What Can NFT Bring Us?

TL;DR

• The production of NFT is called "mint", and mint is related to two major links: the public chain, side chain, storage and wallet of the infrastructure layer, and the minting protocol and primary circulation market of the protocol layer.

• When we mint an NFT, we cannot move all metadata to the chain. So where does the metadata store it?

• In the whole NFT ecosystem, there is also a non-negligible component that is the creator community.

• The overseas NFT market is driven by some hot projects, and the transaction scale fluctuates greatly.

If we want to really understand NFT, we need to understand its entire life cycle: how is an NFT produced, stored, transferred and sold? What exactly does so-called decentralization mean?

Definition

The biggest difference between NFTs, non-fungible tokens, and previous fungible tokens (such as Bitcoin and Ethereum) is that it can really map real goods and assets one by one, as well as new digital native assets. It is like a reproduction of the real world, while creating a virtual world, redefining the concept of "ownership" in the new era. It has brought real new users to the cryptocurrency world. In order to try NFT, artists and art investors began to download and install digital wallets. Fans began to buy stable coins or Ethereum to buy their favorite star cards or club fan coins. Each wave of bubble was an extensive market education, pushing the penetration of cryptocurrency forward.

The production of NFT is called "mint", and mint is related to two major links: the public chain, side chain, storage and wallet of the infrastructure layer, and the minting protocol and primary circulation market of the protocol layer.

The infrastructure layer can be understood as an underlying operating system, server and user system. The most mainstream public chain is naturally ETH Ethereum, which has the advantages of high degree of decentralization, openness and stability, but is seriously congested, with high gas fees in the coin minting process and slow transfer confirmation.

If a large number of new users pour in, although it will bring about the ecosystem prosperity of Ethereum, it will also greatly reduce the user experience and ultimately force users to find other ways.

The first type of substitutes are other competitive public chains, often called "Ethereum Killers" - although they are still difficult to shake Ethereum's position in the short term, representing Solana, Flow, NEAR, BSC, etc., each with its own advantages and disadvantages, they can never escape the curse of decentralization, security, and scalability.

The other is the side chain and Layer 2 (the second layer) blockchain, which can be seen as the scalability of the Ethereum ecosystem. A representative of side chains is Polygon, of course, there are also trending blockchain games such as Axie Infinity, which have made a special side chain Ronin for themselves, and its nature is probably close to Tesla's self-developed chip; The representative of Layer 2 is ImmutableX which adopts ZK Rollup scalability solution. The first NFT of Tiktok is released through ImmutableX.

The Paradox of Decentralization

It is precisely because of the efficiency bottleneck that the blockchain is difficult to break through. When we mint an NFT, we cannot move all metadata to the chain. So where does the metadata store it? This is actually an awkward question.

When NFT practitioners scorn the traditional world under the banner of decentralization, they have to admit that in the face of exponential growth in storage demand, centralized storage is still more efficient and operable, at least, they have to rely on Amazon or Google's cloud services.

As for IPFS or Aweave, the design of economic mode and the scheme of node redundancy backup and storage under the chain are not completely safe and reliable, because the network nodes in IPFS are self driven for content backup. If only a single node or a few nodes back up the corresponding content, and these nodes are damaged or offline, the stored data will disappear, which can only point to a blank.

If you have seen the movie "Free Guy", you will understand what this means: the scene of the boss violently destroying the server with an ax at the end of the movie may seem ridiculous, but it will happen in reality.

At the stage of rapid development of the industry, this issue is not enough to attract attention, but perhaps we will see such news one day that the metadata storage of a well-known series of NFTs was destroyed in a fire. This just shows that what NFT stores is actually a "certificate" and a direction. What NFT gives users is not a product, but a property right.

NFT Track

With the underlying facilities, NFT minting protocols (Mint & Launch) and primary circulation market (Sell & Trade) are also required. The NFT track is more like a hundred flowers blooming.

Comprehensive track: Mintable, mintbase

Art collection track: SuperRare, CryptoPunks, Rarible, NBA Top Shot, BAYC, Art Blocks;

Gaming track: Axie Infinity, Alien Worlds;

Metaverse track: Cryptovoxels, Decentraland, The Sandbox;

Social or fan economy: Rally, Mirror, Chiliz, etc。

Taking Decentraland as an example, this virtual world built on Ethereum provides users with NFT land, avatar clothing, etc. Users can also embed their own 3D scenes, clothing, etc. into the game and trade.

The ape avatars that went viral before were minted based on the protocol of Bored Ape Yacht Club. It is an NFT collection based on Ethereum, which contains 10,000 unique Bored Apes. This not so cute ape is not only an avatar, but also a symbol of identity. The avatar holder can access the private chat channel BAYC Discard and participate in the co-creation of the exclusive graffiti board THE BATHROOM. Therefore, it is more like a membership card with a public display function than just an avatar.

When it comes to circulation and sales, the world's largest NFT secondary trading market is Opensea. This "largest" is really the largest one - it has occupied more than 95% of the trading volume of the whole market. However, given that the whole NFT market is still small - estimated to be less than $50 billion, although Opensea is frequently called eBay in the NFT industry, it is hard to say that Opensea will be the future winner, and there is still huge room for competition in the future incremental market.

Creator Group

In the whole NFT ecosystem, there is also a group of creators that can not be ignored.

For business-minded creators, NFT can be used to replace and supplement the sub_script_ion system or advertising based revenue model of traditional industries, which can be embodied in the following ways:

Subdivide the willingness of fans to pay and get more income from NFT

On traditional platforms such as YouTube, creators can attract casual fans who rarely pay for content through advertising, and they can also attract fans who are usually willing to pay a small amount of money through sub_script_ion. As a result, they missed fans who were really willing to pay more. The creators can launch limited NFT collections for die-hard fans, and can also continue to launch a series of collections to attract more casual fans.

Reduce middleman fees and get more benefits from NFT

Whether it is advertising or sub_script_ion income, traditional platforms will draw a large part of the commission from the creators' income. They can modify the platform policy at any time without obtaining the creators' permission. With NFT, creators can retain most of the income from the initial mingting, and can also obtain additional income through royalties.

Recognize the early fans and provide them with real rewards

In the traditional platform, the early supporters of the creator will not get any reward for the promotion of the creator's popularity. Of course, you can say that you followed a YouTube video blogger before he became famous, but you can hardly prove whether this is true. Even if it is true, the fact that you paid attention to him very early will not bring you practical benefits. In contrast, NFT can provide fans with a way to clearly show that they have paid attention to creators for a long time. The creator can provide benefits for these early fans, such as inviting them to participate in certain activities or certain limited distribution products. In addition, whether musicians or athletes, the creators' early collections often appreciate their popularity. From this point of view, NFT can directly motivate fans to help creators eBay success.

Looking back at the beginning, NFT also focused on on-chain transactions of real works. For example, the famous paintings of British avant-garde artist Banksy were burned and put on the chain. Some mature classic IPs, such as Marvel and Naruto, also tested the waters.

However, with the development of the market, a number of truly original crypto arts have begun to rise: not only pixel avatars and apes, but also works with characteristics that people want to collect rather than just resell. If people can pursue paintings by Picasso, Leonardo da Vinci and Rubens, it is certainly not inappropriate to pursue encryption arts.

If the NFT revolution is finally successful, the agitation of crypto art will eventually become the renaissance of modern art, which is not impossible.

Prospect

The number of NFT global buyers increased from 29,500 in January 2021 to 813,000 in November, and the number of sellers increased from 27,900 in January 2021 to 764,900 in November. The number of buyers is higher than the number of sellers, mainly because there is a certain threshold for the minting and issuance of NFT projects.

In 2021, the NFT market will witness go-viral growth. According to Cryptoslam, in August 2021, the global transaction volume of NFT increased by 13.92% month on month to 4.2804 million, a year-on-year increase of 3818%; The sales volume increased by 301% month on month to US $4.474 billion, a year-on-year increase of 253706%.

The overseas NFT market is still driven by some hot projects, and the transaction scale fluctuates greatly.

According to Cryptoslam, after CryptoKitties launched in November 2017, it quickly went viral in the market, driving the NFT market trading volume from $110,000 in the single quarter of 17Q3 to $18.88 million in the single quarter of 17Q4; In July 2021, the transaction scale of CryptoPunks, BAYC, AxieInfinity and other top projects increased dramatically, driving the NFT market transaction volume from $867 million in the 21Q2 single quarter to $8.728 billion in the 21Q3 single quarter.

Since 2021, the price of Ether has kept hitting new highs, and the concept of meta universe and NFT has gradually been widely recognized by the public. The average transaction price of NFT has risen sharply from $43/unit in 20Q4 to $169/unit in 21Q1, and reached $718/piece in 21Q3. From January to November 2021, the cumulative sales volume of NFT in the global market will reach 37.7585 million units and 15.794 billion dollars.

This unbalanced structure also shows that NFT has many other fields that can be expanded, such as finance and social networking.

Some attempts in the financial field have begun. For example, Makerdao and Centrifuge, the stablecoin protocol, try to introduce real world assets into the cooperation of the decentralized financial world. Through Tinlake smart contracts, they convert auto loans, commercial invoices or music stream royalties into NFT with necessary legal documents, then securitise NFT, and finance from Maker and other cryptographic lending protocols.

Another frequently heard indicator is the floor price, that is, the starting price of the collection in the market. At the craziest stage of the market this year, some collections can reach 100 ETH only at the floor price. After the peak in September, the floor price of many projects has directly shrunk by more than 50%.

An interesting trend is that the floor price itself, as an indicator, has been made into derivatives. For example, the prediction market platform Polymarket has launched the NFT floor price market, which allows users to trade the floor prices of CryptoPunks, Blitmap, Bored Ape Yacht Club, Loot and other NFT projects for long or short without holding NFT. There is no minimum standard limit, and 0.1% transaction handling fee is charged. Paradigm, an on-chain derivatives research institution, tries to establish a floor price "perpetual contract", which is equivalent to adding margin to long and short transactions.

Conclusion

Currently, the NFT market has actually entered a staged bear market, with a large number of art NFTs breaking out and transaction and investment inactive. These data changes mentioned above also show that the NFT market is still immature in many places as an early market.

Vitalik once said that NFT is very valuable and has brought a new business model to the creators. However, people should not assume that NFT is economically sustainable in its current form. NFT needs to go through many winters before people can truly understand what long-term sustainable NFT will be like.

This also tells us that to do a good job in NFT investment and other related work, it is not a race against time, but a friend with time, which may be a safer direction.

Author: Gate.io Observer: Byron B. Translator: Joy Z.

Disclaimer:

* This article represents only the views of the observers and does not constitute any investment suggestions.

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