Common FTs such as Bitcoin (BTC), Ethereum (ETH), etc. are completely fungible between the two tokens. NFT is unique and cannot be replaced with each other. The author of this article analyzes the development status of NET, related protocols, application scenarios, etc. Let's take a look.
Influenced by my friends, I started to get in touch with NFT, and by the way, I sorted out some of the knowledge I learned and shared it with everyone.
In the blockchain world, NFT is the abbreviation of non-fungible currency, which is compared with FT (homogeneous currency). Common FTs such as Bitcoin (BTC), Ethereum (ETH), etc., two tokens are completely interchangeable. NFT is unique, and two FNTs cannot be replaced with each other. Based on NFT, the concept of SFT (semi-homogeneous currency) has also been developed. For example, banknotes have exactly the same format, but have a number to determine uniqueness when issued. Such products can be considered SFT after being digitized. The NFT-related discussion and analysis mentioned in this article includes SFT to a certain extent.
1. Development status of NFT
1. Market size
According to a report by market research agency Chainalysis, the NFT market size in 2021 has reached at least US$26.9 billion, approximately RMB 170 billion.
On July 4, 2022, according to the latest data from NFTGo.io, the number of NFT holders on the entire network has exceeded 2.5 million, and as of now it is 2,505,738. In addition, the current total NFT transaction volume across the entire network is US$60.18 billion, with a total market value of US$22.47 billion.
NFT has opened up the market in sports, games, collections, music, art and other fields, with tens of millions of participants, making it one of the most out-of-the-box tracks in the web3 field.
2. Current stage of NFT
The current NFT market is mainly focused on collection, finance, and speculation, and has not yet formed large-scale market applications; with the development of the underlying technology and protocols of the blockchain, the application market has gradually expanded from the previous single NFT trading market to the lending and leasing market. .
3. NFT value classification
According to industry category factors, NFT assets are divided into many categories such as collectibles, game assets, virtual land, crypto art, etc. From a value-driven perspective, they can be divided into three types of NFT: income type (game NFT, virtual land NFT), identity type (Collectibles, artworks, membership NFT) and utility categories (such as ENS, focusing on usability).
4. Problems with NFT
At present, the NFT market has problems such as few buyers, difficult pricing, and too high prices for blue-chip NFTs. According to some trading market statistics, the value of blue-chip NFTs accounts for more than 25% of the total value. Such NFTs are expensive, have fewer audiences, and are difficult to flow. Non-blue-chip NFTs are It is very difficult to assess the value of NFTs, and the overall market price fluctuates wildly.
There is still a lot of room for growth in the development of NFT application scenarios. Only with more application scenarios can the value of NFT be better reflected.
At present, the participants in the mainstream market are on the order of several million users, which is still relatively small.
There are also policy factors in some regions. For example, in order to prevent speculation in NFT, mainland China has relatively strict supervision of NFT trading policies, making the flow of NFT difficult.
2. NFT related protocols
NFT protocols are the foundation for the development of the NFT industry and the "consensus" of the industry. Only when everyone jointly adopts, accepts and implements these protocols can the NFT industry develop.
For the protocol details address, please refer to the Ethereum official website, such as: https://eips.ethereum.org/EIPS/eip-721
The following number is the protocol number. In the NFT field, the more influential protocols include ERC721, ERC1155, ERC3525, etc.
NFT protocols can be divided into four categories, including membership, binding currency, basic agreement, and capital.
1. Membership
1）EIP4885
The interface for subscribing tokens allows holders to subscribe to NFTs and multi-tokens. The core function of this protocol is to support setting the access period of NFTs and better serve ecosystems such as membership systems.
For example, the owner of music, movies, books, etc. authorizes access to the follower.
2）ERC5643
The EIP5643 standard is an extension of EIP-721. It proposes an additional interface for NFTs to be used as recurring, expiring subscriptions. The interface includes functionality for renewing and canceling subscriptions.
2. SBT (Soul Binding Token)
1）EIP5114
A token that is bound to another non-fungible token (NFT; e.g., EIP-721 token) at the time of minting cannot be transferred/moved thereafter. Users cannot transfer ownership, nor can minters withdraw/transfer/change ownership.
2）ERC5192
The Ethereum community has expressed a need for non-transferable, non-fungible and socially priced tokens, similar to World of Warcraft’s soul-bound items. But the lack of a token standard has led many developers to simply throw errors when users call transfer functions. In the long run, this will lead to fragmentation and reduced composability.
This standard is an extension of EIP-721. It proposes a minimal interface to enable token bonding using the feature detection capabilities of EIP-165. Soul-bound tokens are non-fungible tokens tied to a single account.
3）EIP4973
Propose a standard API for Account Bound Tokens (ABT) in smart contracts. ABT is a non-fungible token tied to a single account. ABT does not implement a canonical interface for the transport. This EIP defines the basic functionality for creating, assigning, revoking, and tracking ABTs.
Compared with the two standards of ERC5192 and EIP5114, the destruction function is added.
3. Fundamental(Basic NFT)
1）ERC721
Metadata structure of NFT tokens on Ethereum. The first standard to represent NFT assets, created by DapperLabs Dieter Shirley and brought to the market by CryptoKitties.
Standard interface allows wallet/broker/auction applications to work with any NFT on Ethereum. We offer simple ERC-721 smart contracts as well as contracts that track any number of NFTs. Other applications are discussed below.
The standard is inspired by the ERC-20 token standard and builds on two years of experience since the creation of EIP-20. EIP-20 is insufficient for tracking NFTs because each asset is different (non-fungible), whereas each of a certain number of tokens is the same (fungible).
2）ERC875
A simpler NFT standard with batch processing and native atomic swaps, now withdrawn.
3）ERC998
Enables ERC721 tokens to own other ERC721 tokens and ERC20 tokens. It is a set of combinable NFT standards, that is, the binding relationship of multiple NFTs.
4）ERC1155
Multiple types of NFT can be managed in a single smart contract. Standard interface for managing contracts of multiple token types. A single deployed contract can include any combination of fungible tokens, non-fungible tokens, or other configurations such as semi-fungible tokens.
5）ERC1523
The following standards allow for the implementation of standard APIs for insurance policies in smart contracts. Insurance policies are financial assets that are unique in some way because they are associated with a customer, a specific risk, or have other unique attributes such as premium, period, carrier, underwriter, etc. However, there are many potential applications where policies could be traded, transferred or otherwise treated as assets. The ERC 721 standard already provides standards and technical means to handle policies for non-fungible tokens that are a specific class of tokens. Insurance In this proposal, we define a minimal metadata structure whose properties are common to as many policy classes as possible.
6）ERC3475
This is a protocol for bonds, and it is not possible to issue bonds with multiple redemption data using existing token standards. This protocol can support the setting of bond issuance and redemption conditions, as well as the customization of metadata.
4. Finance
1) EIP2615
The protocol extends ERC721 non-fungible tokens (NFTs) to support leasing and staking functionality. These features are necessary for NFTs to simulate real estate, just like those in the real world.
The standard proposes three user roles: Lien Holder, Owner and The User. Their rights are as follows:
①The lien holder has the right to
- Transfer owner role
- Transfer user role
②The owner has the right to
- Transfer owner role
- Transfer user role
③Users have the right to
- Transfer user role
2）ERC2981
The standard enables standardized retrieval of royalty information that can be accepted in any type of NFT market. This minimalist proposal only provides a mechanism to capture the royalty amount and recipients. The actual transfer of funds is what the market is supposed to do. The royalty amount is always a percentage of the sales price. If the market chooses not to implement this EIP, no funds will be disbursed for secondary sales. It is believed that the NFT market ecosystem will voluntarily implement this royalty payment standard; providing ongoing funding for artists/creators. NFT buyers factor in royalties when making NFT purchasing decisions.
3）ERC3525
An SFT token is described by three dimensions, ID, SLOT and value. The ID is equivalent to the ID of the EIP-721 standard, which means that like the ID of the NFT, it is used to identify itself uniquely. SLOT (slot) describes the attributes of the asset, such as land area, transportation convenience, service life and other attributes. If two SFTs have exactly the same properties, then they are just like FTs. value is used to express quantity just like FT.
SFT tokens can be completely transferred from one wallet address to another like NFT. Different SFT tokens can also transfer only a part of the value of the slot through slots like FT, such as just part of the land. The "useful life" is transferred to another piece of land. In comparison, SFT is more customized than FT and more efficient than NFT.
4）ERC4907
This standard is an extension of EIP-721. It proposes an additional role that can be granted to an address, and when the role is automatically revoked (expires). Roles represent permissions to "use" the NFT, but do not represent the ability to transfer or set.
3. The embodiment of institutional economics theory in NFT
Institutional economics describes the basic operating mechanism of commercial society from a theoretical perspective. To put it simply, one is property rights and the other is transactions. Without property rights, there is no transaction. Transactions will also gradually develop in a direction that can reduce transaction matching costs, transaction costs and transaction supervision costs.
1. The basic significance of property rights
Property rights as control rights derive many other rights, including possession rights, use rights, income rights, disposal rights; disposal rights are divided into transaction rights, inheritance rights, donation rights, etc. The divisibility of property rights can increase the usefulness of an asset, allowing people with different needs and knowledge to put a unique asset to the most valuable use they can find.
The use of different rights of property rights is also a very complex problem in the real world, and it is even difficult for some rights to flow. In the world of blockchain, with the support of cryptography and a series of protocols such as ERC3525, the concept of property rights is in the area. The blockchain world can be expressed by NFT. Through some oracle technologies, many assets can be expressed, confirmed and flowed on the chain in the future, which is expected to produce some new forms of business operating mechanisms.
2. Transaction costs
Real life transactions are done through contracts. A contract is a rights transfer relationship established during the transaction process by the parties (two or more people) in order to improve their economic situation (at least rational expectations).
The costs in the transaction process, from the perspective of the contract, the transaction costs of the specific transaction should include: the cost of preparing the contract (collection of information), the cost of reaching the contract (negotiation, signing), and the cost of monitoring and implementing the contract.
Corresponding to NFT, the cost of corresponding links can be solved and reduced through the NFT market, NFT smart contracts, NFT protocols (including leasing, cross-chain transfer and other implementation costs).
4. Application scenarios of NFT
In application scenarios, many have already happened in the web2 world, so why does it need to be implemented in web3? I think there are three main aspects (taking members as an example, other scenarios are similar, and they all take advantage of some of the characteristics of NFT itself).
The first is the advantage of confirming rights. For example, in web2, your membership status will be adjusted with the adjustment of the platform, and data permissions cannot be controlled by yourself. If the platform disappears, this identity will naturally disappear. In web3, it can be granted through NFT. Member identity, this identity will not be lost when the platform disappears, because the data is stored on the public chain;
The second is liquidity. Traditional memberships are difficult to trade after they are obtained. However, in real life, there are mid-way transactions of memberships, crowdfunding, leasing, etc. If you use NFT as a member, the member’s trading rights can be enhanced. great control;
The third is value improvement, which is brought about by liquidity. For traditional members, the pricing power lies with the platform or the enterprise, and issuing members in the form of NFT allows consumers to have greater control and become more market-oriented. If the corresponding rights and interests of members are If the service is not of high quality, the reputation of the platform or company will be directly affected and the value will be reduced. If the corresponding rights and service quality are improved, the value of NFT itself will also increase.
1. Membership
The membership system can be built through NFT. In September this year, Starbucks announced that it will issue NFT members to partners (employees, etc.) in the United States. In the future Starbucks APP, NFT will appear in the form of “stamps”. This stamp can be obtained by participating in special "journey" tasks, such as participating in an online coffee class, or continuously checking in to different nearby stores, etc. Some limited edition stamps can also be obtained through purchases within the APP. This market will also support two-way stamp sales among members, and the stamps will be issued on Polygon.
The construction of the membership system can use NFT, points, and the combination of NFT + points. For example, every time the points reach a certain value, you can get an NFT; you can also set the NFT to multiple different levels to support the synthesis of different numbers of NFTs. For higher-level NFTs, etc., it not only facilitates the expression of identity, but also enables fragmented transactions of NFTs.
2. Marketing
Enterprises can use NFT for brand promotion and marketing, such as theater tickets, scenic spot tickets, etc. When we participate in some tourism or social activities, the activities are commemorative for us personally. Some event vouchers are also beautifully produced, but if we let If these cards are specially collected, many people may not spend so much time managing them. However, if these cards are made into NFTs, after the consumer completes the activity, they will be automatically stored in the wallet and can be read out at any time in the future. This will improve the user experience. It is very good. It can also become a personal footprint in the web3 world and record every memorable thing that happened in your work and life (this may create opportunities to make web3 social applications).
For NFT-based marketing, enterprises can use NFT in combination, such as members using NFT, preferential rights and interests bound to the membership system, various offline physical cards, coupons, etc., can be made into NFT, and limited edition NFT airdrops can be provided to members.
3. Identification
Can be used to identify members of an organization.
Some of the various DAOs that are emerging now are using NFT for identity identification and on-chain governance. For example, in a guild, those who contribute can issue corresponding NFT. This NFT can be called the identification of the members of the guild and can be used as a qualification for voting. , can be used as a voucher to encourage airdrops.
Some companies can also issue NFTs to core contributors or managers at corresponding levels, and they can be organized and managed based on these NFTs. NFT can also be a proof of ability for employees to move to other organizations or positions in the future, without the company needing to issue various certification documents.
ENS is also a special NFT. ENS is a web3 domain name, which is aligned with the web2 domain name system. It is convenient to identify difficult-to-remember characters such as wallet addresses through readable string addresses. ENS can represent a wallet address and gradually become the main way to access personal space (which can include web2 and web3).
SBT (soul-bound currency) is also a kind of identity identifier. For example, NFT (non-transferable or conditionally transferable NFT) can be issued when completing tasks, learning, etc. on the chain.
4. Collection
There are many cases of collection. NFT first appeared as a rare art. Later, some rare, artistic, recognized, and well-run projects or works still have great collection value.
5. Leasing
NFT leasing is a relatively emerging direction. NFT is currently mainly focused on transactions, and the demand for leasing is gradually becoming more prominent. Leasing is essentially the transfer of use rights. Some current agreements can already support it. ReNFT has received millions of dollars in investment. Build a peer-to-peer rental market.
There is a lot of room for both online and offline leasing of NFT. Online digital assets can be monitored and guaranteed throughout the leasing process through smart contracts, which provides better protection for NFT and asset security. Offline leasing may involve the cost of performance guarantee and requires a development process.
6. Games
Blockchain games were once very popular and spread widely throughout the entire encryption circle, but the current X to Earn model is being questioned as Ponzi. This view believes that this is unsustainable. Everyone can make money by playing games. Everyone plays games with the mentality of making money. There is no inflow of funds, and early users will join the users after harvesting. This is obviously unsustainable.
I attended a conference recently and one point of view mentioned that gaming should be an activity where people pursue social benefits rather than economic benefits. Once the pursuit of social benefits turns to economic benefits, it is difficult to reverse. For example, in a game, go and play a game. Boss, you may not get actual material rewards, but only some sense of gain, glory, etc.; once you fight a boss for money, if you don't give money next time, you may no longer be willing to fight the boss. When we play games, it will be a pleasant thing to get some additional material rewards. You are also willing to invest time and money in the game. If you have the mentality of making money by playing games, this logic Something went wrong.
But this does not mean that NFT should not exist in games. There are actually many applications for NFT in games. For example, game identity. In traditional games, once the platform company goes bankrupt, all your game achievements and accumulation will likely be lost. However, the NFT issued through blockchain games belongs to you. For example, game identity NFT, the reputation NFT we accumulate in a game, after the game stops operating, the NFT representing your identity will still be there. This also applies to game avatars and props, etc. Since the data layer of the game is the blockchain, which is a decentralized ledger, everyone can check your NFT through the wallet address. Sharing props between multiple games may become the norm in the future.
Games of the same type can compete and acquire users through methods similar to predator attacks. For example, if A is a mature game and B is a new game, high-value users can be found through data analysis, and then some airdrop strategies can be used to attract players. For game B, in order to improve the experience, some NFT props of game A can even be made compatible or the corresponding attributes can be enhanced.
The application of NFT in games can break some of the current pain points of centralized games. High-end and fun blockchain games in the future are very worth looking forward to.
7. RWA
Tokenized Real-World Assets (RWAs). The physical assets that RWA can represent include real estate (houses and rentals), loans, contracts and guarantees, as well as any high-value items used in transactions.
Creating a connection between cryptocurrencies and the real world is the main goal of DeFi. While the digital asset market is still small ($1 trillion), the real asset market is huge (over $600 trillion). If DeFi is to enter the mainstream, cryptocurrencies must enter the physical asset market, and NFT is the key to entering physical assets.
In the future, many off-chain assets may be mapped to the chain. Imagine an example. For example, in the long-term rental apartment market, the thunderstorms that occurred in the rental market in the past few years may have different results if the blockchain solution is used. The property rights of a house can be split into ownership, lease rights, Right to use.
The problem with a certain shell is that the transaction is not transparent, which means that the homeowner entrusts the right to use the house to Danke for rent (through NFT verification and smart contracts, there is no need for the current complicated document verification and contract signing process, and it can be better (online), and the income received by the homeowner is monthly, but the contract given by Danke to the tenant is long-term, and even a year's fees are collected in advance. Once there is a problem with Danke, there will inevitably be a dispute between the landlord and the tenant. proudce conflict.
This problem can be solved through NFT and corresponding smart contracts. The homeowner transfers the rental rights to the intermediary platform, and can receive the agreed remuneration for this. The intermediary platform rents the right to use the house to the tenant, creates a smart contract, and the tenant regularly transfers the right to use the house to the tenant. When funds are transferred in, according to the rent agreed with the landlord, the fees payable to the landlord will be transferred to the landlord through a smart contract, and the remaining part will be transferred to the intermediary platform, and then the right to use the house within a certain period of time will be obtained (the right to use the rent can be combined with the smart contract) If the house is vacant for a long time due to the intermediary platform, a corresponding smart contract can be designed to automatically pay compensation to the homeowner through the smart contract platform.
If the long-term rental apartment market is a mechanism based on blockchain smart contracts, the transparency of the entire transaction will be greatly improved, and people's acceptance will be much higher, which is conducive to the better implementation of business models like this.
8. Mortgage lending
NFT lending (NFTfi) can be compared with Defi lending. Currently, they are basically mortgage lending. NFT lending has emerged in forms including peer-to-peer lending, peer-to-pool lending, non-fungible debt positions, etc. Currently, some lending markets have been put into operation, but the effect still needs to be improved. For example, there are efficiency problems in peer-to-peer lending. Although the efficiency of peer-to-peer lending has been improved, flexibility and price space have been sacrificed (for example, the loan amounts for the same series of rare NFTs and ordinary NFTs are the same. This is because peer-to-pool lending uses oracles or Transaction floor price) and other issues. Non-fungible debt positions are a new concept. In fact, they are similar to the peer-to-peer pool model. They are just to solve the price space problem of NFTs. Over-collateralization can be provided for blue-chip NFTs. Capabilities such as JPEG'd are the only platforms that currently offer this structure, and are limited to CryptoPunks.
9. Copyright
For example, valuable content such as artwork, books, music, videos, etc. can be bound to copyright. For example, books can generate revenue through user collections, etc. Revenues can be obtained from the transfer of artworks through the copyright mechanism.
5. Technical basis of NFT
1. Cross-chain
The cross-chain of NFT is the key technical infrastructure that supports NFT liquidity. There are currently two forms of NFT cross-chain:
- Source chain locking, target chain casting, representing Wormhole
- The source chain is destroyed and a new chain is minted, representing Gh0stlyGh0sts, using the Layer Zero protocol
There are currently three main types of cross-chain technologies:
①Intermediate chain
The role of the inter-chain is to receive, verify information, and transmit information between chains. The intermediary chain has full signing authority over the information, which is also its failure. If consensus corruption occurs, the liquidity of all chains is immediately stolen. Currently, hundreds of millions of dollars are bound to Zhongchain, protecting the security of tens of billions of dollars. Intermediate links are becoming increasingly decentralized and are increasingly likely to be exploited by criminals.
②Light node
Light nodes on the chain can receive and verify the block headers of each set of blockchains on the opposite chain. Transaction proof related information is transmitted and verified on the blockchain, starting from the beginning of the block. Using light nodes to transmit information is the most secure, but also the most expensive. Running an on-chain light node on Ethereum costs tens of millions of dollars per day per chain pair.
③Ultra-light node
Ultra-light nodes (ULN) combine the security of light nodes with the benefits of intermediate links, and are achieved by performing the same verification method as online light nodes. The block headers of ULN are not all saved in order, but are allocated on demand by the decentralized oracle.
Layer Zero can run online endpoints for configurable user applications (UA). Layer Zero relies on oracles and relays to pass information between endpoints on the chain. When a UA transmits information from chain A to chain B, the information first passes through the endpoint of chain A. The endpoint will notify the oracle and relay dedicated to the UA, as well as its target chain. The oracle forwards the block header to the B chain endpoint, and the relay submits the transaction proof to the target chain for verification. After the above steps are completed, the information will be forwarded to the target address.
2. Development of the protocol
With the development of a series of NFT-related protocols, many products can now be expressed through NFT. As more scenarios emerge, better and more flexible protocols will emerge in the future, which will help the encryption market to better Enter the physical business society.
3. Smart Contract
At present, smart contracts mainly rely on smart contract engineers to implement, which is costly and has relatively weak configuration capabilities. In the future, in order to adapt to various NFT transaction contracts, a configurable smart contract creation model may emerge. However, this This possibility only has value if security issues are addressed.
6. NFT operation ideas
NFT involves specific application scenarios, but not much is currently known. Common strategies include airdrops, copyrights, membership mechanisms, etc. Among them, the operational ideas of Yuga Labs are a very good model for creating IP concepts. Interested friends can check it out for themselves.
1. Business opportunities
1) NFT wallet
NFT wallet is the basis for future NFT transactions and management, and may even be the basis for future web3 social interaction. Most current wallets support FT well, but are not so friendly to NFT support.
2) NFT market
In the NFT trading market, there are already peer-to-peer trading markets such as opensea, but the NFTfi and NFT leasing markets have just started. In the future, NFT business can be explored in the direction of lending and leasing.
3) NFT delivery platform
The NFT launch platform can help some small and medium-sized enterprises, enterprises or platforms that do not have much system construction capabilities or the ability to access various public chains, to more easily access the encryption world. For example, various scenic spots, theaters, various event organizations, etc. can easily issue various NFTs through the NFT issuance platform, and build an NFT issuance and verification mechanism to facilitate the closed-loop management of enterprises. The NFT management platform can develop business through the SaaS model and charge certain fees for software use, NFT casting, NFT transactions and other links.
4）RAW
The link between NFT and the real world, combined with various emerging technologies such as the Internet of Things, 5G technology, IPV6, etc., and combined with certain certification agencies, can truly realize that everything can be NFT, interconnect the real world on the chain, and use blockchain encryption technology , which can better protect the security of users’ assets. Through smart contracts and various application markets, transactions can be faster and lower cost.
7. Summary
NFT still has such excellent performance in the current industry cold winter, which has demonstrated the powerful charm of NFT. NFT has become one of the key infrastructures for the development of Web3 and the Metaverse. In the future, as more scenarios appear and more users enter, the narrative of NFT must be very grand.