique properties that the owner can use, for example, in different games.
Imagine the player has a favorite hammer of Thor. He played one game, went to another… And he doesn’t want to start from scratch but wants to go play with his hammer. Or uniforms, ammunition, avatar properties… This is a huge topic with completely limitless imagination that can be invested in this kind of movement between the worlds of users with their objects.
All major game publishing houses, in my observation, are conservative by definition. But it seems to me that they do not notice this market at all. Even those who have some kind of game marketplaces are trying, thanks to lawyers, to push this market inside so that nothing can be pulled out of the game.
There were wild rumors that some terrorists were paying for something with some digital gold from some game. This is complete nonsense. When this occurs, the owner of the game begins to be baptized: let’s ban resale altogether — where are we, and where are the terrorists. OK, that’s their right. But now they see it like this: we made a game, users will come there, it’s cool. And tomorrow there will be a million people who have their own facilities, equipment, armor, machine guns… And the day after tomorrow — 10 million people. And then the choice: I can make a new game and try to advertise, attract players, or I can make a game in which I will say to that billion players: “Come at once with all your own and you can start playing right away”. The question is: who will have the easier marketing?
So reusing objects between different games is the massive future of NFT. And this is also part of the development of the concept of decentralized platforms. Because you have a kind of digital object that takes on its essence. In this area, artists will start drawing some unique armor, and people will buy it. There will be a lot of innovation. But we are at the start of this process for about 10 years ahead.
- Is digital art a good investment?
My view, purely cynical and practical, is that the field of art was created by this party to increase its value. Art grows in value because it is profitable for the party. But uniqueness and usefulness are two completely unrelated things. You can give an example of the same Bitcoin software, run it and all objects in this blockchain. And these will be unique records, a unique cryptocurrency, but it will not have the same value. Because the consensus of people who buy and spend resources, exchange one value they own for another, believe that it should cost as much, not less.
- What impact can blockchain have on intellectual property?
Intellectual property is, first of all, a large, developed area of jurisprudence. And this is the foundation that will always be. The fact that any digitalization can simplify the processes of proof of ownership is a tool to simplify this large system. For example, how to say that the phone has made it easier to transmit news around the world or telegram.
A little bit about the future…
NFT is a non-fungible token, great. A unique token is good. But no one bothers to make the owner of this NFT address, which is divided into a million tokens and then sell them separately. By and large, this is all just decentralized value that exists on a decentralized platform.
And the more the market develops, people are involved in this, the more stable it will be, the more people will learn from their mistakes, lose some value, understand what is what, and will be much more careful, more balanced in making transactions to exchange one value for another. We are moving into a very interesting world.
Of course, I think this will create very, very big problems for our “beloved” regulators. Because, of course, it is very difficult to regulate the economic behavior of people who at any moment can run from one value to another. But this is not the first time humanity faces some kind of technology, with which it is not clear what to do. There is no other way but to try, make mistakes, and try again.