Liu Changyong: There is a bubble in the NFT market, but there is no need to stop eating because of choking

The larger application area of ​​NFT is people’s commercial activities, especially those commercial activities that have been Internet-based, which are transferred to the chain to form various real chain assets. This is the biggest scenario of NFT. 

Liu Changyong, PhD in Economics from Peking University and Director of the Blockchain Economic Research Center of Chongqing Technology and Business University, is a senior science popularizer in the field of blockchain in China. Since 2013, he has popularized Bitcoin and blockchain related knowledge in China. And set up columns in many media.

Liu Chang uses easy-to-understand language to explain the technical principles and applications of blockchain. Recently, “Lianxin” conducted an exclusive interview with Liu Changyong, and the topic revolved around the current NFT boom. Liu Changyong believes that it is not appropriate to translate NFT into “non-homogeneous tokens”. There is indeed a bubble in the current NFT market, and its development must be treated rationally. 

“Chain New” organizes the main points of Liu Chang’s use for readers’ reference.

The essence of NFT is an indivisible proof of stake 

NFT is the abbreviation of Non-Fungible Token, and it is not appropriate to translate it into “non-fungible token” on the Internet. NFT stands for an indivisible specific asset symbol, which is an indivisible and non-homogeneous digital asset warrant. 

The “T” of NFT refers to “token”, which refers to an object or number that represents a certain meaning. Physical tokens such as knight badges, casino chips, and kindergarten small red flowers. Digital tokens include tokens in Ethernet, business points, and so on. 

There is no mystery about NFT. Like Bitcoin, it is just data recorded in a distributed ledger. For example, in your assets, there are 100,000 yuan deposited by ICBC, 30,000 yuan deposited by Agricultural Bank, and golden Buddha during the Qianlong period. The money that exists in the ICBC and the Agricultural Bank can be spent. For example, if you have 100,000 in the ICBC, you can transfer it out to 20,000, and the remaining 80,000. But your Qianlong Golden Buddha cannot be cut open, it is worthless if it is cut in half. You may also have a golden Buddha from the Kangxi period. These two golden Buddhas are not the same and cannot be substituted for each other.

If your 100,000 yuan is a token endorsed by the central bank, it is a digital currency. If your Qianlong Golden Buddha is stored in Sotheby’s auction house, you only hold the token issued to you by Sotheby’s, which proves that you own the golden Buddha. This token is NFT.

Therefore, from a formal point of view, NFT is a string of data. In essence, it is an indivisible and non-homogeneous proof of equity. 

Why is it inappropriate to translate NFT into “token”? 

As a “currency”, the important feature is that it is easy to divide and easy to test, so it must be homogeneous and divisible. If every gram of gold is different, then gold cannot become currency. 

Among the many digital assets, only divisible and homogeneous tokens can become currencies. Whether decentralized tokens or centrally issued tokens, if they can circulate in the market like currency, they are considered digital currencies. The former are such as btc and eth. , Bch, the latter such as usdt, usdc, etc. 

The essential feature of NFT is that it is non-homogeneous and indivisible, so it does not conform to the characteristics of currency. It is neither currency nor token, but a digital asset. 

In the world of blockchain, the essence of Bitcoin or Ethereum assets is what we call the number of assets recorded on the ledger. There is no difference between one bitcoin and another. There is no difference between one Ethereum and another.

NFT is a special thing recorded on this ledger, and this special thing can be everything in the world. Its characteristic is that it cannot be cut and split, it is unique, and there is no homogenized product. It is precisely because of this that its application has a huge room for imagination. 

NFT asset confirmation is defined by people, and there are various casting methods 

The NFT assets that are often said now can be divided into two categories, one is the mapping of real assets on the chain; the other is the native assets on the chain. 

A real asset, such as a painting, is authorized by the owner to map to a string of characters in the blockchain system and record its ownership to become an NFT. This requires the owner and a trusted third party to prove and guarantee that the NFT represents the ownership of the painting. 

Native assets refer to the assets represented by the NFT that are generated on the blockchain from the very beginning, such as the props and skins of some blockchain games. The casting of these NFTs depends on the rules of the game or the rules set by the NFT designer. 

Just as “mining” has become a general term for the issuance of a variety of homogenized tokens, there are also a variety of ways to “cast” NFTs according to the different generation rules. 

The application of NFT has a lot of imagination 

The digitization of assets is the general trend and an irreversible historical process. 

NFT is almost applicable to various assets other than currencies and commodities, such as houses, cars, equity, agreements, virtual property and so on. 

NFT mapping real assets is subject to the institutional conditions of real assets, and it is relatively difficult to realize digital and decentralized confirmation and circulation of rights. 

Native NFT on the chain will develop faster, such as various blockchain games supported by the concept of “meta universe”. 

But the larger application area of ​​NFT is people’s business activities, especially those that have been Internet-based, which are transferred to the chain to form various real chain assets. This is the biggest scenario of NFT. 

For example, if Christie’s auctions an artwork, this artwork is represented by an NFT on Ethereum. Christie’s can use its own credibility to guarantee that as long as you own this NFT, the artwork is yours, or you can use it in a certain way. What Christie’s needs to do is to strongly bind the real artwork with this string of codes (NFT). 

For another example, concert ticketing can also be realized by NFT. Each ticket is different, with different seats and different prices. So who defines this? It must be the ticketing company. As long as you show the NFT code on your mobile phone, the ticket inspector can determine which seat you are, and you can’t fake it. 

Even NFT can be used to confirm your equity. For example, if you invested 200,000 yuan in a small company, accounting for 20% of the shares, you can make this equity into an NFT.

In short, what meaning you give to NFT depends entirely on different business environments, as long as everyone agrees.

There is a bubble in the NFT market, but there is no need to choke on food

The most attractive part of NFT is that people think that it is issued in a decentralized system, freely circulates, and cannot be faked. In fact, regardless of real asset mapping or native assets, there are many centralization links. For example, how to determine the ownership of the original painting? Who will design and modify the casting rules? 

The ideal NFT application infrastructure should be able to allow anyone to map or issue NFTs, and it is completely open in all aspects. In addition to an open token issuance and circulation system, such an infrastructure first needs to include a decentralized identity system, which is the foundation of an open economy; secondly, it needs a decentralized reputation system that allows people to be independent of traditional centers. The credit system can be used to identify the issuer of the NFT. 

Now that some NFT works are auctioned at sky-high prices, there must be a bubble.

First of all, the hot money and speculative sentiment formed by the bull market of blockchain assets turned to NFT after DEFI, resulting in a bubble; secondly, non-homogeneous assets lacked market depth, and there was no short-selling mechanism, speculative sentiment was high, and price manipulation of self-buying and self-selling It is also very easy and may even become a money laundering tool. Finally, the NFT market has just emerged, and the problems in the issuance, certification, management, valuation, and circulation of NFT assets have not been fully exposed. When the bear market comes, the market tends to When you are calm, these problems will gradually appear, and the bubble will burst quickly.

Anything new is the coexistence of innovation, bubbles, opportunities, and chaos in the early stage. There is no need to choke and control the risks. The main risk in the NFT field is not innovation risk, but the use of insufficient knowledge to engage in illegal activities in the name of NFT. Such activities are centralized and organized. Uncovering the cloak of NFT can determine whether it is illegal under the existing legal framework.

A truly decentralized NFT project mainly relies on innovation to bring efficiency improvements. It should be given a relaxed development environment and be subject to adaptive and innovative supervision.

Author | Zikuan


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