Wang Yongli, former vice president of Bank of China: NFT must be treated with caution

At a time when the state is severely controlling the mining and trading speculation of virtual currencies such as Bitcoin, the rapid rise of NFT and large-scale investment, especially participation in overseas NFT investment, also poses great risk potential and requires strengthening the accurate interpretation of NFT, enhancing investor education for the public and strengthening the responsibilities of trading platforms.

Wang Yongli, former vice president of Bank of China: NFT must be treated with caution

At a time when the state is severely controlling the mining and trading speculation of Bitcoin and other virtual currencies, the rapid rise of NFT and large-scale investment, especially participation in overseas NFT investment, also has a great risk potential, need to strengthen the accurate interpretation of NFT, strengthen investor education to the public, and strengthen the responsibilities of the trading platform.

Entering 2021, NFT (Non Fungible Token) is heating up rapidly overseas and the transaction price is climbing rapidly, among which a pair of socks on the Uniswap trading platform was auctioned for $150,000; the first five English words sent by the founder of Twitter were auctioned for $2.5 million; on March 11, Christie’s auctioned the NFT digital painting Everydays: The First 5000 Days” was sold for a total cost of over $69.34 million including taxes and fees, creating a huge impact in the world and pushing NFT to the top. It also became a major driving factor in the dramatic rise in the price of Bitcoin, Ether and other online “digital cryptocurrencies” during the same period. Many people believe that with the advancement of technology, everything can be NFT, and NFT will become an important application scenario of blockchain, which will promote the development of the virtual world “Metaverse” (which may be more appropriately translated as “digital universe”) and make the virtual world truly come to life and connect with reality. It is an important driving force for the virtual world to truly come alive and coexist with the real world, so there is a lot of desire for NFT, including international celebrities, network celebrities, famous trading platforms and research institutions.

The NFT boom has also been rapidly transmitted to China, and has been heavily publicized and promoted by the self-published media, inspiring a high degree of enthusiasm among creators, trading platforms, investors and many others. Some trading platforms claim to be the NFT application market with Chinese characteristics, and are committed to building a trillion-dollar consumer blockchain ecosystem.

Ali Taobao in May 20, June 20 on the launch of digital art NFT auction activities, only the impact is not much, did not get wide attention.

On June 23, Alipay and Dunhuang Fine Arts Institute jointly launched 2 NFT digital paintings (Wu Liu Qi payment code skin NFT) on the Ant blockchain, each limited to 8,000 NFTs, priced at “10 Alipay points + 9.9 yuan”. Subsequently, they were quickly snapped up and started to be traded on some platforms, with the highest being speculated to 1.5 million yuan a piece on the “idle fish” second-hand trading platform.

On June 24, the “digital currency” trading platform “Coinan” also announced that it would launch a special Coinan NFT trading platform and start auctioning Andy Warhol’s “Three Self-Portraits” NFT works from 6pm Hong Kong time that day. Within five minutes of the auction opening, bidding had already reached $2.52 million.

This has set off a new wave of creation and speculation in digital commodities at the same time that China is severely controlling the mining and trading speculation in virtual currencies such as Bitcoin, with the potential for NFT to emerge as an outlier. In this regard, need to be very prudent, not blindly follow the trend, must strengthen supervision.

Must accurately grasp the essence of NFT
Some people translate NFT as “non-homogenized token”, which is actually inappropriate. nft as a non-homogenized, indivisible thing, it is impossible to become a general equivalent or a unified unit of account (nft is not summed up and reflected), so it is absolutely impossible to become a currency or token. In this respect, NFT is fundamentally different from network-generated digital cryptocurrencies (actually “digital assets”) such as Bitcoin, which cannot actually be traded or liquidated without cryptocurrency or fiat currency.

In fact, NFT is a unique digital (coded) cryptographic proof of interest with irreproducible and indivisible rules and information derived from blockchain technology, which is used to indicate the ownership of a digital item. Therefore, NFT is more appropriately translated as “Non-Homogenized Warrant”.

Among them, the rules and information contained in different types of NFTs may vary.

Digital art NFT, including information about the creator, the number of issues, the rules of rights and interests (some NFTs are sold only ownership without copyright, while some NFTs are sold together with copyright, and the specific copyright treatment will be different, which involves the rights and interests of the originator and investor, and requires special identification), storage address (on the designated blockchain platform) and other information.

Game prop class NFT, on the basis of digital art class NFT content, also includes information such as work attributes, level, scarcity

The basis of NFT pricing must be clarified
A pair of socks fetched $150,000, the earliest 5 English words on Twitter fetched $2.5 million, and a work that brings together digital paintings posted every day for 5,000 days fetched over $69 million, on what basis were these prices generated?

There is no doubt that the above mentioned basic items of NFT (a pair of socks, 5 English words, a collection of published digital works) could not have fetched such a high price!

So, these items plus NFT as the encrypted proof of interest can make their prices tens, hundreds, thousands or even infinite appreciation? Obviously, a pair of socks, no matter what kind of encryption of interest is used, can hardly make its price rise outrageously; the earliest 5 English words tweeted by people who are known to the world to be clear and unmistakable, and it is doubtful whether a proof of interest similar to NFT is actually needed; a new work that brings together 5000 days of digital paintings posted every day plus NFT proof of interest (it does not mean that the proof of interest for the 5,000 works are protected by proofs of interest) makes its price surprisingly high and does not have a reasonable basis.

Therefore, the only reasonable explanation for these high prices can be the power of faith, the result of hype.

Some people say that many people are eager to invest in NFT, an important reason is to show their leading position in the digital world and grab the potential benefits of NFT heating up may be significantly appreciated, and will spare no effort to exaggerate the value of NFT, and even mutual speculation to raise the price of NFT, trying to make more people believe and follow the investment, there is a strong “pyramid scheme” characteristics, the investment risk is very high.

In fact, since April, the overseas NFT fever has been significantly weakened, NFT trading volume has shrunk significantly, and the existence of its price bubble and compliance risks have been recognized by many people. Among other things, Fred Ehrsam, founder of Coinbase, said, “90% of the NFTs being made could lose value and be almost worthless in the next 3 to 5 years. It’s the same situation as the early Internet companies of the late 1990s.”

Increased awareness and regulation of NFT
In China, NFT is a brand new concept, and although there are good efficacy in strengthening asset rights protection and promoting transaction circulation as a kind of cryptographic proof of interest generated using blockchain technology, which can encourage beneficial exploration, many self-media propaganda reports have serious problems of exaggeration and misinformation due to the lack of clear official guidelines and regulatory rules, and at a time when the state is severely controlling virtual currencies such as bitcoin mining and trading speculation, the rapid rise of NFT and large-scale investment, especially participation in overseas NFT investment, also have great risk potential, and need to strengthen the accurate interpretation of NFT, strengthen investor education for the public, strengthen the responsibilities of trading platforms, and strengthen the whole process of NFT products and trading supervision, especially for related false propaganda, internal speculation, financial fraud, illegal transfer of assets and money laundering, etc. to impose severe sanctions.

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