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Brian Lehrer: Brian Lehrer on WNYC, and we're doing a series of brief explainers for the end of the show during the membership drive through tomorrow. Today, we're going to talk about NFTs. You might have heard NFT in the same breath as cryptocurrency or blockchain. Maybe you put some money into NFTs yourself, but what exactly is this modern and somewhat abstract investment tool, and how does it work? Joining me now to explain is Wall Street Journal reporter, Dion Rabouin. Dion, I know I said your last name wrong. You want to say it for us?

Dion Rabouin: Yes. It's Dion Rabouin. Easy way to remember is you're going with Rabouin.

Brian Lehrer: We're going with Dion Rabouin to launch the journal. Who's going to launch the journal's inaugural YouTube channel soon, I see, and has an article on this investing trend. The article is called the fractionalization of everything. Dion, start at the beginning for us. What does NFT stand for?

Dion Rabouin: NFT stands for non-fungible token, which is just a fancy way of saying a thing that can't be replicated.

Brian Lehrer: A thing that can't be replicated. Can you explain what non-fungible means in that definition?

Dion Rabouin: Yes, non-fungible basically just means replicable or repeatable. It's a fancy investment term. If something's fungible, you can make more of it or another one of it. The idea behind NFTs is I'm selling you a token. A token can be anything from painting or something that exists online, but I can't recreate it and sell a thousand of them to all your friends, so you have the only one and you get to make your thousand friends jealous instead.

Brian Lehrer: Was this one of your examples? The Mona Lisa is non-fungible because you can't replicate it. A stack of Mona Lisa posters from the Louvre Gift Shops would be fungible. If these are non-fungible investments, does that mean people are actually investing to own a fraction of, well, not the Mona Lisa, but something else that's one of a kind?

Dion Rabouin: Yes and no. The idea behind fractionalization is that you put something on the blockchain, the blockchain is just this computer program where you have an exact digital receipt or the equivalent of a receipt, and so you know exactly when this token or piece was created, who the owner was, who created it, and who bought it, and who owns it.

With all that in place, you can sell then pieces of that. There's a digital record of who owns exactly one-sixth of-- to use your example, the Mona Lisa. A lot of these NFTs are just the digital rights to things. One example I used in the article was Playboy has started selling NFTs of some of its memorabilia, whether that be the big pictures of Marilyn Monroe, the Centerfold issues, or of other celebrities or different things that are in its library, like Matis Painting, but you don't actually get individual pieces of those, you get to buy the digital rights to those pieces and you own a fraction of the digital rights. You don't actually get the thing itself, but you get the ownership of the digital rights or a portion of the digital rights to that piece of whatever it is. Does that make sense?

Brian Lehrer: Kind of, but how does that actually translate into money eventually for the investor?

Dion Rabouin: Exactly. The Marilyn Monroe Centerfold, the original copy, is quite a bit of money. If you've got the negatives or you've got the actual original photo that would be worth a lot of money. As time goes on, you would expect the value of that to rise. You or I, as an investor, could buy a portion of that and the value of that rises again because it can't be duplicated or replicated. The same thing if I were to put the digital rights to the Mona Lisa on the blockchain and then sell that, as the value of the Mona Lisa rises, the value of those digital rights to it rises, and therefore, the thousand dollars that I paid initially, I would hope that in five years, 10 years, that would be worth $5,000 or &10,000, and then I can sell that to someone else, I can give it to my children or to a friend or a loved one, et cetera, et cetera.

Brian Lehrer: Is there a larger economic implication to the existence of NFTs? Are they having a serious impact on the economy or is this just kind of a boutique corner of the investment world right now?

Dion Rabouin: The answer to that really is more of the latter. It is still a small corner of the investment universe. There still isn't a huge market for NFTs just because it's not well known and they're not as available yet. Certainly, regulators are keeping an eye on this space because you could, in theory, fractionalize anything, like I could theoretically fractionalize my house and then sell 1/100th of that to willing bidders on the internet or the dark web. The thing preventing ideas like that from really metastasizing and becoming reality is this fear from fear of regulation, I would say, from the SEC, the Securities and Exchange Commission, which hasn't yet said, "Okay, NFTs are securities, therefore you have to go through all these SEC processes and regulations if you want to do that."

The NFTs that are being sold are largely pieces of artwork that are created on the internet, or images, things like that. The SEC hasn't really stepped in to say, "This is our domain, and we decide what you can and can't sell and how you can and cannot sell it." As a result, it's just a bit of what SEC commissioner Gary Gensler is called the wild west, where you can do whatever you like, but you're not really able to get these things on a platform like Robinhood or like Schwab or TD Ameritrade, just because they don't want to get into this space and risk becoming a target of the SEC that's made these things pretty difficult to get to and kept it to a more niche audience.

Brian Lehrer: Who wants it regulated more, and why?

Dion Rabouin: The folks who want it regulated are really on both sides. People who are creating these NFTs, they say, "Hey, we'd really like some regulation, or we'd like you to tell us how you're going to regulate these?" TD Ameritrade and Schwab and all the other folks would love to be able to offer these things on their platforms because that's more users, it's more things that users are buying and selling and more volume and that creates more money for them.

The folks who are on the other side who like the space the way it is, they would like the SEC to keep their noses out of it. Just let things continue as they have. Again, if you are someone who's selling NFTS, you want to be able to sell on Schwab. You want to be able to sell on Robinhood because that's more customers, it's potentially more money. It's really a mix of folks who like the space unregulated and varnished by corporate or government interest, but there's also people who would like that to happen so that they can invest or they can allow the sales on their platforms without fear of being targeted by the government.

Brian Lehrer: We're just about out of time, but you know how I know how mainstream, the crypto world has gone now? I was watching the baseball playoffs the last few weeks, and one of the commercials for one of the sponsors calls the sponsor "the official crypto marketplace of major league baseball". Usually, they have the official beer of major league baseball, the official SUV, and something like that. Now they have the official cryptocurrency marketplace of major league baseball.

Dion Rabouin: Yes, crypto has absolutely gone mainstream and that remains a big question, how crypto's going to be regulated. We saw the Bitcoin ETF come out on markets this week, and that was a huge hit. This is obviously something that people want access to and want to be able to invest in, and it's going to be really interesting to watch it develop.

Brian Lehrer: Wall Street Journal reporter, Dion Rabouin. Dion, thanks so much. Really informative.

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