RE: Deep Web3 Secrets - Episode 2 Fungibility

Transcripts continued:

Spiritsurge: Well yeah but we go way more minute with NFTs because uh non-fungible you're talking about the word non-fungible that's fine like everything is that fits within the criteria, but when you add tokens in that right you add the word token next to it that's when everything changes. here's why, imagine that you are going to a store all right you're going you see this big building right it's empty it's like oh you can like it's a store it has stuff inside. that whole building is essentially uh an entry, an nft entry into the decentralized blockchain right? what happens right now is that nfts are capable of holding information they can hold in images they can hold in music they can hold in a lot of data there is something known as nft storage that can hold up to 32 GBs of data within a single nft right? that like that type of tech is coming now. what happens right now is that we have these bunch of non-fungible unique tokens where they just have the building they have a picture in front of it or you know like a bored logo on it but inside everything is empty. that's literally the stick you take a boarded you've heard of bullets right you've heard of crypto punks - oh yeah - yeah all of these are just images with traits right and that's all they're holding there's a huge amount of unutilized data within that particular nft that is not being used, um that's that's where basically uh for a developer right you can look to it and you can say you know what I could add a lot of fertility within that particular uh nft. now I'm going to jump a bit into the technical side just to explain a very very serious concept of why nfts are so important.

Ecoinstant: Well can I let me interrupt you let me interrupt for a second lit I want to take this slow I want to I want to walk around this once before we we really dive in because uh last year or maybe two years ago the really funny meme was 'right click save as' and and I want to talk about this so I get a board ape and inside my token is not even an image, an image link, a link to an image that's hosted on a centralized server and maybe some numbers right head 47, accessory 13. teeth 21. Okay so what does that mean, I mean I know between the two of us we at that time could see the potential of this technology, but I laughed a lot about this 'right click save as' meme because basically, you don't own the image you own a token with some data in it, and a lot of times that image link is hosted on a centralized server so I know you're going to get into uh the nfts being able to hold more data but two years ago when bored Apes came out I mean did you buy some was this was this the the new technology or the was this the application of the new technology you were really interested in?

Spiritsurge: So I just, you're literally going uh towards the direction where I wanted to go, so yeah uh regarding board apps when like because that's not brought up you go back right you had uh crypto kitties that was like the first few versions that came out - kitties yup - and there were other so many projects that have gone past, holding uh so let me just very clarify again I'm going to go into this technical side but I need to explain this concept very clearly any game right now if you were to play right uh if you were to play that game it would take information out of a centralized database and show you, like take counter-strike, that knife is going to be in some database right that is could be non-flungible meaning it could be unique and irreplaceable, but it is not a token. why is it not a token, because it's not a cryptographic asset, it doesn't exist on the blockchain, it is using a database to take out information. what is actually an nft? an nft is basically an entry on the blockchain, right? and if I were to call information I would not call it from a centralized database I would call it directly from that nft cryptographic asset transaction that is on chain, meaning that bored ape information that I'm getting, that image, and the fact that it has these traits all of that information is stored on that particular NFT right? and why is this so huge this is so huge is because there is no centralized database where things can be changed or they can be manipulated right if there's a bored ape 1161 it has pink hair, and it is on chain, no matter what happened right no matter anyone who does a right click save as and then turns the hair blue right that doesn't change the fact that that particular bored is always going to have pink hair because of the information that is stored on chain, and this is the biggest and the hugest thing that people need to understand about nfts. the whole reason why they can provide so much utility is because they don't exist on a database. they exist on chain, with several people, node holders node operators have access to and no one can change that information. sure you can right click save as uh an image right? but even if you were to make changes in that particular image on chain, bored ape 1161 is always going to have pink hair and yeah so that's that's basically the direction that I was taking this conversation. why web 2 right okay so you have this dagger right he sold it for 180 thousand dollars. tomorrow if currency strike the gentleman from Counter-Strike the the owners the founders decided to change information regarding that particular dagger no one can do anything right. uh it's it's the same as uh the disadvantages of of a centralized system, like take Twitter they change this to X right - yes - so the guy who owns the @X account right wasn't given any compositions the account was just taken from it right and he was offered merchandise uh in replacement for that, so it's just the harm of centralized systems is that and nfts is specifically there so that you can record large amount of data, anything right you could record a full movie on to an nft, which is on chain and any information that will be called will be called from the chain and not from a database which is in the control of someone else.

Ecoinstant: Yes okay I was just thinking about that uh a Twitter name could be considered non-fungible right, no one else can have the same one - but it's not a token because they could take it away from you it's on their centralized database. so that's a that's a current example of the difference here. so okay so a lot of these Concepts have always existed, exist in the real world but the real new thing is token. so tokens Can Be fungible or non-fungible we're about what would you say we're about six/seven years into this uh tokenization Revolution, um one thing that I'd like to mention is the difference between a token and a coin, this this definition uh has seems to become lost over time but originally a coin like Bitcoin is a native currency to a blockchain, and a token or a sub token is an accounting system within that um am I getting that right is that would you still say that that distinction holds between a token and a coin?

Spiritsurge: Well yeah um a coin is basically layer one right that is the basic functionality, or something that is used at the reward system varies from uh chain to chain right, it is there it is there the reward system or is there as the main token, sorry yes the main uh currency for a blockchain right token is basically a layer two right, where someone else comes in and says I want to make a tech on this particular chain because I like like it has this is the advantages, what I'm going to do is now I am going to make my own token right, in this case if I'm creating an nft right I'm going to say I'm going to create an NFT on this particular layer right on top of this layer right, but I can't obviously call it a coin because coin is already being used something else so what do I do and that coin is fungible what do I do what I do is I create a token right a non-fungible one, and then I have a choice, I can either create another fungible token that works in tandem with this one principle token like for instance you can purchase it or I can do it like what ethereum does where you can buy that non-fungible token with the layer one coin ethereum uh avax or if you were to go to binance you know BNB, so yeah you've got the definition right.

Ecoinstant: Okay excellent and just uh talking about fungible coins and tokens which uh both can exist, there's this example, Dogecoin is really a token that uh exists within Litecoin blockchain. I think as far as I understand Dogecoin resolves within the blocks of Litecoin so Dogecoin is technically a token although a fungible token and then now Litecoin and even Bitcoin have these ordinals uh so even the some of the original blockchains like Bitcoin, they're going towards this nft idea where if we just get that if we just adjust the tech a little bit we can tell the difference between different satoshi's different bits of Bitcoin, so I'm sensing that nfts are really important, bored Apes never convinced me the crypto kitties I didn't didn't convince me, what would you say was the first project that convinced you that nfts were going to be powerful in the future or did you always know?

Spiritsurge: The first time I heard about nfts and saw how they worked the fact that you could circumvent databases the fact that you can circumvent uh you know people falsifying information, I knew this was the future right, because the biggest thing about web3 is the fact that you can create data which is transparent and in- you know immutable it cannot be it cannot be changed. nfts is a huge huge step towards that because of how that information, that so you see tokens right there's like, you can't hold a lot of information in tokens that's not possible right, you can do inscriptions which is what the ordinals is, are doing so they're doing inscriptions on satoshi's uh but the fact that you can circumvent the biggest problem of you having to own databases right having to post databases uh is huge, but this also comes with a you know uh a negative you know consequence, but we'll get into that later so yeah I mean nfts were always great, I from the start have not seen a single proper use of an NFT. I still haven't seen it, and I'm gonna be honest like and I understand why it doesn't exist because of the negative consequences I've been like I've been talking about, but uh we'll get to that you know towards the end of this session.

Ecoinstant: So we're really early in this process I think and so the people that noticed this early started to play around with it and I think play is the right word, there I don't know if there's any other word to describe the the bored Apes, uh they started to play around - testing the technology and so I think in that sense that the technology is so new and innovators need to play with it and figure it out, learn lessons, make mistakes, have successes too and build up a library of best practices - what works what doesn't, I think that might be why gaming is such at the Forefront right now because literally these Technologies are so new that we need to play with them and so people have made and are making games. and with and through the games we're gonna figure out the best way to get these Technologies into work, into use. one of the issues that I see for example one of the first ideas that really got me thinking was land Deeds. and I thought yes Deeds are non-fungible, and if they were tokens right then that certain things would be easier through certain things would be better, certain things may not be better but wow I really thought that a non-fungible token land deed that really got my attention. but you know everybody's got to have a wallet, so onboarding is a big issue onboarding is a huge issue. so I think gaming is at the Forefront precisely because there's a lot of playing that needs to be done as we figure out how to implement these Technologies, into governments and into nation states and into real life, first The Gamer - Let The Gamer experiment, and so that kind of brings us to what you're working on with gaming - were you a player before you were a game developer or how did that how did that path travel for you?

Spiritsurge: I think the first time I actually gained awareness was I remember I was just playing games all the time, like playing Pong you know or playing you know what were the Space Invaders on game boy, - yes - like I've always been a gamer like from the start and I've been obsessed with gaming and sure you know I've born when you're born in the in the Middle East right you obviously come with expectations from your family and you have to do engineering you have to follow a path because like being a game developer is not considered a proper path when you're going to work you know Middle Eastern families, but this was something I always wanted to do and I'm glad that I've you know stepped onto this path and just looking at that right, so you mentioned this uh term but gaming is the Forefront right now for experimentation for NFTs, and now I want to talk about one of the biggest drawbacks of an nft system, which is a big problem for Gamers, game developers to like include it in the game. so I'm running a game Astral Wars, right it is a card game TCG just like hearthstone, and I have a card there which is called red potion it gives you plus one attack and fury which gives you double strike, allows the card to attack two times, but now what has happened is I'm getting feedback that this card is too strong, it needs to be changed right, it needs to be toned down or at least the ability has to change or whatever it is. now what was the thing about nfts that was so attractive? it was the fact that it was immutable right, it can like the data within that particular thing cannot be changed, but now I'm in a scenario where I have a card that is so overpowered that people don't want to play the game - it's ruining their experience so what do? I do I cannot make it an nft right because that's that's the trick of it, and nft is immutable but even though I have a token right the fact that I can change its data uh and it exists within my centralized database so it's now mean I'm running an nft it means I'm running an in-game, it's an in-game item right, it's not an nft even if I were to broader custom Json on the Chain saying oh you know this guy has a red potion the fact that red potion's Value is changing the fact that the ability of the red potion is changing means that it is. and this is the biggest drawback for gamer from gam, for game developer. to get it right, because you need to get it right first time right or you need to find a way to uh not have that nft in play anymore, if you want to maintain the fact that your in-game items are nfts and to- date, to-date no one has gotten it right, and anyone who says they got it right are not running NFTs, they're running centralized in-game items that they're changing the information and data repeatedly. I like that you mentioned Land Deeds, Land Deeds is immutable because once that deed is on the Chain right, sure it's on you have to have a wallet for it that's understandable. I remember when USBs came out right everyone was shocked that you need to have a USB to like store info. but people got around to it. it's gonna be the same here eventually everyone will get used to it. and Land deeds is something that's immutable right because once the land deed is fixed and transferred right and there's a unique signature that information is not going to change, but what happens if there is an extension within the land or what happens if the terms of the land deed, any any nft right which requires an information to be changed uh on chain right is not an nft anymore because it's not immutable, and that is such a huge huge concept that people need to work with, and that's why centralized governments are having so much trouble uh having to find, finding a workaround, because they can't change anything anymore right if someone, uh I remember there was this uh campaign back in El Salvador right right before they Incorporated Bitcoin and they talked about send, uh you know having loans bank loans as nfts, right but then came the problem that how - what happens if the terms of the loan change? right, do you discard an nft and you give another nft right, and it became this huge uh moral dilemma where uh in the end it was scratched because no one could get around the fact that the bank would just randomly on chain send you - a bank loan nft with different terms right and you are going to have one with your original terms and now you have two nfts for the same bank loan with two different terms, how are you going to resolve this in court? and there's such a there's such a legal implication, we are so far from figuring out how to use nfts properly because that requires A - to have the perfect product B -to have the perfect users, C- to have the perfect development team that you can trust, if you cannot find any of these three uh your nft project right is either not going to be an nft project anymore or it's going to end up just like bored apes or crypto punks or you know uh what's this new one uh like there's so many - so many yea- yeah I mean like that is the thing, so that is the thing here, unless we can figure out a way right as developers to make a project that does not require even a single change in any piece of information right, that is what it's going to make in nft, right, if you can keep continuously changing data then it's not immutable anymore and that is a problem.

Ecoinstant: Okay I so many good lines of thinking there, I think about now technically you know as a project manager my mind immediately went to what's the technical solution, the nft only contains an ID number and in my centralized database I can edit the stats of the card right so I can change the card, it's still your nft but all your nft has is an ID number that refers to my centralized database, so that is ideal from the developer's perspective but non-ideal from the idea that these, this information is on chain and immutable right?

Spiritsurge: No it's not an NFT anymore because what you're going to end up is with duplicate so let's say I am I have this picture of a pink monkey and I put it on chain saying that this is a pink monkey, but if I were to try to use the same title number right with a different ID and I throw it out there so now you have two crypto monkeys with the same ID with the same you know title number one one six one one has blue hair one has pink hair, well now you have duplicates and that's why you know like what was this new project azuki, azuki's new projects came out with Elementals right? and the whole reason why so many people were really concerned with elemental was because they were recycling the same image with different ID numbers, right and then they changed those pictures, all right like they change the metadata and all of that stuff right and what that resulted in was a huge amount of people sh!tting on azuki because they took 40 million for their mint 40 million dollars for their mint right and they developed and they delivered subpar, you know nfts, and they did it, and they like gave duplicates with different ID numbers and it made no sense, so that's the thing the only time an NFT remains an nft is when it's out it's only on chain, it is not on anywhere else except on chain. and any so if you were to take any gaming projects right now right, example, you take my product take any project that's out there um and if that information can be changed there can be a buff it can be a NERF right um, that particular card and it affects the present, either let's say your owner of the card and now it's got a Nerf, right the moment it gets a nerf and that nerve is reflected within your ID number that is not an nft anymore, it's a centralized in-game item and it's the same everywhere, yes so to like talk about this particular ethical impact of you changing information right and calling it an nft is so severe that I'm glad that we don't have regulation because so many people would end up breaking the rules

Ecoinstant: Well right and and I think regulation isn't possible until we figure out these issues, you mentioned Splinter lands uh one of the top uh nft gaming, or web3 gaming companies right now, I think they they they rank really high in transactions they hit a pretty big point in the last bull market, um I think that that is the way they handle it you own a card but the effects of that card in the game are not decentralized, they are centralized so however they're reading that card uh I believe the data stored on chain is something like an ID number, and they're free to adjust how that ID number Works in game whether it is a buff or a Nerf, um and so the Practical cases, it's not as nft as we might think or we might wish. on the other side of the coin do we want to play a game where developers can't make adjustments I mean that is so complicated, what game in history well maybe there is a game like chess or something once the rules are written that's how you play chess, but it seems to me that almost every game makes adjustments as it goes, and usually for the better maybe not everyone agrees but it's balancing I think is what they call it, the ongoing balancing adjustments - very interesting concept.

Spiritsurge: The important thing here that we need to consider is the fact is that if you were to have a game that was perfect you would also need to have people the users who are perfect, who are not going to abuse the system or who are not going to you know uh pull off scams by skating a price or something there's there's so many moving pieces when it comes to talking about nfts and gaming.

Ecoinstant: Absolutely so just stepping back, I was thinking of smart contracts, so in ethereum you can publish a smart contract and I've been talking to a couple different projects and you know I've said hey we could do it this way, and they said well don't we want to do a smart contract? I said well you can but you better make sure that you know everything now before you publish it you know because you can't change it later! if it's a real smart contract and it has an exploit you know it could be audited or not, the exploit may not be invented today could be invented tomorrow, but you can't change that contract, you can you can deprecate it and launch a new one, you can Fork over to something else like I will, I got a snapshot everybody we're going to this other smart contract, come claim on the new one because a new hack has appeared, and now we that old one doesn't work anymore, so the technology of a smart contract was big promise, wow no but we just gotta trust the code, but wait code? I don't read code and even the people that read code may not identify the exploits, the people that are very good at that generally work it out over time, and figure it out later as soon as there's a a Honeypot enough money for that for them to be valuable to really, let me let me look at this another way. so these immutable Technologies come really with their own challenges for sure.

Spiritsurge: Yes I mean let's talk about the most one of the most famous you know what let's talk about the most famous one of the biggest market cap, Crypto Punks. did you know that crypto Punks there's like two versions of them, there's crypto punks version one and crypto punks version two. -ahhhh- the first version which was made had this huge exploit which allowed people to buy crypto Punks without spending ethereum. what that resulted in was such a large Outrage at that time that what the crypto punks team did was they launched another version version two on top of that, so any crypto punks that you see out there uh on crypto Twitter, right those are version two, those are version two punks, and that is an example of that, things can still go along even if you have a 900 million market cap, right and this is in the bear market and I'm not going to talk about how what happened in the bull market and how high they were at that time. so keeping that in mind you have to be extremely, extremely efficient you have to make sure you have perfect product, right perfect service, before you can put it on chain and call it immutable. right? Crypto Punks was a huge scandal at the time ,and the way they fixed it I suppose yeah it did work out because they're still surviving they're still there, and even though like the ownership has changed, but you know at that time they did the right move and, no matter what happens as we go down the road, developers are always going to face challenges when it comes to creating smart contracts, when it comes to having non-fungible tokens, when it comes to having immutable trustless systems. I honestly think that nft's topic is so big I could probably talk another eight hours on it, and smart contracts is equally big, I mean, I have gone through so many smart contracts, that's the first thing I do whenever a project is launched on ethereum, the first thing I do is go through the smart contract, right. and like, I come across these really really basic mistakes, right and these are million dollar projects that come with basic basic mistakes right, that can render their system their game uh their smart contract completely but you know what I would love to talk about that um you know within next week,

Ecoinstant: okay so let me just wrap this back around -

Spiritsurge: whatever you know the agenda or topic will be

Ecoinstant: yeah let me wrap this back around to financialization, so no one says when you buy a license or you buy a copy of Counter-Strike two, nobody says it's an investment - even though you might get a thousand dollar knife or a knife worth multiple thousands of dollars. I think we're in the same space, again a big red flag when you feel pressured to invest, that is tricking your psychology, this is a note from last week, this space is a space where we're playing around and yes some people might make money, you might be able to make some money too, but it's not an investment in the sense that playing Counter-Strike or buying a copy of Counter-Strike is not really an investment - you can make money and you can lose money - but you can't lose money that you didn't spend, right? so be very careful when you're playing in this space, there's a lot of fun that you can have but just wave that red flag in front of anybody that says or pressures you to invest or makes you think like you're going to be missing out, that's the the old fomo - fear of missing out, no come and play spend whatever money you're comfortable spending on entertainment and maybe that money will multiply, maybe it'll turn to dust, that's kind of the way it goes - uh there's some things we can learn about this along the way, but I mean would you is that is that okay, can I say that? I mean would you also recommend being very careful uh being tempted to invest money in this space right now?

Spiritsurge: Absolutely, one of the biggest things that one of the biggest red flags you will actually see are there is someone who says take part in our project and I will make you money. right! there are projects that will like provide you or give you money I've invested in some of the projects myself right but you need to make sure that they're doing your due diligence, it's a smart contract for now, can changes can be done? is there unlimited minting allowed for the token? right there's so many points that need to be focused on um honestly I I was just thinking the other day I should make an app that literally just you know you put in the link of the smart contract and tell you whether it's a good project or not. I was seriously thinking that, but like that is so important don't just look at what the market marketer is saying right the marketers are saying oh bro get into this project it's amazing is this is that it's that, right but you have a product? no; uh are your smart contracts renounced? no, do you even know what a smart contract is? yes that is an actual legitimate question that you need to ask uh these people because so many people think it's very easy to start a project right it's literally it'll take you nothing you create your spot you drop an announcement well now you have a project, you just hire an influencer same amount of money and that influencer is going to shill the project for you, it's very easy right now to create a project that is believable, but it isn't an actual project that you want to invest in? is that an actual uh project that is going to deliver what it's saying its going to deliver? if there's a game that is saying you're going to have a lot of fun with this game but they don't have a product, that's their that's a red flag, if there's some game if your product which is saying I'm gonna have a token it's gonna give you one percent every day and it's gonna go to the Moon, well that's a red flag because you don't know what's going to happen, how are they going to control inflation what's the plan what's roadmap all of these things have to be taken into consideration when you are in the web3 space -do not blindly invest money, right even if you have millions.

Ecoinstant: excellent well thank you I really think we wrapped that up uh pretty well put a nice bow on it be careful out there - and we'll see you guys next week.