When YouTube, Bilibili, Douyin and other major content companies join the market and provide a certain degree of “interest-bearing NFT”, can the price of the existing “interest-free NFT” remain strong?
If the NFT craze in 2017 was only spread in the “currency circle”, then in 2021, NFT will achieve a “completely broken circle”.
Driven by factors such as the explosion of the Metaverse, the participation of large enterprises, and the influx of stars from all walks of life, the popularity of NFT continues to heat up. Take the price of “Boring Ape”, one of the most out-of-the-box projects in the NFT collection, as an example. The project only cost about US$190 when it was released, and now the floor price of this group of collections has exceeded US$300,000, and the highest transaction price is even higher. about $2.91 million.
According to statistics from nonfungible, a third-party data agency, the scale of NFT transactions in 2021 will reach 14 billion US dollars, which is 1.3 times the global art auction total of 10.57 billion US dollars in 2019 before the epidemic!
As NFTs continue to be out of the circle, established stock exchanges such as the New York Stock Exchange have also made up their minds, hoping to establish their position in the stock market early in the NFT market.
On February 16, the New York Stock Exchange said in a regulatory filing with the U.S. Patent and Trademark Office that it wants to become a financial exchange for NFTs to compete with mainstream NFT trading platforms such as OpenSea and Rarible.
So, are NFTs the next generation of assets, or a whole new bubble?
What is NFT and what are its advantages?
NFT, short for Non Fungible Token (Non Fungible Token), is essentially a non-fungible digital asset token created, maintained and executed by smart contracts.
In short, NFT is deployed on blockchains such as Ethereum (mainly stored on public chains and alliance chains) through standard contract forms such as smart contracts ERC-721, ERC-1155 (different blockchain contract standards), and NFT The only public, non-tamperable, tradable and other attributes are based on the blockchain as the underlying technology.
The birth and continuation of a technology is always to solve a certain type of problem. So, what problem does NFT solve and what are the advantages?
In this regard, the Zhongtai Securities Han Xiaochen team believes that NFT realizes the decentralized authentication and trading of assets. Compared with traditional centralized trading institutions, this decentralized trading technology has two main advantages:
- From the perspective of authentication: the core reason is that the authentication is not tamperable and permanent. The basis for the realization of the non-tamperable attribute is the openness of the data transaction process and distributed storage based on blockchain technology. The assets uploaded to the chain that are authenticated belong to The individual or institution corresponding to the address does not depend on any organization and has complete control and disposal rights. Accounts, data, etc. stored in the centralized organization are at risk of being banned, tampered with and roughly lost, and once the centralized organization disappears, the authentication will no longer exist.
- From a transaction perspective: in addition to being non-tamperable and publicly traceable, it is also due to cost factors. Because NFT corresponds to assets, there is an intermediary cost for a centralized institution to act as an intermediate trust institution, while NFT is based on blockchain, and the blockchain itself It is a trust-based machine that eliminates intermediate costs.
Defects & Risk Points
The NFT craze first broke out in the art field.
In the art world, NFTs were quickly promoted as “artifacts” for solving various problems. It provides a way for artists to digitally monetize their artwork, offering artists a new path to monetization. It is worth mentioning that under the ingenious design of NFT trading rules, after the art product is sold, artists can also take a cut from each subsequent resale to obtain the “long tail value” of their own creations.
However, technically speaking, NFT itself is not a work of art, but a digital contract. It can be said that it is a certificate of ownership associated with the original artwork, and what buyers are actually trading is the “certificate of ownership” of the original artwork.
However, with the explosive growth of NFTs, the flaws of the new technology have also been revealed.
(1) Copyright issues
First of all, as a “digital property right certification” for works of art, the current NFT does not necessarily fully protect the intellectual property rights of creators, and rampant piracy and fraud are repeatedly prohibited.
As NBC previously pointed out, the current mainstream NFT exchanges are not perfect for copyright protection measures, but push the work of protecting property rights to creators:
“On most NFT platforms to date, including OpenSea, the largest NFT marketplace, people can create an account and start selling any digital image they want to upload.”
“Sellers do not need to provide proof of ownership or use their real name to start the auction, but artists submitting copyright certification must prove they are the real creators of the work.”
At the same time, NFT products sold on one trading platform may be “unofficially copied” to another NFT trading platform, causing most ordinary buyers with poor discernment to suffer losses.
In a statement, an OpenSea spokesperson said:
“We take theft seriously and have policies in place to meet our community obligations while preventing theft on our platform”
(2) The transaction speed is slow, and the consensus mechanism algorithm causes the cost to increase
Although NFT has many advantages as a new technology, the team of Han Xiaochen of Zhongtai Securities also pointed out the current “inefficiency” of this technology in the previous research report:
The current NFT-based blockchain technology pursues decentralization and security, but sacrifices execution efficiency.
- Bitcoin adopts the PoW consensus mechanism, which processes 7 transactions per second, and the confirmation time of each transaction is nearly 1 hour. This mechanism meets the needs of sufficient security and de-neutralization;
- Ethereum can process about 20 transactions per second, and the confirmation time of each transaction is about 4-8 minutes;
- Centralized organization: Visa officially disclosed that the VisaNet network will process a total of 204 billion transactions in 2020, corresponding to an average of 6,469 transactions per second, and Alipay handles hundreds of thousands of transactions per second during peak periods.
Therefore, centralized institutions also have their advantages. They should not blindly pursue decentralization, but should choose solutions based on business models and attributes.
In addition, the cost issue is also a point that needs to be improved. Investors will find in the transaction that there is an unpredictable transaction fee called “gas fee” at the same time as the transaction, and the fee required to mint or buy NFT will fluctuate according to demand.
In this regard, the Zhongtai Securities Han Xiaochen team mentioned that the consumption of miners’ computing power caused by the consensus mechanism algorithm will also weaken the cost advantage of decentralization. However, as technology advances, NFT usage scenarios are expected to expand further.
Speculation and cash flow
After reading this, many readers and friends may find that most of the NFT collections themselves do not generate cash flow. This means that the valuation logic of most NFTs is close to “zero-dividend growth stocks”, and investors’ profits are almost entirely derived from transactions.
Then, naturally a question arises:
At present, a large number of investors are burning money on the NFT platform to support a lot of “zero-coupon assets”. Will the risk be great?
Of course so.
Previously, the Han Xiaochen team of Zhongtai Securities found through statistics that the influx of funds brought a wave of speculation, and the NFT market head effect was obvious. In fact, most of the trading participants lost out.
At present, the head effect of the NFT trading market is obvious. At the same time, the whitelist is the key to profit from trading newly issued NFTs, and 78% of the participants who did not enter the whitelist resell at a loss.
Knowing this, the next question follows:
In theory, all products such as audio and music can be NFT. Then, when youtube, station B, Douyin and other big content companies join the market and can provide “interest-bearing collections” to a certain extent, can the value of the existing large number of NFT collections that do not generate cash flow remain stable? Woolen cloth?
In addition, after the “flooding” of central banks in Europe and the United States for two consecutive years, there is ample cash flow in the market. So, when the interest rate hike cycle comes, can the price of “digital collections” still be strong?
Perhaps, the answer to the question depends on whether the connection between NFT and real-world assets can be further strengthened.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/everything-is-nft-is-this-a-new-bubble/
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