After the DeFi fever came to an end, NFT faintly became a new hot spot in the blockchain industry. The full name of NFT is non-fungible token, which means an indivisible and non-fungible token. Because of its unique characteristics, NFTs are also called Collectibles, and Tokens (also known as tokens) constitute the two main asset types in the current encryption industry.
At present, the application of NFT in the industry is mainly concentrated in the fields of art and games, and it is still in the early bubble stage. But through the bubble, we still see the commercial value behind NFT and its application prospects in different commercial fields. Therefore, this article will pay more attention to the business impact of NFT technology and some use cases that the industry is already trying.
What is NFT?
Fungible means replaceable, and non-fungible means non-homogeneous. NFT is a collective term for non-homogeneous tokens, and because each NFT is unique, it is also called an indivisible token.
Because in the digital world, everything is made up of codes. Therefore, the two ETHs are essentially the same, they are like two hundred dollar bills, and there is no difference. Similarly, Bitcoin (BTC) and TEDA[1] are also homogenized tokens.
Unlike homogenized tokens, each non-homogeneous token is unique. It is the same as most things we have in the real world, such as a famous painting by Van Gogh. Although you can tear Van Gogh’s painting into several pieces in the real world, NFT is indivisible in the world of blockchain.
At present, most NFTs are concentrated on Ethereum, and ERC-721 and ERC-1155 are the main NFT token standards. In essence, NFT is just a string of codes issued on the blockchain. Take the common ERC-721 standard of Ethereum as an example. This standard includes a field called tokenMetaData (metadata), which is why NFT is unique.
It should be noted that although the blockchain gives each NFT unique attributes through cryptography (for example, the contract address is unique). But NFT is still a product of the digital world-it is digital and public, and anyone can copy a basically identical NFT.
But don’t worry about this problem, because you only need to compare the contract address to confirm whether the NFT is “true”. In addition, there are already some public chains that claim to be able to solve this problem. For example, the public chain Flow claims that its original programming language (Cadence) has solved the problem of NFT being easily copied in the program.
NFT market overview
Collectibles and games are still the main applications of blockchain NFTs.
According to the data of NonFungible, a total of 17,100 NFT transactions were created in the past 7 days (based on the time this report was written), with a total amount of approximately 2.63 million U.S. dollars and an average sales price of 153.76 USD per item. On the whole, NFT is still a small market that has just started, and its scale is not large.
Games and collectibles accounted for the vast majority of the transaction volume of 2.63 million US dollars. Among them, the transaction volume of collectible categories (such as CryptoKitties, CRYPTOPUNKS, etc.) is about 1 million US dollars, and the transaction volume of game categories (such as AXIE INFINITY) is 770,000 US dollars.
But it should be noted that although the overall market value of the NFT market and the number of users are increasing, the activity of transactions does not seem to increase. In the NonFungible report, we can also clearly see that the number of active addresses in 2018 and 2019 is not much different [2].
On the whole, NFT in the context of the industry refers more to collectibles. Whether these collectibles have a viable business model is still worthy of scrutiny. The NFT in this article will pay more attention to the application in the business field. NFT is not necessarily a collectible, it can also be a part of a business information system.
We believe that the future NFT may have an important impact on business in four areas: the game industry, the implementation of the supply chain, the on-chain of physical assets, IP and digital marketing.
NFT and the game industry
The most easily felt application of NFT by C-end users is the combination of NFT and games.
We believe that the introduction of NFT and blockchain technology will solve many problems in the game industry, especially the game life cycle, trust and open ecology.
The combination of NFT and the game industry has three main directions:
•NFT as a non-homogeneous token of the game, used for special equipment and props; •NFT as the security/tool token of the game, participating in the economic and ecological model of the game; •NFT as the open props of the game, constructing cross- The ecosystem of the game.
NFT and game non-homogeneous token
In 2017, a chain game called CryptoKitties appeared on Ethereum. This is also the world’s first game based on the Ethereum network.
The gameplay of CryptoKitties is very simple. In addition to holding and trading NFT digital cats, the only time users can do is to let different encrypted cats mate and breed. The biggest highlight of this game is that each pair of crypto cats has 256 genomes, so there are more than 4 billion possible genetic variants in the offspring.
What’s interesting is that this CryptoKitties does not take a free form. All operations in the game need to consume gas fee and corresponding handling fees-there is no free operation. But even so, CyrptoKitties still became a phenomenal game of blockchain in 2017.
A piece of data can support the success of CryptoKitties-since its launch in 2017, users have created 2.78 million transactions on CryptoKitties, creating a transaction volume of 37.31 million US dollars.
From the perspective of consumer psychology, the reproduction of CryptoKitties is the same as blind box extraction, and it is more to satisfy a psychology of collecting addiction and showing off. In addition, Dapper Labs also gave CryptoKitties more “IP attributes”. For example, western cowboy-style cats and wizard-style cats. These cute cats have created scarcity and created collection value.
As Dapper Labs CEO Roham said, people want something non-homogeneous and real. When this premise is met, consumers will be willing to spend more money and time on NFT games. And this will further enhance the stickiness and life cycle of the game.
NFT and economic models
The success of CryptoKitties suggests a possibility-when users actually own assets in the game, they may create a new type of interaction.
The logic of the traditional game industry is very simple. Users pay a certain fee to obtain the services of the game company and obtain spiritual satisfaction (whether positive or negative). And this puts game companies and users on opposite sides. Game companies want to maximize their profits, which often conflicts with the interests of users.
If users have game assets and can then participate in the operation and governance of the game, perhaps a new balance will be found between game manufacturers and users. But this also puts a test on the economic and ecological model design capabilities of game companies.
At present, there are already some games in the industry that are exploring the direction of economic models, but overall they are still at a relatively primitive stage. Perhaps due to the lack of development resources, most of these games lack innovation in their gameplay, and the completion and precision of the game is also poor. But they still made valuable attempts to innovate game economic models and ecological models.
Encrypted Three Kingdoms, a mobile game running on EOS, ETH and TRON public chains, designed NFT as part of the game economy system. Earlier, the Encrypted Three Kingdoms launched a sale of NFT mounts. These NFT mounts can not only get in-game item bonuses, but also get a share of game revenue.
Since these NFTs are all issued based on smart contracts and blockchains, users are not worried that their NFTs will be issued or become invalid. The on-chain issuance also creates an out-of-game trading market for NFT, which further adds to its liquidity. The design of the Three Kingdoms of Encryption gives NFT props realistic economic value and free circulation capabilities, which the traditional game industry cannot do because of trust, supervision and other reasons.
But like all the problems faced when new technologies are available, the biggest problem with the promotion of NFT technology in games may not come from the technology itself.
First of all, this puts high demands on the economic and ecological model design capabilities of game companies, and the failed economic design may even have a counterproductive effect. Not only that, but the acceptance and regulatory attitude of the game industry have also become important factors.
For example, when NFT can receive dividends, should it be regarded as a security token (STO) by regulation? How should we understand NFT transactions? Is it a commodity or should it be regulated in accordance with cryptocurrency?
But even so, we still believe that NFT will become part of the game ecological model is the future development direction, and it is inevitable.
NFT and open game ecology
Marvel’s movies portray a huge cinematic universe to the audience, making movie fans unable to extricate themselves from it. Back to the game world, Blizzard actually described a huge World of Warcraft universe as early as the beginning of the century. But unlike the regular interaction and common story advancement of the Marvel Cinematic Universe, the game universe often only achieves a shared world view without actual connection.
The ecology of the game is relatively fragmented, and different game products and companies have different development standards, and it is difficult to achieve interoperability with each other. And the value of blockchain is the empowerment of unified standards and trustlessness. NFT tokens based on a unified standard may be an opportunity to break barriers between games and build an open game world.
In 2003, Blizzard launched the Warcraft 3 Frozen Throne game. Because Blizzard opened a powerful map editor, UGC[3] works created a whole era of brilliance. For example, the now-familiar League of Legends and Glory of Kings were originally derived from a map called Dota in Warcraft 3.
Unfortunately, in the end, Blizzard broke with the authors of UGC due to interest issues, which also exposed the most difficult part of creating an open game ecosystem. How should different game development entities cooperate, and how should the corresponding economic benefits be distributed? The copyright of the map produced by UGC belongs to the game company or the original author, and how did the original author make a profit? Even when different games are based on the same world view, can the game items be shared by the two games, and how?
These are issues that have existed in the game industry for a long time, and they are also a future that can be discussed in the context of NFT and blockchain.
Unfortunately, although building an open world based on NFT is an exciting story, it also involves a lot of economic and industrial issues-who is responsible for the issuance of NFT? How to make pricing, etc.
From this perspective, we still need to wait for the further development of the blockchain industry and infrastructure, and more importantly, we need to wait for the industry to further accept the blockchain.
NFT, IP and digital marketing
In addition to games, there is also an area that is naturally compatible with NFT, both IP and digital marketing, which is also one of the easiest areas for NFT applications.
Unlike the games, physical assets, or supply chains mentioned above, NFT’s use of IP and digital marketing does not require complex partners, and it faces fewer regulatory issues-its bigger problem is how to reduce On the user threshold.
IP is usually defined as Intellectual Property, but there is currently no clear definition of IP in the field of marketing and culture. In general, IP refers to cultural products that have a complete worldview and values, have derivative works capabilities, and have a certain fan base. Such as literary film and television works, games or animation works, characters or stories, etc.
Typical IPs of literary works, such as tomb-raising notes and ghost blowing lanterns, have been adapted and put on the big screen several times. Among them, Marvel is the leader in IP operations. From comics to Marvel Cinematic Universe, Marvel has even realized the organic integration between different IPs and the management of the IP lifecycle.
IP naturally has the attributes of propagation and user stickiness, which are highly consistent with the attributes of NFT. IP-based NFT distribution may become a new way of fan marketing, and even a new fan economic model.
NBA Top Shot is a card-based NFT game jointly developed by blockchain developers Dapper Labs and the NBA. It makes some wonderful shooting moments of NBA players into NFT and releases it on the Flow blockchain, which is a bit similar to the card drawing game in childhood. Each card contains high-quality video images, photos, and game data on the spot.
Players can purchase NBA Top Shot card packs, and there is a certain probability that they will draw cards of their favorite players. These cards can be used for collection, transactions and circulation.
In addition, the cards are issued in limited quantities, and are confirmed and stored by the blockchain. In terms of product nature, it is no different from ordinary card collecting games, and it can even be stored for years without damage.
From another perspective, NFT based on blockchain has more imagination than physical cards. First of all, it technically prevents the issuer’s additional issuance or black box operation, and it is open, which means that anyone can develop peer products or coupling based on these NFTs. For example, the NFT of a star can be combined with the forum. When you speak in a forum, you can show your love through the corresponding NFT.
At present, IP and digital marketing are the areas with the least resistance to NFT applications. On the one hand, in this process, NFT can be clearly defined as a commodity for circulation without facing complicated regulatory issues. On the other hand, the business model of the fan economy has been tested and feasible.
Therefore, we can boldly guess that NFT will be widely used in the fan economy in the near future. AKB48 or TFBoys may release their own NFT collections.
Once the market accepts NFT collectibles as part of the IP, they will begin to circulate and be priced by the market. The emergence of prices also means that open financial markets based on NFTs-trading, lending, and even leasing become feasible.
NFT and supply chain landing
For the B-side, NFT also has important significance. An important application scenario is supply chain management and traceability. For the vast majority of enterprises, supply chain management is based on the management of homogenized tokens-it can and needs to be split.
Taking multinational retail companies as an example, most of their products are standard products. Therefore, its supply chain logic is often from large to small—national warehouses, regional warehouses, regional warehouses, and stores. This involves the separation and transshipment of goods. Therefore, this type of supply chain management needs a homogenous certificate that can be split to track and trace the goods.
But for different links in the supply chain, the logic is quite different. For example, the logic of logistics companies is far from the management logic of retail companies. How to align the logic of different companies in the supply chain has become one of the main problems in supply chain informatization.
As IBM has written, supply chain data is not always visible, available or credible. The inefficiency and opacity of supply chain management systems have been plagued by enterprises. Products, raw materials, money, and data often fail to achieve synergy in the supply chain. This has also further pushed up the supply chain costs of enterprises, which in turn raised the retail prices of terminals.
Take logistics as an example. For the headquarters, different commodities are homogeneous, and the difference lies mainly in the quantity. But for logistics contractors, every single piece of cargo is non-homogeneous-they are shipped to different destinations and loaded with different things.
The logic of logistics contractors and retail companies is different. For logistics contractors and other supply chain links, the overall physical object is inseparable. This has caused the logical misalignment of different links in the supply chain.
At the same time, retail companies do not want logistics contractors to know the specifications and details of the products they carry, which creates a huge obstacle to informatization. Retail companies can often grasp the situation in the warehouse, but once they leave the warehouse to track it becomes complicated. This also makes enterprises have to spend more time on information synchronization and verification.
In addition to logical out-of-synchronization, the out-of-synchronization of information is also a problem. At present, the electronic data interchange (EDI) system is mainly used in the supply chain. The system adopts a batch and regular message synchronization method. The more nodes that participate in the collaboration, the more obvious the disadvantages of unsynchronized information.
The introduction of NFT and blockchain technology may make this easier. Treat each batch of goods as NFTs (write quantity, volume, etc. as additional parameters), the logic and information of the two are easier to align, and for other participants in the supply chain-such as insurance, customs, and banks, Docking and management will also become easier.
On the other hand, unified standards may further reduce the management costs of the supply chain. Modern supply chains often involve multi-country collaboration. NFT and blockchain provide common standards across cultures and languages. Smart contracts can even rely on smart contracts to further optimize transaction processes, which will continue to reduce supply chain management costs.
At the end of the well-tested supply chain, both the delivery stage and the refined management of orders are also very difficult. Take the last stage of fresh food as an example, fresh food must solve temperature, freshness and other issues. The introduction of NFT and blockchain technology can effectively control and avoid risks, thereby further improving the quality of services.
NFT and physical assets on the chain
The last important direction is the combination of NFT and real assets, that is, assets on the chain. Assets on the chain not only reflect the mapping of assets on the chain, inherit their rights and values, and greatly enhance the liquidity and scalability of assets.
The advantages of moving real assets onto the chain into NFT are obvious:
•The liquidity of digital assets is far greater than that of physical assets; •The cost of asset confirmation, mortgage, liquidation, and transaction on the chain is lower; •NFT can realize the separation of ownership and use rights, and has stronger scalability; •Circulation records Indelible, invisible, and traceable at any time.
However, there are still a lot of problems in the real asset chain that need to be explored by the industry and supervision together. The core issue here is who will do the asset bridge on-chain and off-chain, responsible for a series of tasks such as custody and quotation of assets off-chain.
Blockchain can effectively increase the cost of doing evil, but the security of the system is determined by shortcomings rather than longboards. If the security off-chain cannot be guaranteed, the trustworthiness on the chain is meaningless.
RETI funds may be a good reference. Real estate investment trust is a common form of trust. Trust companies manage and securitize real estate. This allows investors to obtain benefits from real estate market transactions, rents and appreciation without holding actual real estate targets.
However, the core of RETI funds is still asset securitization rather than NFTization. Securitization is abstracted into divisible tokens. Since 2017, the industry has been continuously exploring the way for real assets to be chained, and the USD stable currency PAX[4] is one of the asset chaining methods.
In the form of NFT, the industry has also made many attempts to chain assets. Among them, Maker and New Silver jointly issued a number of real estate-based NFT loans.
New Silver is a non-bank financial institution that provides real estate loan financing. For loan issuance, New Silver established a special SVP entity in the United States to handle debt-related work. But it should be noted that New Silver stated that there is currently no regulatory material available for disclosure.
The entire physical asset chaining and loan process is divided into the following parts. First, the off-chain assets will be chained through the Centrifuge platform and a corresponding NFT will be issued. After that, a new safe will be generated through the on-chain protocol Tinlake, and a new Dai will be generated. When the borrower repays the loan, these Dais will be destroyed.
It is not difficult to find that, in fact, the blockchain technology part of off-chain assets on the chain is ready, and the biggest difficulty is still the two parts of asset bridge and supervision.
Blockchain technology ensures a high degree of transparency and liquidity on the chain, but it cannot guarantee the authenticity of the assets under the chain. Therefore, the entire process of asset chaining is still highly dependent on the credit guarantee of the asset bridge. Chaining, quotation, management, and liquidation all rely on asset bridges, but this is a centralized entity, which is quite similar to the dilemma faced by P2P finance.
From a regulatory perspective, anyone can own an NFT, but not everyone can own assets off the chain. Taking real estate as an example, some countries and regions require that only residents can buy houses. Therefore, even an NFT that owns a house does not mean that you can own a house under the chain.
What does the on-chain NFT represent, ownership, use rights, or derivative rights? This is an issue that needs to be clarified by regulation and industry.
Conclusion
This article gives a brief introduction to the concept of NFT, and at the same time gives a brief introduction to the potential landing direction of NFT combined with industry attempts. But it should be noted that NFT is a highly abstract concept, and it cannot exist independently of the blockchain. Therefore, the commercial landing process of NFT is actually the commercial landing process of blockchain.
Most of the time, the problems faced by blockchain implementation are not at the technical level, but at the cognitive and regulatory level. Therefore, we also hope that through this series of reports, more people in the business field can see the progress and prospects of blockchain. Most technologies will eventually be used by businesses to enter thousands of households and change the world.
