On March 11, artist Beeple’s NFT artwork EVERYDAYS: THE FIRST 5000 DAYS was sold for 69.34 million U.S. dollars (approximately 450 million yuan), setting a new auction record for virtual artworks. At the same time, NFT concept stocks also experienced a surge in market in March this year. The stock price of the US NFT concept stock Hong Kong Popular Culture surged 26 times from March 11 to March 23. The NFT concept stock in the A-share market also moved strongly. For example, Annie shares rose by about 29.2% in March this year. In addition, CCTV has also reported and popularized NFT many times this year. In the past period of time, NFT has been out of circles frequently and has caused global heated discussions. It has become one of the most concerned subdivisions in the entire currency circle, including famous experts, scholars, investors and artists.
Why is NFT so popular?
One of the reasons is the promotion of the new crown epidemic. In times of economic turmoil, some rare or unique commodities developed against the trend. Such as coin collection, experienced price spikes during the Great Depression, the 1987 stock market crash and the 2008 recession. Jason Bailey, the founder and digital art expert of analytical database Artnome, believes that the new crown epidemic is one of the main reasons for accelerating the transfer of the world’s cultural and influence center from the analog world to the digital world. SuperWorld CEO Hrish Lotlikar also believes that during the epidemic, online and virtual social and assets have begun to be seriously considered by people. 01 Blockchain also recognizes the role of the new crown epidemic in promoting NFT, which is considered to be one of the “fuses” of this round of NFT fever.
The second reason is that the creation of NFT means the creation of the real economy, which is in line with the mainstream. Token economy expert Meng Yan believes that it is because NFT has brought the concept of “things” to the encrypted economy, and the act of creation belongs to the real economy, that is, when artists create encrypted artworks, they are creating the real economy. The creation of the real economy is the mainstream in real life. Compared with the creation of a Token with a strong consensus, it is much simpler to create a valuable, consumer and collection-customized encrypted “thing”. The third reason is that encrypted assets have repeatedly set new highs, and NFT has taken advantage of this situation. The encrypted digital asset trading market continues to be hot, and the prosperity of encrypted currencies has aroused investors’ interest in other digital assets. Following the explosive growth of DeFi, NFTs at the forefront of the market just took advantage of this trend to bring a new chapter to the crypto market.
What will this hot NFT bring?
The popularity of NFT has greatly enriched the types of commodities in the crypto market. According to the long tail theory, this has brought a huge and long tail to the entire crypto market.
The long tail theory was put forward by Chris Anderson. He believes that as long as the storage and circulation channels are large enough, the market share occupied by products with low demand or poor sales can be comparable to the market share occupied by those few hot products. The rivalry is even greater.
Meng Yan believes that if the crypto market is a complete curve, all homogenized assets, mainstream currencies and emerging digital assets are just the head of this complete curve, and the emergence of NFT will bring a giant to the entire crypto market. Fat long tail. NFT will greatly enrich the commodity categories in the crypto world, stepping from a homogenized world to a greatly enriched non-homogeneous world, and the people who can participate in this world and the ways to participate will also become greatly enriched. This will bring our industry into a new era in which business giants and media giants are the main beneficiaries.
What changes or impact will NFT bring?
Provide new ideas on the chain of physical assets, and everything can be NFT. Yu Jianing, a blockchain expert and president of Huobi University, gave his own point of view. He believes that in the short term, it is mainly to realize online virtual property represented by artworks to realize digital right confirmation, circulation and transactions; In the medium term, traditional real-world assets such as stocks and private equity will be listed on the chain in the future, and liquidity conversion can be realized at any time; in the long term, through the oracle system, the process of real assets from the Internet to the asset on the chain will be realized. , Will carry richer asset value. In addition, for the future of NFT, Yu Jianing said that the “value machine” that NFT empowers everything will soon lead to a ten-year opportunity for asset digitization, and everything can be NFT in the future.
The impact of NFT is not only for asset digitization, it may bring subversion of some industries. Yat Siu, the co-founder of Animoca Brands, believes that NFT can leave a mark in many other industries. “At present, we see that NFT is powerful for all forms of digital content (such as digital art, collectibles, games, and recent music). Influence, but ultimately all other aspects will follow: medical, fashion, finance, manufacturing, agriculture, insurance, etc.” Mark Cuban, one of the most well-known investors in the United States, believes that anything that is driven by files It may be changed by NFT. He believes that in the next 3-5 years, there will be a huge integration, and there will be quite a lot of “winners” in the NFT industry. They will acquire other companies without being anticipated in order to obtain NFT foundation and client.
Is there a bubble in NFT?
Although NFT is a significant innovation, is there a bubble in the recent over-popularity of NFT? Will the heat of NFT dissipate one day?
Some people in the industry believe that NFT bubbles exist, and some NFT works are almost worthless.
Encrypted artist Beeple’s NFT artworks were sold at sky-high auction prices, but after cashing out, they said in an interview with Fox News that the NFT price is “absolutely” a bubble. Fred Ehrsam, former co-founder of Coinbase and current Paradigm co-founder, also believes that NFTs are too enthusiastic in the market today, and some creators are just casting some NFT works that will become meaningless as the heat dissipates, instead of using them. It’s to create something “bigger” that really makes sense. Not long ago, Ethereum founder Vitalik Buterin also expressed similar thoughts, saying that NFT can be applied to charity and funding and other social welfare-related undertakings, but at present the technology is still regarded as “a casino that mainly benefits wealthy celebrities.” Said, “Helping celebrities like Elon Musk increase their bank deposits by $1 million through the sale of NFTs has almost no social value. However, with support and coordination, this irreplaceable token may have an impact on other areas of society. Tremendous influence.”
However, these so-called meaningless works may not affect the development trend of NFT, and the existence of bubbles cannot deny the important status of NFT. First of all, uneven products will not necessarily shake the future of the entire market. Jason Bailey believes that some people may choose to log out of NFT because they do not like the works of a few artists, but this situation will not affect the development of NFT. Just like in the 1990s, some websites on the Internet disappeared, but the Internet potential It was not affected in any way. Sundaresan, an Indian-Singapore blockchain entrepreneur, described NFT as a lasting innovation that will bring a “new sponsorship movement” to artists and other content creators. Fanner Media CEO Gary Vaynerchuk also believes that although NFT is like the Internet bubble and is very similar to the position of Internet concept stocks in 2000, he does not doubt that NFT will have staying power. Secondly, NFT is both a “cornerstone” and a transformation. John Egan, CEO of L’Atelier, a subsidiary of BNP Paribas, calls NFT the “cornerstone” of the virtual economy. Fred Ehrsam believes that although most NFTs may become meaningless in the next 6 months to 1 year, this represents a paradigm shift, and this shift will be long-term and lasting, which will be the creator’s departure The beginning of centralized media.
What is the outlook for NFT?
Regarding the current situation of NFT, Cao Yin, managing director of the Digital Renaissance Foundation, pointed out that NFT is still in its early stage, facing the challenges of fewer users, small market, and no liquidity. So what is the prospect of NFT?
Some industry insiders believe that in the near future, as the heat dissipates, NFT may face a crash. For example, Sundaresan does not believe that high-priced NFTs will always maintain this kind of popularity. He said that the market will be divided, high-priced things will be few, and low-priced things will be unlimited. The best way to participate is to buy NFTs from the artists you want to support, rather than investing as the main purpose. Gary Vaynerchuk firmly stated on Twitter that 99% of NFTs would not be a good investment, and predicted that there will be some large-scale crashes in the next 12 to 24 months.
Many investors and experts also pointed out that there is a lot of room for NFT development and it is bound to explode. As one of the investors in the crypto field, Social Capital CEO Chamath Palihapitiya recently stated that he is optimistic about NFT as the next field in which cryptocurrencies will explode, and has established a considerable NFT investment portfolio. Great Wall Securities analysts also pointed out in the communications industry report “Linking Blockchain and Value Entity, NFT Market Potential” that according to Google Trends, NFT global search volume will show explosive growth in 2021. According to NonFungible data, 2019 The total market value of NFT in the year reached 210 million U.S. dollars, and it is expected to grow by 50% in 2020 to reach 320 million U.S. dollars, and continue to climb 125% to 710 million U.S. dollars in 2021. There is huge room for development.
Take NBA Top Shot as an example. The NBA Top Shot launched by Dapper Labs at the beginning of this year has surged. In response to the NFT spree on the NBA Top Shot, David Pakman, a partner and venture capitalist of the American venture capital firm Venrock, expressed his views. He believes that since the market penetration rate is less than 1%, NFT will have a lot of room for development. And NBATop Shot said that it did not deliberately do marketing, everything is organic growth. In this regard, David Pakman believes that in the future NBA Top Shot and NFT will develop faster than they are now. Wilhem Pujar, the co-founder and CEO of Stacktical, also has an optimistic view on this. “Considering that sports betting is a market of more than 200 billion U.S. dollars, we can expect that a large amount of capital will be reallocated to the NFT, which will be Emotional and financial hedge against empty stadiums and arenas.”
The early success of the NBA in the NFT also brings us more room for imagination. NFT may be a new business model. There is a two-way empowerment with IP. There are also unknowns. David Pakman said, this gives us a glimpse of the NFT. More possibilities. For the huge fan base of big IPs, as long as they can access the Internet, they are all potential consumers of digital collectibles, and these IPs may eventually enter the field of digital collectibles. For companies such as Disney with big IP, creating NFT will become a new business model, and these big companies can also establish sustainable production relationships instead of one-time sales. As David Pakman said, “You will always get paid.” Qin Jianxin, the co-founder of CryptoArtAi, also pointed out that NFT and IP are two-way empowerment, and IP with a certain fan base will have a better future. In the opinion of Gu Jia, chief analyst of the Internet industry of China Merchants Securities Media, IP is a very effective attempt, but the essence is still valuable. However, there is no underestimation of the current IP, so the driving force for more IP to enter the NFT is not strong. Recently, at a roundtable on “How NFT can empower China’s native IP”, Wang Weiyu, Executive Director of Bilibili’s Basic Technology Department, said that NFT is a very good carrier, but the current value of NFT lies more in the consensus of the community. When NFT is placed on a larger volume, there are certain unknowns.
From the perspective of the potential consumer market, David Pakman believes that NFT may be favored by Gen-Z (Generation Z, or Generation Z, especially those born between 1995-2009), because Gen-Z is on the Internet The generation that has grown up in China belongs to the potential consumers of digital collectibles mentioned above. David Pakman said that although in previous generations, NFT is still a niche culture, in Gen-Z’s view, the popularity of NFT will begin with ordinary consumers.
NFT development space: NFT+DeFi, NFT+STO
When talking about NFT investment, Cao Yin stated that investing in NFT must be based on the role of NFT, and the difference in role leads to different investment logic for each track in the NFT market. Personally, he is most optimistic about the encrypted art track with the clearest valuation logic. He also said that NFT+DeFi is very imaginative.
The combination of NFT and DeFi is of great significance. Decentralized finance + non-homogeneous currency may become the next hot spot, and the DeFi category may also expand as a result. In this regard, Meng Yan clarified his logic. In the NFT era, DeFi will expand thousands of times, and it will grow into a full-category encrypted trading market, accommodating all categories of NFT. And the richness of categories will make people’s behavior in the market change from pure investment behavior to investment and consumption behavior. He is extremely optimistic about the NFT+DeFi direction, because this actually means that the encryption infrastructure has begun to support the transaction of decentralized full-category encrypted digital products.
MEME, which has grown against the trend this year, is a good example of NFT+DeFi. MEME integrates DeFi liquidity mining with NFT. Even though the establishment of this currency is derived from the irony of ConsenSys DeFi product owner Jordan Lyall about the over-temperature phenomenon of DeFi projects, from various signs, MEME has become one of the masterpieces of NFT+DeFi.
In addition to NFT+DeFi, NFT+STO is also one of the focuses. The main idea of NFT+STO is to import real-world physical assets into the blockchain through the compliance process, which corresponds to NFT. Some commentators say that in the future, NFT is expected to achieve both on-chain and off-chain assets. Meng Yan believes that the rise of NFT provides new ideas for physical assets on the chain, but there are still many unresolved problems. How to ensure that off-chain assets and on-chain tokens form an unbreakable and counterfeit correspondence? Once there is a mistake, who will be responsible for it? Can the legal and financial infrastructure recognize on-chain assets? When there is a contradiction between consensus on the blockchain and legal recognition, who shall prevail? And so on. Although the infrastructure that can provide efficient assets on and off the chain has not yet appeared, there are still many problems that need to be solved, but once it is implemented, NFT+STO is bound to become a popular scene in the Web3.0 era.
What are the pain points of NFT development?
As for the pain points of the current development of NFT, there are three main points: The first point is the high cost and low transaction efficiency, and the management of the exchange is chaotic. Jason Bailey pointed out that NFT’s current urgent need to solve is to improve transaction efficiency, that is, how long it takes for NFT transactions to be completed, rather than just being purchased and held. Sheng Chao, the founder of iNFT, said, “The low-level public chain GAS fee has suppressed the development of users. The cost of some transactions or casting of NFT is already greater than the NFT asset itself. This is not a state of benign development.” At the same time, he also pointed out that the current NFT exchange’s The management is also chaotic, the original assets cannot be confirmed, and the NFT price boundary cannot be determined. The transaction fee span is also huge, ranging from 2% to 20%, and a unified industry standard has not yet been established.
The second point is that the value of assets fluctuates greatly. Yu Jianing believes that due to the relatively low liquidity of NFTs and the need for a certain aesthetic taste and community support for encrypted artworks, the issuer’s artistic ability will be tested. In addition, the value of NFT will appreciate or depreciate according to market demand. Once the market’s popularity decreases and the phenomenon of hype gradually cools down, the asset value of NFT will also be greatly reduced.
In addition to the first two points, NFT also has many hidden dangers in compliance, infringement exists, and rights protection are difficult. Xiao Sa, a partner of Beijing Dacheng Law Firm, pointed out that blockchain technology is still largely unregulated, and the anonymous nature of blockchain wallets poses great challenges for the rights holders of works, which also makes it impossible for authors who sell NFTs. Prevent reselling to other countries where they may have little or no intellectual property protection. And for most NFT platforms, there are users uploading infringing, illegal offensive or other destructive content. Although it is effective to take technical measures to detect and delete banned content, a large number of banned content will discourage users and also cause scrutiny by regulatory authorities. Regarding compliance risks, Yu Jianing also pointed out that currently there is no regulatory agency for NFTs to supervise them. At present, most NFTs are digital assets created on the blockchain. However, with the development of the NFT market, more and more physical assets under the chain are mapped, and regulatory agencies may introduce corresponding policies for management.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.