“Computers are useless,” Pablo Picasso exclaimed more than 50 years ago. “They can only give you answers.” No doubt he would be turning in his grave at today’s unholy alliance of computer programs, tech nerds and digital artists clustering together to create non-fungible tokens (NFTs). It’s a quickly evolving and potentially very risky world for filmmakers, producers and others looking for new ways to raise funding but should be approached with caution, research and a good look at recent history.
From the heady heights of a $3 trillion cryptocurrency market, it took a perfect storm of surging inflation, interest rate rises and geopolitical shockwaves to batter belief and trigger a snowball effect: bitcoin’s constant price drops, for example, trigged more sell offs, so confidence plummeted, leading to more panicked selling. The high level of borrowing by crypto traders to increase the upside of their positions left them facing calls for more funds to support untenable bets. And buyers beware — there are no questions about moral hazard let alone a bank of last resort in the wild west of crypto.
NFTs (in case you need reminding), are digital artworks and images, often carved up into bite- sized tokens, that rely on blockchain technology to prove ownership. The explosion in interest and speculation around NFTs and the wider crypto currency craze that heated up during the last decade has now spectacularly imploded over the past six months, with more than $2 trillion wiped out. The burst bubble in digital assets and decentralised finance (DeFi) has attracted acute attention, but also pain for millions of investors given that by mid-2021 more than 16% of the American population had bought into the crypto craze.
While all those consulted for this article took no issue with the underlying robustness of blockchain technology (essentially a digital ledger of transactions that is duplicated and distributed across an entire network of computer systems), its efficacy depends on what use it is put to. And while blockchain and cryptocurrency are two distinctly different technologies, they are inherently linked. Cryptocurrency operates through the blockchain, as it too is a decentralized, digital system but designed for and enabling trading in digital or virtual currencies.
The ethos of “cybertarians,” as media lawyer and analyst Bill Grantham calls believers in financial markets that are not controlled by centralized organizations or governments, is fundamentally flawed: “There is no way to assess the underlying value of these assets, so crowds were relying on the truth of what they were being told. There’s a good reason why the 1933 Securities Act and 1934 Securities Exchange Act remains in place today.”
Among the many crypto sceptics is BlackRock founder Larry Fink, who in 2017 quipped that “bitcoin just shows you how much demand for money laundering there is in the world,” which in turn has trigged the term “shitcoin” – meaning a coin or token with no clear purpose or value, or one used for more nefarious purposes.
Digital asset evangelists such as Silicon Valley tycoon Marc Andreessen, responsible for backing multiple crypto start-ups, famously made a revisionist assertion that “every failed idea from the dotcom bubble would work now.” The latest bubble economy bust up does not bear Andreessen’s theory out, as crypto that has been underlying financial constructs, let alone currencies, has fallen like dominoes never to see the digital light again.
For example, so-called “stable currencies” in the decentralized financial world have tanked despite their reassuring moniker. Two of the most popular stablecoins, Tether and USDC, effectively mimic the function of banks: people give them money, and receive stablecoins in return, which can at any point be cashed in again. At least that’s the theory. Punters must trust the entity behind the currency, confident that it will be kept safe, easy to access and not used to bet on another “investment opportunity.”
Things can get dodgy even when currencies are constructed to create stability, as with the case of TerraUSD and Luna. Terra had a value pegged at $1, which, in theory, it would not fall below, being kept at that level by its sister coin Luna. If the Terra price went above $1, investors could take Luna coins out of circulation (a practice called burning) in exchange for new TerraUSD coins, which brought the cost back to $1. The price of Luna, as coins become
it became increasingly scarce, was supposed to grow.
However, the system only functions if Luna has any actual value. For a period following its launch in 2019, its price shot up, partly due to an aggressive offer to pay 20% interest on savings held using the currency, taking it to a high of $120 in April 2022. But as the crash kicked in, investors began to take their cash out to cover losses elsewhere … and Luna cratered. That set off a “death spiral,” as people switched Terra into Luna, which hammered the price of Luna. Every redemption round simply witnessed Luna tumbling lower and lower. In just a few weeks, the value of the Luna coin fell to fractions of a dollar. The entire game was up.
“Whatever the fate of decentralized crypto currencies, forms of crypto and blockchain technology are here to stay,” explains Eswar Prasad, author of “The Future of Money: How the Digital Revolution is Transforming Currencies and Finance.” The challenge, explains Prasad, is multifaceted but is crying out for sophisticated regulation. The catch is that “when an industry clamours for regulation, it typically craves the legitimacy that comes with it while trying to minimize oversight. The biggest risk regulators must guard against? Giving the crypto industry an official imprimatur while subjecting it to light-touch regulation.”
It’s a perplexing conundrum for filmmakers flirting with the market. “Let’s be honest — there’s a good reason why the celebrity-driven crypto and NFT scam market has collapsed,” says Oscar-winning writer/producer James Schamus. “To paraphrase Matt Damon, ‘Fortune does not favor the gullible,’ which is maybe why the average NFT sale price has dropped 92% in the past six months. But all that said, there are still potentially legit uses for some of these technologies, including perhaps digital rights management, royalty and residuals tracking, and more. As with any hyper-financialized derivative commodity, there will still be speculators and gamblers and hustlers out to pump up markets for special-price-for-you-certifiably-one-of-a-kind-digital-whatzyhoosies — but I wouldn’t write off the possible utility of these technologies just yet.”
Taking Schamus’s cautious upside note a step further, delving into the terrain underlines the strong intersections between NFTs and the video gaming world, rather than directly to live action movies and TV (although animation is a different matter). “There’s a clearer utility in video games because purchasing of NFTs is based on an emotionally driven, first-person investment basis,” explains multimedia blogger and digital entrepreneur James K. Wight. “The clear message is that you buy because it’s fun and adds to a sense of completion and a digital community for the user. On the other hand, there’s nothing that an NFT can do that a great video game can’t do better.”
Producers have long been drawn to potential new financing and creative goods opportunities, and therein lies part of the problem. “Producers are sellers at their core and are desperate to find new and alternative sources of finance,” explains Arclight Films CFO Brian Beckmann. “So hence they are in danger of believing their own bullshit and therefore other people’s.”
However, some canny producers have made it their business to kick the tires and investigate the feeding frenzy first-hand.
Red and Black’s award-winning film producer and games developer John Giwa Amu trekked from Wales to San Francisco to attend the Game Developers Conference earlier this spring. He had already experienced the less than thrilling experience of trying to turn his first BAFTA- winning feature, “White Little Lies,” into an NFT opportunity that “was a valuable learning experience, but showed us how brutal that market is”
“Once you get past the gold rush hype and the 20-something year old [then] millionaires, you realise that this market is very young, has suffered from huge mistakes and has a basic lack of understanding about how finance and risk behave. One key takeaway is that IPs in the form of digital canvasses and in-game content etc are a tangible element behind NFTs, but the quality of that creative work really matters, as does how you market it.”
High quality filmmakers have been attracted to the opportunities yet have approached the surging sector with enough caution to keep their shirts. Emmy-winning StudioNX, a UK-Canadian animation studio, felt the rush of demand when it launched Gorecats, a horror inspired collection with roadmap to animated series. They dropped 1,111 NFTS at $100 per token on Magic Eden via the Solana network and sold out within 45 seconds. Since that heady start, founder Adam Jeffcoat has brought in a financial pay out manager to address “the volatility and changing values of both the solana blockchain and the NFT market, never mind some solid financials! I see great potential but the rapid rises and falls left me thinking that I only want a portion of our business involved, not the whole hog.” Jeffcoat stresses that the key to long term survival in this space is to be “focused on building IP backed by great storytelling, which is far more engaging to both holders and potential buyers.”
Scratch the surface of game developers-turned-Web 3.0 entrepreneurs out there and there’s a host of creative work underway that’s already redefining what the metaverse might offer us all. Developed by Tiny Rebel Games, an award-winning developer of games and Augmented Reality (AR), the Petaverse Network is the first cross-chain platform that has created the next generation of ‘immortal’ pets across the metaverse. “Cool things are possible,” says co-founder Susan Cummings. “Cats work better as an AR experience than for example dogs: We can get a cat up and running in space and make it interesting.” Petaverse’s creation of virtual pets work across games, AR, VR, wearables and social. Cummings explains that their pets evolve based on the nature of their specific DNA and the nature of their bonding with you – a kind of reflexive animal-human dynamic if you like.
A key motivation for Cummings and her partner Lee was the wasteland of virtual pets once adored but forced to be abandoned over the years. Neopets, Tamagotchi, not to mention the 24 million Nintendogs that were bought, loved and then dumped as technology inexorably moved on. “We like the idea that everyone can own and take it with them, and that it will still be relevant some 30 years down the line – a digital heirloom that you can send to your grandchildren.”
By combining gaming, XR and Web 3.0 and housing the project via the Polygon Platform on the Ethereum blockchain, Petaverse has defined an open standard, allowing other projects to connect and build new experiences alongside the virtual pets. “This is about creating an open, sharing community benefiting from an easy-to-use transportation system,” Cummings stresses. That philosophy is far removed from the winner takes all competition found in Hollywood and Silicon Valley.
But while some smaller shingles find 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.
Angus Finney’s latest book, “The International Film Business: A Market Guide Beyond Hollywood,” is available on Amazon.com.