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More and more people are aware of the importance of digital identity, and NFT may become a new way to change the idea of the Internet and exchange value.
Written by: Paul Veradittakit, Partner of Pantera Capital Translator: Lu Jiangfei
Nowadays, it seems that every venture capitalist is confused about NFT——
- Digital artist Beeple’s NFT work “Everydays: The First 5000 Days” was successfully sold at Christie’s for a high price of US$69.34 million;
- The music album of well-known music DJ Justin Blau (Justin Blau) also released NFT and sold it on Origin DShop for 12 million US dollars;
- Lebron James (Lebron James) and other NBA players in the “highlight moment” game on the NBA Top Shot set more than 230 million US dollars in sales.
Next, let us talk about what NFT is and why it may become a “killer application” in the blockchain field!
NFT, or non-homogeneous token, is an “irreplaceable” encryption tool that can be used to tokenize “unique digital projects”. Because they are irreplaceable, it means that NFTs are not interchangeable with each other, so it can prove the scarcity of digital projects, and then endow the project with inherent value.
- In the real world, people exchange works of art and collectibles through physical exchanges, brokerage companies and other media. The concept of “digital ownership” is much more vague than the concept of “physical ownership”, so it is lacking in the digital field. Corresponding transaction infrastructure.
- NFT is a very effective solution that can help individuals “own” items such as digital art on the Internet in a verifiable manner, and can also exchange value. Through standardized “digital goods”, NFTs can also exchange digital works on public blockchains, thereby solving the inefficiency of traditional digital trading platforms.
Ethereum provides a variety of token standards for NFT, leading to a surge in the number of NFT projects based on the Ethereum platform. As more and more people are interested in NFT, the load on Ethereum is also increasing. Other blockchains (such as FLOW) , Polkadot, and TRON) have also begun to provide support for NFT projects, and have improved performance, such as providing lower transaction fees and better developer experience.
Digital art and collectibles are currently the two main use cases of NFT. Creators can tokenize and sign digital art, and then sell it as NFT on the digital market. Digital art collectors can buy and exchange these works on NFT trading platforms such as OpenSea, SuperRare, and Rarible. In the cryptocurrency field, a relatively active digital art community has now been formed. OpenSea has become the NFT market with the largest transaction volume, with a transaction volume of nearly 90 million U.S. dollars last month. NBA Top Shot is an NBA-licensed digital collectibles market. Its sales have exceeded 280 million U.S. dollars in recent months.
In the game world, NFTs have also exerted great influence because they can be used to represent in-game assets and purchase transactions. For example, games such as CryptoKitties and Gods Unchained allow players to trade assets (such as animated characters and game cards, etc.) on the built-in platform in exchange for legal currency and cryptocurrency. There are also sandbox games that allow users to create their own virtual worlds, not only can customize the game, but also trade built-in assets.
In 2020, huge innovations have taken place in the NFT industry. We have seen a decentralized market like Rarible, and there are also projects like NIFTEX that explore NFT ownership. In addition, the total NFT transaction volume has tripled, and many well-known “big coffee” have also joined this field, such as DC Comics artist José Delbo, and Twitter CEO Jack Dorsey (Jack Dorsey) , The latter’s first tweet NFT in 2006 has soared from the initial $5 to a high price of $2.5 million.
Thanks to mainstream attention to cryptocurrencies, better and better developer platforms and NFT tools, and a thriving digital creator community, NFT is expected to continue to grow in 2021. In February 2021 alone, the NFT transaction volume has reached 340 million U.S. dollars, exceeding the full-year transaction volume of 2020. As a certifiable scarcity and unique asset, developers have realized the value of NFT and have begun to explore more practical use cases, such as property ownership and independent music distribution. In the future, more and more people will realize the importance of digital identity (and consequently digital ownership), and NFT is bound to become a new way to change the concept of the Internet and exchange value.
“Million Dollar Tweets”
Recently, the founder and CEO of social media Twitter, Jack Dorsey, “made a headline” because his first tweet, NFT, was sold at a high price of 2.5 million US dollars. The Tweet NFT has a digital certificate on it, which is personally signed by Jack Dorsey to ensure its authenticity.
Jack Dorsey is a long-term supporter of blockchain and cryptocurrency technology, and now he is also paying attention to NFT, and hopes to further explore the idea of commoditizing digital experiences by rewarding creators and realizing personal ownership. What’s “interesting” is that although Jack Dorsey’s NFT sold for millions of dollars, there are thousands of similar NFT auctions in the digital art and collectible NFT market.
What is NFT?
Jack Dorsey’s first tweet actually represents the precious history formed by Twitter, just as the archaeological relics in the museum may represent the way of life of a certain historical society. These items, whether in physical or digital form, have important value. However, in the real world, exchange agreements have been established for physical objects such as cultural relics and paintings, such as auctions, brokerages, etc., but for computer-based art works and Internet-based digital products, there is not much for trading and sales. Infrastructure.
This is the problem that NFT hopes to solve. NFT, or non-homogeneous token, is a type of encryption tool designed to tokenize digital goods (such as artworks) that are to be traded on the blockchain. The so-called “non-homogeneity” means that no one token can be replaced with the same asset, and other financial assets are interchangeable (such as legal currency cash and Bitcoin, 1 US dollar can be replaced by another US dollar, 1 BTC can be replaced by another 1 BTC). Generally speaking, artworks are items with original value, so they are irreplaceable, because every work of art is unique and there is no same item that can replace them. When users purchase the NFT of digital artwork, they can fully believe that the “item” they purchased was created and signed by the original artist, not a copy or fraudulent product. If someone takes a screenshot of a work of art, such as a painting, and tries to sell it, this situation is actually similar to using an iPhone to take a photo of the original “Mona Lisa” in the Louvre, because in essence, NFT stands for It is the “ownership” of a certain digital property, that is, it represents the “authentic”.
There are many types of non-homogeneous assets, such as domain name sellers, in-game stores, artworks, etc. The digital trading market for such assets has existed for a long time, but before the outbreak of the NFT trading platform, most digital products have been Lack of effective means of exchange. Transferring non-homogeneous assets from one user to another usually requires facing various inherent problems, such as having to use third-party services, escrow accounts, slow payment channels, and complicated transfer methods, resulting in the digital goods market It is difficult to realize the potential.
Another feature of NFT is to standardize digital projects. These tokens can be exchanged on various public blockchains such as Ethereum, which will then introduce more liquidity and cash flow into the digital project market, and give ownership, censorship, and fraud prevention. And plagiarism provides a strong encryption guarantee. Now, it is easier than ever for ordinary users to participate in digital product transactions and “own” a part of the Internet. They no longer have to endure various problems in the past, and they do not have to worry too much about fraud risks.
Most of the cryptocurrencies on the Ethereum blockchain follow the ERC-20 token standard, which is an Ethereum standard with interchangeable support. The token standards used by NFT are mainly Ethereum ERC-721, ERC-1155, and ERC-998:
- ERC-721 is the earliest Ethereum token standard adopted by NFT, and it is adopted by famous projects such as “cryptocat” CryptoKitties;
- The ERC-1115 token standard can make NFT “semi-homogeneous”. Users can have various numbers of digital goods (such as in-game purchases, etc.), but the substitution of digital goods is not as good as Bitcoin or USDC and other encryption currency;
- The ERC-998 token standard allows tokens to have both “homogenization” and “non-homogenization” components.
Ethereum token standard: ERC-20 maps addresses (users/accounts) to the number of homogenized assets, ERC-721 maps non-homogeneous tokens to the owner’s address, and ERC-155 supports non-homogeneity Type maps to owner and quantity. (From the OpenSea blog)
In addition to Ethereum, NFT can also be hosted on other blockchains, such as FLOW and Polkadot. These blockchains have the following advantages:
- Allows digital creators to get a lower gas cost;
- Can provide developer tools for actual use cases;
- Can support cross-chain DeFi liquidity superset (superset).
Digital art and collectibles are currently the two main use cases of NFT. NFT provides digital creators with a powerful tool that allows them to tokenize and sign digital art, conduct effective transactions, and then continue to add value from the work. In return. Since NFT tokens are non-homogeneous, the authenticity of all transactions can be verified by encryption, so fraud and plagiarism can also be prevented. Digital artists can put their works on the NFT trading platform. These platforms include Nifty Gateway, SuperRare, OpenSea, and Rarible. Digital art creators can list their works on the NFT trading platform, and digital art collectors can trade and trade on it. Show your collection. Thanks to these trading platforms, the digital art community has achieved tremendous development. The largest NFT trading platform at present is OpenSea. In the past month, its trading volume was close to 90 million U.S. dollars and the number of users exceeded 22,000. These trading platforms also integrate a lot of NFT tools. Even if they are not familiar with encryption infrastructure, artists do not have to worry. Using these tools, they can create NFTs without having to write smart contracts by hand, making it easier to process related transactions.
The picture above shows the digital artwork on the OpenSea platform (Source: OpenSea)
In the game field, NFT also shines, because NFT can be used to mark in-game assets and purchase transactions, allowing players to “really own” items in the virtual world, and even trade with other players and exchange for legal currency Or cryptocurrency. Popular game studios like Atari have begun to explore making NFT games so that players can profit from each other in the game. Let’s take a look at some of the more popular NFT games currently on the market:
- “Crypto Kitties” is one of the earliest NFT projects. It is a game that allows users to breed and collect unique animated kittens. It is precisely because of this game that many people pay attention to “tokenized collectibles”. At that time, the price of a “crypto cat” could even reach 170,000 US dollars. The developer also built a “two-tier” game on top of this game, allowing third-party developers to change the game by interacting with the “crypto cat” smart contract. Gameplay, and introduce richer in-game assets and storylines.
- Gods Unchained is another card-based blockchain game where users can buy and sell card packs with each other on the game’s decentralized trading platform. At present, the average price of Gods Unchained game cards is close to US$20, with a total market value of US$10 million.
- Sandbox is launching a virtual world in which participants can create their own games and profit from the in-game assets and experiences. They have obtained licenses for many well-known animated characters, such as Care Bears and Smurfs ) And Shaun the Sheep (Shaun the Sheep).
The picture above shows the digital world in the CryptoVoxel game scene. Players can “own” the digital territory through NFT (source: gigazine.net)
In fact, the scope of NFT applications goes far beyond the fields of digital art, collectibles and games. They can be used to tokenize and exchange any kind of “unique items” on the Internet.
NFT in 2020
The reason why people have a strong interest in NFT is mainly due to the huge innovation in this field in 2020. In the first half of 2020, Rarible launched the first fully decentralized NFT asset market and released its own governance token RARI. The previous non-financial trading platforms were centralized. These platforms are basically managed by a centralized entity to manage market rules and operations. Decentralized trading platforms mainly encourage users to participate and attract more cash flow through decentralized governance. . RARI’s issuance price in July 2020 was 0.63 US dollars, and at the time of writing this article has reached 35.62 US dollars, with a market value of approximately 30 million US dollars, which means that people are more and more interested in decentralized solutions.
Other projects, such as NIFTEX, have devised a way to “cut” unique NFTs into a large number of homogenized tokens, which can then be traded on decentralized financial exchanges such as Uniswap. Tools like this allow users to obtain liquidity from NFTs, which may not be available to them from other channels, and even support mortgages through “digital property ownership.”
Starting in 2020, NFT has received unprecedented attention in the mainstream field. Some well-known artists have entered the NFT market, such as DC Comics artist, “Wonder Woman” illustrator José Delbo, and crypto artist Trevor Jones; the NFT price of many works of art is also quite substantial (usually more than $100,000), which shows that The more digital collectors start to see value in NFT. NBA Top Shot is a market that sells NBA authorized digital collectibles on the FLOW blockchain. The platform has more than 67,000 users and sales have exceeded 228 million US dollars. In general, in 2020, the total value of NFT transactions has tripled, approaching US$250 million.
The figure above shows the trend of NFT transaction volume in the past year (Source: nonfungible)
NFT in 2021 and beyond
For NFT, with the integration of several positive factors, 2021 will be a particularly exciting year, such as:
- Platforms like FLOW make it easier than ever for ordinary developers to use their own NFT to build a digital world;
- Companies like SuperRare devote a lot of time to interacting with the digital art community, so that artists and more people have a deep understanding of NFT technology, and it also promotes the expansion of NFT value to a wider art and technology community, thereby realizing a new generation of digital markets.
- With the increasing interest of institutional investors and retail investors in cryptocurrency and DeFi, it has brought huge liquidity to many blockchains, which in turn has made the internal cash flow of the NFT market very sufficient, and in the wider DeFi field Discovered a new financial use case for NFT.
- More and more user-friendly fiat currency exchange channels and wallet services will also help bring more people into the NFT world and facilitate more transactions.
- The growing digital creative community, people’s growing interest in encryption technology, and a better NFT development platform and user experience.
All of the above factors will promote the continued growth of NFT in 2021. In February alone, the total value of NFT transactions reached 340 million US dollars, which has exceeded the full-year transaction value of 2020.
Not only that, the encryption community is also constantly exploring more NFT use cases, such as:
- Independent music distribution
- Time-sharing and partial property ownership
- Territory ownership in the virtual world (such as CryptoVoxels)
As a certifiable scarcity and unique asset, developers have realized the value of NFT and have begun to explore more practical use cases. In the future, more and more people will realize the importance of digital identity (and consequently digital ownership). With the gradual transition of future life to the digital world, NFT is bound to become an important way to change the concept of the Internet and exchange value .
If you have an NFT project and would like to seek advice, please feel free to contact me on Twitter .
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