2021 is the year that belongs to NFT. As a non-homogenized token, NFT is a unique digital identifier to record the ownership of digital assets. In supporting the meta-universe economy, NFT is expected by the market. So, as the metaverse caught fire, NFT also ushered in spring.
In the first half of 2021, the overall market capitalization of NFT increased nearly 310 times compared to 2018. As of August this year, the trading volume of OpenSea, the world’s largest NFT trading platform, has already reached five times its value in 2020. Not long ago, on November 24, Collins Dictionary also announced that “NFT” was selected as Collins Dictionary’s 2021 Word of the Year. According to Collins’s data, the usage rate of NFT in 2021 has increased by 110,000% – the exaggerated usage rate is enough to confirm that NFT is out of the loop and hot.
And, in addition to being seen as the economic foundation of the meta-universe, NFT is also breaking into more and more markets. Since this year, the global NFT art, sports, and game markets have been climbing, and any artwork that relies on NFT is often worth a lot of money. NFT has repeatedly sparked a frenzy, is it a blindly inflated bubble or the eve of metaverse change? will the NFT fire really be the beginning of digital association?
The nature of technology, the inevitability of development
From the nature of the technology, NFT is an application product that emerges under further technical and application refinement development on blockchain technology and is an application technology that is bound to emerge. Blockchain is essentially a decentralized distributed database, which can realize the distributed recording and distributed storage of data information, and it is a data structure that combines blocks together in the way of a chain. In layman’s terms, it means that blockchain has changed from the previous one-person bookkeeping to a model where everyone keeps accounts together, making accounts and transactions more secure. From blockchain 1.0 to blockchain 2.0, currently, blockchain has entered the grand voyage era of 3.0.
In blockchain 1.0, Bitcoin achieved decentralized provisioning records and flow. After more than a decade of time verification, Bitcoin’s value storage function has been accepted by some overseas market institutions and governments. The success of Bitcoin proves that decentralized value flow can be effectively achieved. Based on the success of Bitcoin, Ether has borrowed its model and upgraded it to support more complex program logic and give birth to smart contracts, enabling blockchain to move from the 1.0 era of decentralized ledgers to the 2.0 era of decentralized computing platforms.
Among them, in late 2013, Vitalik founded Ether, and the earliest digital token ecosystem has been born since then. Ether is designed to create a blockchain 2.0 ecosystem, a public blockchain platform with a Turing-complete script, known as the “world computer”. In addition to value transfer, developers can create any smart contract on Ether. By means of smart contracts, Ethernet has expanded the commercial channel of blockchain. For example, the token issuance of numerous blockchain projects, the development of smart contracts, and the development of decentralized distributed applications (DAPP).
The decentralized application DAPPs based on blockchain smart contracts are mainly focused on finance, games, and social collocation, and the number of users and assets is steadily growing. DAPPs achieve decentralized execution of key logic through on-chain smart contracts, thus certainly solving the trust problem of the scenario. For example, credit transmission in financial applications, key values in-game applications, etc.
However, when the decentralization of blockchain is applied on a large scale, the distributed storage will inevitably bring about a significant rise in data volume. At this time, these distributed data need to be marked. Obviously, if these distributed stored data are to be traded, then meticulous and secure marking is inevitably required. It is in this context that this extends to the technology of NFT.
NFT is a non-homogenized token, and its concept originated from a 2017 blockchain game “Crypto Cat”. Like its background and original intention, NFT provides a new idea to solve the copyright problem – when a job is minted into NFT and put on the chain, it is given a unique code that cannot be tampered with. This way, no matter how many times the work is copied and distributed, the original author is always the sole owner of the work.
As you can see, unlike homogeneous tokens such as Bitcoin, each NFT is unique and indivisible, and this is the most important value of NFT. Because of the support of blockchain technology, even if an onlooker is able to download and intercept NFT works, the NFT work holder is able to prove the original uniqueness of the NFT in his hands through digital certificate tracking and other means. Just like today, you can casually buy a copy of “Mona Lisa’s Smile” in the painting and calligraphy market, but the real one will always be the only one in the Louvre.
The advantages of NFT are obvious: on the one hand, NFT essentially provides a kind of data “key”, as each NFT is scarce and irreplaceable, and the ownership of the purchaser and the copyright of the creator are also guaranteed by the blockchain, which conforms to the traditional law of supply and demand and allows the purchaser to easily transfer and exercise rights easily.
On the other hand, a set of corresponding rights can exist outside of a centralized service or centralized database. This greatly enhances the efficiency of data asset transactions and flows and accelerates the trend of digital association. In the past, digital items such as game equipment and virtual gifts were stored in the servers of game service providers, and players did not actually own them and faced problems such as damage, theft, and black market transactions. With blockchain, developers can create rare virtual items and ensure their scarcity, and users can save and trade their items safely and trustfully.
Whether from the nature of the technology or the future of development, NFT is the big trend. In the short term, NFT mainly realizes online virtual property represented by artwork to realize digital confirmation, circulation, and trading; in the medium term, traditional real-world assets such as stocks and private equity will be realized in the future and will be able to realize liquidity transformation at any time; in the long term, through the prophecy machine system and so on, physical assets will be realized from assets online to assets on the chain, which will carry richer asset values.
Fascinating and dangerous
NFT’s bright future is attracting capital to enter and keep building momentum for it.
According to Coin Gecko data, the overall market cap of NFT reached $12.7 billion in the first half of 2021, an increase of nearly 310 times compared to 2018. According to Non-Fungible data, NFT transaction size reached $754 million in 2021Q2, up 3453% year-on-year and 39% sequentially, with explosive growth in trading volume.
At the same time, major NFT platforms flew through Series A funding rounds of more than $10 million: in March, OpenSea and SuperRare announced the completion of $23 million and $9 million Series A funding rounds. Subsequently, NFT platforms Bitski and Raible also quickly followed up with $19 million and $14.2 million in Series A financing.
Based on the economic system of NFT, domestic Internet majors have also started to lay out NFT. a number of domestic Internet giants such as Ali and Tencent are cultivating their own “NFT test fields” based on their own ant chain and Tencent to letter chain. From the current actions of the Internet majors, the construction of NFT applications basically starts from their own genes and areas of expertise and then finds a landing point that is both hot and functional.
For example, Ali with the “e-commerce” gene relied on the ant chain to release the NFT payment code skin; so far this June, the ant chain fans have released more than 10 payment code skins, and in Taobao auctions and other platforms have launched a special NFT digital art auction with the theme of public welfare, young artists and so on. Tencent, which is deeply involved in the cultural and entertainment ecology, has put on sale a series of limited digital collections on its own NFT trading platform “Phantom Core”, and the first phase of the limited sale is the NFT audio digital collection of Tencent’s famous program “Thirteen Invitations”.
Although it seems that the NFT market has entered an era of the full boom, behind the full boom, the flavor of “bubble” is getting stronger. In fact, the current market, especially in the technology sector, has a frenzy for new things that emerge from the trend of digitalization, which is both normal and abnormal.
Normal is in the fact that people really have not been exposed to these novelties, so they will be intensely curious about what comes out of these new trends and want to realize different wealth values with the help of these technologies, or rather catch the trend of these technologies.
But what is not normal is that we many times lack independent and calm thinking and observation, which makes the NFT boom more and more hype and speculation. Currently, the NFT market continues to be hot, relying to some extent on the attractive price of NFT. The price increases hundreds of times in a few days so that the circle outside the circle to see the possibility of getting rich from this.
But from the current state of affairs, the huge turnover of NFT so much talked about sends out signals that are not really healthy. The current price of NFT collectibles is experiencing huge fluctuations, and the influx of speculators also makes the price of the collection deviate from the true value, and there is even the possibility of knock-off transactions to significantly raise the price. And, for the current NFT collection how to appreciate, how to price, but also the lack of unified value assessment standards.
In addition, where there is speculation, where there will be scalpers. Now, the ubiquitous scalpers have entered the NFT field. The Alipay NFT payment code skin is still up for grabs, and the same model is being recycled and sold on idle fish. Screenshots provided by netizens show that there are scalpers posting on idle fish: “High price recovery of Alipay Dunhuang Fine Arts Institute NFT number 0001 or 6666, 100,000/piece, other numbers 500/piece.” The highest idle fish with the same NFT was even speculated to be 1.5 million yuan.
The dangerous hype has undoubtedly caused great uncertainty in the development of NFT, whether the supply is based on scarcity or on the demand for functionality already in place, whether the demand falls on the coin circle or the traditional circle has begun to rush, and even the creative circle has begun to smell the wind. It is easy to think of the Dutch “tulip bubble” hundreds of years ago. At that time, the price of tulips was speculated tens of times higher, and when the “boondoggle” style drumming ended, it took the Netherlands three years to recover from that absurd economic collapse.
NFT speculation is an undeniable zero-sum game, and in a zero-sum game, once someone makes money, it means someone loses money. No one can accurately guess who is the lucky winner, and no one will know who the next risk will be spent on. This is the fatal lure of this drumming game.
NFT awaits further compliance
In addition to the bubble brought by hype, more problems may exist at the level of policies and regulations.
At present, it is still difficult to define the properties of NFT physical goods globally, and it is also difficult to characterize the NFT virtual goods that will really play a role in supporting the economic system in the metaverse in the future. In China’s current laws, there is no definitive conclusion on what property rights belong to various digital assets, including NFT.
Moreover, China has been in a strong regulatory mode for commodities with the nature of “virtual coins”, and since this year, the relevant departments in China have issued the “Announcement on Preventing the Risk of Speculation in Virtual Currency Trading”, “Notice on Regulating Virtual Currency “Mining” Activities The Notice on Further Preventing and Disposing of the Risk of Speculation in Virtual Currency Trading” and other documents have pointed out that virtual currencies do not have the same legal status as legal currencies, financial institutions and non-bank payment institutions are not allowed to provide services for virtual currency-related business activities, as well as to crack down on criminal activities involving virtual currencies.
Due to the severe regulatory measures taken by the domestic business related to virtual assets, the development path of NFT in China will follow a different play from the overseas market from the point of view of the existing business dynamics – the use of NFT-certified real estate cases in the United States will not be recognized in China, because once it is recognized as securities, or has the nature of securities The NFT is a virtual currency that has been banned in China, and its production and issuance may constitute a virtual currency issuance.
It is understandable why Alibaba and Tencent have repeatedly emphasized the scope and boundaries of their layout in the NFT field. In response to the misunderstanding of whether NFT is equivalent to issuing tokens, Antchain has clearly stated that NFT is not a virtual currency. In the online roundtable forum held by Tencent Research Institute, Qin Qing, director of blockchain products of Tencent Cloud, also said that NFT can be issued on the alliance chain to truly remove the attributes of a currency.