What is the NFT that everyone is talking about?
After the popularity of DEFI was suspended, the market turned its attention to the NFT track. The Ethereum application Crypto Kitties, which became popular in 2018, is ahead. This field is favored by many investors and has huge potential. But many people only know that “NFT is an indivisible token”, but do not know the technical logic and commercial value behind it.
In fact, NFT is a kind of tokenization technology. Many people understand that NFT started with Ethereum ERC721. Unlike ERC20, non-homogeneous token NFT has indivisible and unique characteristics. But these are only part of the concepts of tokens. Through the intelligent integration of the prescribed data interface, we can define a variety of tokens to represent various commodities or rights in the real world. The blockchain is the network infrastructure for the circulation of tokens, as a background technology to support the operation of tokens. Future business activities need to be built on tokens, and NFT is one of them.
At present, NFT and pass technology can generate various assets based on different attributes and values, mainly including game props, collectibles, financial bills, etc. According to the token types defined by the Token Taxonomy Initiative, NFTs can be further divided according to different units, value types, distribution methods, etc. For example, the “Mona Lisa” artwork can be said to be unique (Singleton), and the national flag as a pattern is a whole (Whole), but it can be copied; and both of the above can be represented by NFTs. . The token technology allows the subclasses of the token to inherit the attributes of the parent class. We call this method hybrid NFT (Hybird).
NFT value source and commercial landing
NFT has diverse types and rich functions, and will become the most important asset class in the blockchain field in the future. In addition to the original virtual assets on the chain or in the network represented by NFT as the value symbol, as the NFT transfers the ownership of real goods, the right to income, etc. to the blockchain, digital assets of hundreds of millions of dollars will be transferred to the district. On the block chain, it broke out in the secondary market, releasing huge transaction value.
Compared with off-chain asset mapping, native virtual assets on the chain are more suitable for the current NFT application landing. NFT related industries are still at a very early stage, especially in the asset creation process. We mentioned the “Intrinsic/Reference” of Value Type when we classified asset attributes above to distinguish the value of NFT from “endogenous or related real assets”. Compared with physical assets, NFT virtual assets on the chain will have relatively more advantages in terms of liquidity, transaction costs, scalability and transparency, but the problem is that the process of “mapping” value involves many practical obstacles. The real realization is far less than the original virtual assets in the network, and it is easier to carry out commercial landing.
Current market perceptions or misunderstandings
The value acceptance range of game props and collectibles is relatively small, and the circulation frequency is low. It may be influenced by Crypto Kitties and the movie “Number One Player”. Whether Sandbox, Enjin or Decentraland, including the recent dego, MEME and other projects, they are all working hard in the field of games and trying to integrate the virtual world. Props become value assets for trading. But the problem is that compared to the 3A masterpieces we usually play, these blockchain games are really not fun, so it will cause low game life and fewer players, and the acceptance of the value of the props is greatly restricted. At the same time, art collections also have such problems. Some exquisite pictures are said to be unique. Is the difficulty worth so much money? Don’t you know that Crypto Kitties was called a rare “value cat” by people at the time, it was just a game of idiots. It can be seen from the historical transaction volume that only Crypto Kitties at the beginning of 2018 and Decentraland at the end of 2018 caused a certain degree of explosive growth, but this growth is more biased towards short-term “tulip speculation” from the data graph.
The game and collectibles market currently lacks value targets and hype models, which are too “Buddha”. There are many NFT assets on the veteran Opensea and the new trading platform Rarible, including domain names, artworks and even YInsurance insurance policies. However, in addition to the universal value of insurance financial assets, other underlying values should “break the circle”. All need to be hyped. And we see more display and exchange functions on the two platforms. From the perspective of the Top 5 projects with historical transaction volume, only Decentraland has a transaction volume that is gradually approaching the crypto cat project two years ago, but it also lags far behind in transaction frequency. The data proves that these NFT assets have not yet been hyped.
The problem of supply chain and traceability cannot be solved by NFT, and it cannot be completely hoped that technological breakthroughs can change the business dilemma. Many people believe that for B-side services, NFT also has important meanings such as supply chain management and traceability. Because supply chain management can be based on the management of homogeneous certificates to achieve business efficiency. Technical solutions are indeed feasible in theory, but the problem is that more practical problems need to be solved behind its application. For example, the identification system of the Industrial Internet can also be used for product traceability, but the problem that has been difficult to promote is that there are few scenarios that need traceability in the business and insufficient value. The supply chain involves the establishment of infrastructure at all links in the chain, which is not an overnight task.
When will the NFT market break out?
When the market finds the best breakthrough direction, it is the day when the NFT market breaks out. We mentioned above that games and artworks have the characteristics of low transaction frequency, low market activity, and high threshold of value perception. Commercial landing such as traceability is even more problematic in practice. Therefore, we can see that the market has not yet found a real explosive NFT application scenario.
Blockchain is still more suitable for exerting value in the financial field, and NFT applications will certainly take this as an opportunity. We see that in traditional finance, in addition to financial assets in the form of equity and currency, there are also many financial and commercial papers that are traded in the market, such as bonds, options, and insurance. In the latter case, each bill is different and needs to carry more information in circulation. This is a problem that NFT can solve. At present, there is still a lack of real correspondence in the world of blockchain finance. Although some decentralized options and insurance projects have come out, they are boring due to the lack of market awareness and transaction infrastructure, especially the pricing mechanism. We must know that in terms of current digital assets, speculation is still the first demand of users in the market, and game props are more likely to generate a large-scale bubble than financial assets?
