Office Hours: The Metaverse, NFTs, and Web3 — with Tonya Evans

Tonya Evans, professor of law at Penn State Dickinson Law School, returns to the Pod to discuss the state of play in the metaverse, and where intellectual property laws come in. She and Scott also answer listener questions on NFTs as investment vehicles, cryptocurrency regulations, and what makes Web3 different from Web2.0. Follow Professor Evans on Twitter @IPProfEvans. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 1:26Scott Galloway?

  Welcome to a special episode of the ProfGPods Office Hours. This is the part of the show where we answer questions about business, big tech, entrepreneurship, and whatever else is on your mind. Today, we're bringing back one of our favorite ProfGpod guests, Professor Tanya Evans, to help us make sense of the metaverse and the current role of IP law, cryptocurrencies, and NFTs in our financial system. We'll also take listener questions together later in the show. That's right, bringing on someone who actually knows how to answer these queries. These young minds deserve someone with some domain expertise. Anyway, so let's light this candle. Professor Evans, welcome back. Where does this podcast find you?

• 2:06Speaker 03

  It binds me somewhere just north of the metaverse, actually. So this is

• 2:11Scott Galloway?

  Somewhere just some lingo there. All right. In this universe where we have geography, what, what city would you be in? Or where, where are you?

• 2:19Speaker 03

  Put it this way, I'm in California right now. I'm in California.

• 2:23Scott Galloway?

  Good for you.

• 2:24Speaker 03

  In these crypto streets, we don't really like to say specifically where.

• 2:27Scott Galloway?

  Yeah, I get it. I get it. Um, so a lot has happened since we last spoke. We had you on for an interview in July to discuss the state of play in DeFi and NFTs. And the space has evolved rapidly since then, and we're now in an era of the metaverse. Walk us through the current state of play around, quote unquote, the metaverse. What are your thoughts?

• 2:49Speaker 03

  It's, um, it's no surprise to me what's going on. And by what's going on, the, the insane valuations in the space. And I think maybe even just saying, you know, what today's version of a definition is, or at least my understanding, I was in a, a Twitter space recently. I wish I could attribute this to the right person, but person, if you're listening and you said this, this resonated with me. He compared the description of the world wide web of the information superhighway and how people used to talk about, you know, the world wide web in that way. And he analogized the metaverse and, and kind of web three.

• 3:30Speaker 03

  And I know we're going to talk about that to the value superhighway. The extreme and rapid acceleration of the transfer of value around the world and creating virtual ecosystems that support value. So it's not one place or one space, uh, but an ecosystem that facilitates the, the more rapid or more accelerated transfer of, of digital types of value in the same way that information started moving at a dramatically accelerated way in a web 2.0 world.

• 4:06Scott Galloway?

  The NFTs have hit a bit of a bump, right? I mean, it, it seems to me the high watermark, at least over the last year was. Kind of, I don't know, was, I don't know if it's a speed bump, or if it's to call it the top, but Melania Trump's NFTs, it appears it was fake wallets set up to try and send false signals around the value of these NFTs. The NFT values and trading has actually declined since then. Do you see this as a, as a speed bump or the beginning of the end for NFTs?

• 4:34Speaker 03

  You know, there were these, there were, we were, folks have also been talking about the tweet, you know, Jack's tweet that went for a gazillion million and now it, I don't think it's gonna pass for maybe more than five figures. I didn't look today, but maybe four or five, I've lost track. I caution people to say, oh, the bubble has burst, nothing to see here. Because remember, we're really talking about the fickle, subjective valuation, or values, I should say, not valuation, of subjective creativity. We could say the same thing about a painting or, or collectibles, up and down and,

• 5:14Speaker 03

  and one particular property or the fact of whatever it's going to sell for, I don't think at this point in time is indicative of the entire space. It's one thing if Jack is selling for charity, his own tweet. For the next person, maybe the community has not coalesced around the piece. Maybe it was more about the moment. Maybe it's more about FOMO, maybe it was more about being the first, right? So maybe it's testing the secondary market for one piece of, of, of social media history at a moment in time that just isn't the same, they aren't the same market dynamics. There isn't the same community ground swell around that. So I say all that to say, when you think about art in general, or collectibles in general,

• 5:58Speaker 03

  it's highly subjective, it's driven by community, it's, but with art, we know that it only really takes one. Willing buyer at the time someone is ready to sell. Maybe this is not the right time. Maybe this is not the right property. I see people still doing well with NFTs. And what does well mean? Someone can sell enough to pay off a student loan or maybe just pay rent. They they consider that a success and everything's not going to sell for $69 million. So I would I would I know that it has cooled and and we have these very unfortunate and and concerning instances where people are inflating the prices behind the scenes. I think that's problematic for the space.

• 6:39Speaker 03

  But one might say that the art, the physical art world is very opaque as well. And there's probably more transparency in the digital space just by the very nature of blockchain and the way that coins and tokens move.

• 6:52Scott Galloway?

  I thought one of the most exciting things about NFTs is that they might represent a huge opportunity for high margin incremental cash flow for media companies, for sporting teams, for luxury brands. That if Hermes or Chanel can wrap their arms around the IP component of this and ensure that no one can have a Chanel bag or a Birkin bag without paying some money to those organizations, that it could be just an enormous enormously accretive to shareholder value. Have you given any thought or additional thought to IP as it relates to a company or media firms or sporting teams' ability to monetize NFTs in the metaverse?

• 7:31Speaker 03

  Yeah, this is a really important things for brands and we're going to continue to see more and more brands move into the space. So when I think of unlocking liquidity, reimagining and and giving new life to IP that has been sitting on the proverbial shelf and and other markets and opportunities, not only in a particular country but around the world, can be very empowering for incumbent brands if they can figure it out and to do so quickly and meet the moment of where we are in the development of the technology and the enthusiasm around it, even given some of the ebbs and flows that we just spoke about.

• 8:10Speaker 03

  The other side of that is what happens when there are others who are actually infringing as a matter of copyright? That's always going to be important and and it's obvious, the less obvious, but. As important, if not more important to brands, is going to be how do they protect their trademarks in the space? And so there's been this really interesting conversation among intellectual property lawyers and other lawyers working in the space. Recently Nike sued, I think the company's name is StockX, sued StockX for this trademark infringement. Long story short, StockX is using prominently the Nike brand.

• 8:51Speaker 03

  StockX is arguing, we actually have the physical shoe and someone is buying a digital representation of ownership of this specific shoe, which we'll conveniently keep in a vault here, but you'll have it in case, right? So it's like backed by the physical property as a way to do an in-run around these arguments about the misappropriation and misuse and infringement of the trademark. I think we'll see more of that with other brands as we start to see an unauthorized connection of an NFT perhaps to a physical good and how this will work itself out. So it'll be interesting to see how the Nike case goes.

• 9:29Scott Galloway?

  All right. Thanks for that. Why don't we do this? Let's bring in some of our listeners. You'll get an opportunity to hear from some of our dozens and dozens of fans, Professor. We're going to take a quick break before taking a few listener questions about NFTs, decentralization, and cryptocurrency regulation. We'll be right back.

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• 12:03Speaker 04

  Welcome back. Question number one. Hello, Professor Galloway. My name is Tyler. I'm a 2011 Stern graduate, coming to you from the lower west side of Manhattan, Kansas. I'm interested in getting your opinion on NFT art and the opportunity to use it as an investment vehicle. At Stern, we learned that art was an asset class that is not correlated as well with the economy as other asset classes, and during a recession can actually appreciate well, whereas other asset classes won't. Seems like NFT art is blowing up these days. Is this Bitcoin where Bitcoin was three years ago? Would you recommend going out and getting some pieces on Nifty Gateway or OpenSea?

• 12:47Speaker 04

  How do you see this as an investment vehicle? Professor, your thoughts?

• 12:52Speaker 03

  So it's interesting to make the comparison when I think about the diversification of a portfolio and when I think of high net worth individuals in particular who like to leverage maybe anywhere from two to seven percent of a portfolio in art and hold it for a long period of time. And the idea that over time, given what may happen to an artist or an artist's collection and notability, the idea of holding long and engaging with community. A great example of that is Micah Johnson, who has created this character called Aku. It's a great example of how a new NFT artist is kind of bridging the divide between traditional notions of ownership,

• 13:34Speaker 03

  matched with the current notions of community and the intrigue and excitement around and the value of NFTs and NFT projects. I hesitate to compare the experience of NFTs, which are necessarily unique by their nature, with something that is like Bitcoin, a separate fungible crypto asset. I get the question in the sense of are we seeing the evolution of something that will appreciate over time? But lumping all NFTs, which are inherently unique into one basket is a difficult proposition, as opposed to seeing the price, for example, of something like Bitcoin increasing historically since 2009 in value over time.

• 14:18Speaker 03

  I happen to be bullish on NFTs. I think it's a great way to dabble and get to know the crypto space without losing your shirt necessarily in the process. If you're more interested in being curious about the space and wanting to participate, support an artist and involve yourself in a community.

• 14:36Scott Galloway?

  Tyler, yeah, it's, I think a bet on art more broadly is a bet on the top 1% and the 1% continues to engage in regulatory capture. And there is no asset class that's done better over the last 50 years than the top 1%. So betting on art is sort of betting on the top 1%. And my understanding is it has outperformed most other asset classes. I would not put more than A young person, I wouldn't put more than 10% of your net worth into any one asset class. I'm similar to Professor Bullish on NFTs, and I think there's always, it's, it might seem a little bit crazy, but I think you should always, especially when you're young, be open to risk or asymmetric upside on something like this. I would suggest going

• 15:20Scott Galloway?

  into a fund or a collection. I think it is very difficult. You really need to understand this market because I think it's similar to the token market. I would imagine the majority of NFTs, and maybe even 99% plus, will end up being worthless. But I buy into the notion that young people find value in digital assets that my generation has trouble assigning value to, whether it's skins or different types of weapons. And if one specific artist or artists or platform can do what Bitcoin has done, and that is create a credible sense of scarcity. I have one piece of art. It's a Grayson Perry. I think he did 250 prints. He signed each one of them. So I don't see any reason why having a deed or digital signature on an NFT wouldn't, wouldn't be able to create the same sort

• 16:05Scott Galloway?

  of value. So by all means, take a small amount of your net worth. Unless you know the art market, I would suggest, or you know the NFT market, I would suggest trying to go invest in, in or behind a fund that claims they have some understanding here. But yeah, why not? Next question.

• 16:22Speaker 05

  Hey Scott. My name is Evan, and I'm a student at Wilfrid Laurier University in Waterloo, Ontario. My question for you is about the current state of the cryptocurrency market. As the market for cryptocurrencies grows, governments around the world will have to take a stance on the use of cryptocurrencies to conduct transactions. One big concern that they'll have to consider in this decision is how easy cryptocurrencies make it to conduct illegal activities such as money laundering and financing terrorist organizations. So my question for you is, do you think that creating regulations for cryptocurrencies will instill confidence about the security and stability of the cryptocurrency market?

• 17:01Scott Galloway?

  Professor?

• 17:02Speaker 03

  So I think the regulation in this space, I have a lot to say about this, but I will, I will make it plain and make it brief. I think there's a lot of money sitting on the sidelines impatiently waiting to get in and would strongly benefit from clarity. I believe very strongly in regulating harms, not the technologies. Always get a little concerned when we start to talk about regulation. That being said, I want

• 17:30Speaker 03

  Laws and I want regulations to work optimally. That's a high notion in order to obviously protect investors and consumers in the space. But at the same time to encourage and support innovation. A lot of education continues to go on in the Hill in order to meet that, you know, the, the, the need for, for protections with also establishing open markets and also protecting the innovation. So as long as we're regulating harms, I think that would lead to the clarity that traditional finance and the existing legacy system would be in making it even easier for the average person to participate.

• 18:10Speaker 03

  Right now, high net worth individuals are quietly being exposed in a, a de-risked environment from every place from JP Morgan to Deutsche Bank and, and everything in between. Why is it quiet? Because that is kind of replicating the existing structure to protect high net worth individuals where crypto really exists for the other 99% to have an equal access to

• 18:37Speaker 03

  capital markets. The crypto is taxed as a capital asset and also to participate in the future of money, in the future of wealth. So I say all that to say, hopefully the clarity will support certainly existing structures, but also to benefit and make this space more accessible and, and protected for everyone.

• 18:56Scott Galloway?

  Yeah, there's been some high profile hacks and it's, I would argue that regulation would be a stabilizing force for this. There is a bit of a misunderstanding. There's a lot, the kind of the go-to, I think for critics of crypto is it's used to fund terrorism and kidnappings. And the reality is, as a percentage of total trading volume, I think illicit activity has actually declined. But it's still, you're hearing about these massive hacks. I would argue that if any successful market needs a certain amount of protocols. I've never understood people who become billionaires on the wealth of their stocks and then decide to start heckling at the SEC. If it wasn't for the SEC and the rule of fair play, our markets would not attract capital

• 19:41Scott Galloway?

  from all four corners of the earth, which they do. And the SEC is kind of that sheriff. So everybody loves the sheriff while they're growing up and then once they get. You know, once they have their own ranch and their own cattle, they decide the sheriff is a menace. Uh, I think regulation would benefit the whole, the whole ecosystem. Let's go to the next question.

• 20:01Speaker 06

  Hey, Prof G, this is Ross calling from the north of England, actually quite close to our shared ancestral heritage of the mighty Scotland. And my question is, what makes web three any different from a web two on steroids? Now, people seem to think it will bring decentralized experiences and a lot of the kind of crypto communities talk about this. But so far, I can only see more centralization in the hands of the few that already have that. And actually growing that stronger under this kind of brand of web free.

• 20:34Scott Galloway?

  Your thoughts, Professor?

• 20:36Speaker 03

  Well, I would actually, I, I get the question. I think it's a fair question to be sure. I, I have concerns that over time, will this wonderful utopia of decentralization in a web three point O world eventually coalesce, as, as the caller suggests, into just the centralization, maybe hyper-centralization of power. And I think the story is not written yet, but currently, uh, given the nascent stage and, and the, the early stage build of, of, um, the crypto ecosystem, decentralized finance, the metaverse, and all of the other web three technologies we're talking AR, VR,

• 21:16Speaker 03

  3D printing and the like, um, there is the great opportunity to create what we used to talk about. When, you know, the build for web two was coming, this computers talking to each other and the rapid exchange on a peer-to-peer basis. And where we find ourselves now is quite different when we think of the fangs of the world or the fangs as being the world. As the technology currently exists, the major impediment to actually participate is actually education. It's not a gatekeeper at this point. And so I'd spend my time, obviously, as a law professor, an attorney, and educator in the space, focusing on that. Because if the only impediment today

• 21:58Speaker 03

  is participation in being educated in autonomy and participating on your own terms, let's keep talking about it every year and see if this is the great disappointment or the great opportunity.

• 22:08Scott Galloway?

  Yeah, so Ross, we are brothers from another mother on this. And literally, we might be brothers from another mother, because aren't there many people in Scotland? My dad was raised in Glasgow, so chances are we're related. By the way, I'm buying the Glasgow Rangers, Professor Evans. You'll sit in my owner's box. The Glasgow Rangers is the finest football, or as we call it, soccer team in Scotland. By the way, Elon Musk doesn't like me. He's been tweeting mean things about me this morning. But Canadians and the Scottish, oh my God, they love the dog. Anyway, Web 2.0 versus Web 3, I 100% agree with this guy. I see crypto DAOs and NFTs is just basically another technology innovation we're hoping

• 22:49Scott Galloway?

  for. But the whole rap that's supposed to distinguish Web 3 is this notion of decentralization or power to the people away from the Web 2 players, specifically Facebook, Google, and Amazon. I think this notion that people would design their own algorithms on Twitter is ridiculous, given the majority of us don't even clear our cookies. And it strikes me that when you have 1% or 2% of accounts or wallets holding 90% of Bitcoin, and you have more dual-class shareholders and super voting stock at Coinbase, that this crypto bro is someone who preaches about decentralization in hopes that he too can centralize massive amounts of wealth. I would think a better name for it would just be Web 2.0001. It's

• 23:30Scott Galloway?

  the same shit. It's just different, different technologies. Not to say there won't be innovation here, but Web 3, as far as I can tell, is mostly, mostly a branding technique. Anyways, Professor Tonya Evans is a professor at Penn State Dickinson Law. She's also the founder of Advantage Evans Academy, an inclusive online crypto education and onboarding platform, and the host of the Tech Intersect Podcast, a weekly podcast. That highlights new and notable experts at the intersections of law, business, and technology. She was recently named to the American Bar Association's Women of Legal Tech 2022 list. Professor Evans also earned a spot on the Forbes 50 Over 50 Investment

• 24:09Scott Galloway?

  List for 2021. She joins us from somewhere in California. Very, very mysterious. Professor Evans, it is always great to catch up with you. Thanks for joining us. Absolutely. I look forward to the next time. That's all for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.profgmedia.com. Again, that's officehours.profgmedia.com. We really do love your questions.

• 24:43Scott Galloway?

  Our producers are Caroline Shager and Drew Burrows. Claire Miller is our associate producer. If you liked what you heard, please follow, download, and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Thursday.

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