In this post, we explore the NFT: The Non-Fungible Token. I am only going to give ‘token’ time to defining this, partially because I am still learning about it. But I think you should know about this technology because (1) like it or not, it appears to be “a thing”, and (2) there is a reinforcement of a project management concept on which I blogged about already this month – that of secondary risk.
Some of you may recognize the “Charlie Bit My Finger” image I put in the header of this postYou’re seeing a screen capture of a viral YouTube video. I did a Google search of that phrase as I’m writing this and it yielded about 2.3 million results. You may also have read articles, like this one from the BBC, which describes how this video is now being removed from YouTube because it has become an NFT. An NFT video of a kid biting another kid’s finger - that just sold for more than three-quarters of a million dollars. Say WHAT?
So we start with, what is an NFT? It’s one of those acronyms for which spelling it out helps make as much sense as a FoaB (Fish on a Bicycle). But here goes: NFT stands for Non-Fungible Token.
So now we have to break that down. Fungible is not a word we use every day. If you asked me what it meant yesterday, I would have said fungible was an edible mushroom. But no – it has nothing to do with fungi.
I actually have a go-to source for terms like this: Investopedia. Here’s their definition:
Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.
So what’s fungible? Cash money is an example. I can find an equal exchange for a US$1 bill – twenty nickels, or four quarters or ten dimes are equal exchanges.
What’s non-fungible? Again, from Investopedia:
If Person A lends Person B his car, it is not acceptable for Person B to return a different car, even if it is the same make and model as the original car lent by Person A. Cars are not fungible with respect to ownership, but the gasoline that powers the cars is fungible.
And finally, the last letter of the acronym - token. Remember, we are still just spelling out the acronym here. I hope you now “get” the Non-Fungible part, so let’s move on to TOKEN. Think of tokens as a ‘unit of value’. This applies to cryptocurrency as well as a token like the old-timey ones we used to use to allow admission to the subway. Crypto tokens are cryptocurrency tokens. Cryptocurrencies or virtual currencies are denominated into these tokens – units of value, which reside on their own blockchains. Blockchains are special databases that store information in blocks that are then chained or linked together. This means that crypto tokens, which are also called crypto assets, represent a certain unit of value.
So why is this so hot now, literally on fire? Yes, literally, ON FIRE.
Have a look at this video. A group of crypto-enthusiasts called Injective Protocol bought a Banksy painting for about $100,000 and then burned it, to make their point about NFTs.
The point they were trying to make is about trust. By destroying the original they are trying to build trust in blockchain technology.
Whether or not you get this (I’m still wrapping my head around it) there is, as I said above, the aspect I’d like to tackle here is regarding secondary risk. The secondary risk, believe it or not, is the carbon footprint of NFTs.
According to a recent article, the positives of NFTs for artists are abundant:
Artists around the world were thrilled: NFTs provide the opportunity for them to make significant money on their work, reach a broader audience all over the world and link a digital file to a creator, ensuring authenticity. And with the value of cryptocurrency skyrocketing, some think there's never been a better time to get in on it.
We could look at NFTs as a way to respond to the risk of theft of art. That’s nifty.
However, that same article goes on to talk about the downside – a nasty side - of NFTs. It turns out that blockchain technology is very energy-intensive. Blockchain incorporates a "proof of work" (PoW) method to create digital assets and it is – by design – highly inefficient and thus uses significant computing power, translating into large amounts of actual energy usage. In fact, the computers are, in effect, trying to solve a complicated mathematical puzzle, something like trying to open a safe by trying every combination. They make millions of attempts every second to solve the puzzle so that they can (on behalf of the ‘miner’) get ‘added to the blockchain’. The higher the value the token, the more difficult these puzzles are to solve, and that makes them increase in value, creating a spiraling need for greater computer power and larger data warehouses and stronger cooling units just to keep up. As you can imagine, this causes an exponential increase in actual power consumption.
The NFT open-source network, Ethereum, according to the article, is “currently estimated to (annually) consume roughly 44.94 terawatt-hours of electrical energy, which is comparable to the yearly power consumption of countries like Qatar and Hungary.”
So while NFT is ‘nifty’ for artists, it contains a secondary risk. How do we respond to the secondary risk? First: be aware of it – and articles and blog posts like this, I hope, help in that area. Next: make the network less energy-hungry. Efforts such as Greentouch from the past have been successful at reducing the energy consumption of IT networks. This secondary risk provides a tertiary risk – an opportunity – for network engineers to focus on algorithms and technologies to keep the PoW vibrant and focused on security while still being less energy-hungry. This has been done in the past. I have blogged about GreenTouch, a consortium of IT and telecom companies who are fierce competitors but who collaborated on algorithms to reduce the energy use of the technology simply by using clever algorithms to reduce the number of times optical amplifiers transition from a zero to a one. This collaboration resulted in a new optical transceiver which was expected to reduce the overall power consumption of the entire metro access network by 27 percent; this translates to about 4 terawatt hours of electricity saved on an annual basis, equivalent in terms of annual greenhouse gas emissions to taking nearly 600,000 cars off the road. If competitor telecom companies can do that in 2014, think of what an open-source collaboration could do with 7 years of increased knowledge under their belts!
In addition to working on better networks, this provides opportunities for computer and data storage companies to improve the physical need for energy of their systems, something they are doing already, but this should motivate them to ‘up their game’ in this area. It also should be a motivator for these companies to source their energy supply on renewables like solar and wind.
So while some technical enthusiasts are “burning up” art, they should also be “burning down” work products to reduce the hunger of NFTs and cryptocurrencies in general for carbon-intensive energy.
Well, at least be aware of them. Read on to understand. One of the pleasures of writing books on different topics (or at least different within the field of project management) is to find unusual connections between them. I recently had the pleasure of collaborating with Loredana Abramo, PMP on the new book, Bridging the PM Competency Gap. One of the things on which we focus in this book is the role that generational differences plays in the way that people gain knowledge. In turn, this required us to dig in and find out what drives Millennials. In one of the tables of the book, we look at Motivating and Enabling Factors, Deterring and Blocking Factors, and Engagement Strategies. One of the Motivating Factors was ‘strong ethical leaders’. And that is the connection from the Bridging the Gap book to the books on sustainability in PM (Green Project Management and Driving Project, Program, and Portfolio Success) and indeed to this blog.
Today’s post is about how Millennials are driving change to the way that wealth is invested, with their propensity to insist that ethics, and along with it, social, economic, and ecological bottom lines are considered and balanced. By the way, let’s not ignore Millennials. Why? Their spending power is estimated at US$170B per year. I highly recommend that you spend a moment looking at this infographic (in small form here, linked to a larger size image for your convenience).
This is why a small story in The Economist’s most recent issue caught my eye. It’s called Generation SRI and the subtitle is “Sustainable Investing Joins the Mainstream”. SRI is “Socially Responsible Investing”.
From the article:
Fans of “socially responsible investment” (SRI) hope that millennials, the generation born in the 1980s and 1990s, will drag these concepts into the investment mainstream. SRI is a broad-brush term, that can be used to cover everything from divestment from companies seen as doing harm, to limiting investment to companies that do measurable good (impact investing). The US Forum for Sustainable and Responsible Investment, a lobby group, estimates that more than a fifth ($8.7trn) of the funds under professional management in America is screened on SRI criteria, broadly defined, up from a ninth in 2012 (see chart).
The numbers are hard to ignore.
From the Green Money Journal:
Sustainable, responsible and impact investing assets now account for $8.72 trillion, or one in five dollars invested under professional management in the United States according to the US SIF Foundation’s biennial Report on US Sustainable, Responsible and Impact Investing Trends 2016 which was released in mid-November 2016. See chart below:
According to a survey in America by Morgan Stanley, 75% (of Millennials) agreed that their investments could influence climate change, compared with 58% of the overall population. They not only believe in the triple bottom line, they have confidence that they can be change agents. They are also twice as likely as investors in general to check product packaging or invest in companies that espouse social or environmental objectives.
The Economist article cautions us that we can’t fool Millennials. They have too much savvy, and their’s too much data available to them (and they know how to use it) to ‘greenwash’ this group. From the article: “money managers who pay only lip-service to SRI are unlikely to get away with it for long: sooner or later the robots and millennials are bound to call them out”. And there is the rationale for the title of this blog post.
Let’s get back to the Morgan Stanley survey.
“As widespread attention to sustainability continues to increase, consumers and investors alike are now more than ever factoring sustainability issues into their investment decisions,” said Audrey Choi, Chief Sustainability Officer and Chief Marketing Officer at Morgan Stanley.
Because it’s important for us as project managers – with an increasing number of Millennial stakeholders – to understand this generation, we provide this extract from the survey. Note the connection to long-term thinking.
• Values Matter. Consciousness around sustainability has leapt from the consumer space to the investment space. According to the latest survey, investor attention to sustainability factors is now growing faster than that of consumers as a whole.
• Environmental impact. Increased interest in sustainable investing occurred despite a heightened sense of market volatility, implying perhaps that in uncertain times, companies and funds with sustainable attributes may be viewed as more stable over the long run. 71% of investors polled agreed that good social, environmental and governance practices can potentially lead to higher profitability and may be better long-term investments.
• Focus on Customization. The poll showed a strong desire for the ability to customize sustainable investments; 80% of individual investors and 89% of Millennials are interested in sustainable investments that can be customized to meet their interests and goals.
• Sustainable Investing in the Workplace. With Millennials projected to make up 75% of the American workforce by 2025, it’s interesting to note that nine out of ten Millennial investors (90%) expressed interest in pursuing sustainable investments as part of their 401(k) portfolios. This implies that offering sustainable investment funds as 401(k) options may be an additional way for companies to attract and retain Millennial talent in competitive job markets.
Millennials continue to fuel growth. Nearly nine in ten Millennials surveyed (86%) are interested in sustainable investing, compared with three-quarters of individual investors overall (75%). This heightened interest is likely tied to Millennials’ strong belief that they can make a positive difference with their own investments. Related findings from the survey include:
• Influence. 75% agree that it is possible for “my investment decisions to influence the amount of climate change caused by human activities," compared with 58% of the total individual investor population.
• Impact. 84% agree that it is possible for “my investment decisions to create economic growth that lifts people out of poverty," compared with 79% of the total individual investor population surveyed.
In summary, you get a feel here for the mindset of these Millennial investors, who are also project sponsors, team members, leaders, and customers.
What does this mean to project managers? Well, if investors, who are (or should be) long-term thinkers are increasingly thinking about long-term impact, and projects are launched by investors, then by the tried and true property of transitivity, project managers should be thinking about long-term impacts as well – thinking through the project’s outcome to the benefits – and other side-effects of the project’s product in the long-term.
In Part 2, I’ll discuss the particular ‘outcome areas’ that are the focus of sustainable investment, and how you can use this information to (A) make better decisions on your own project that serve the longer term, and (B) better understand the thinking behind the investment choices made by Millennials.