Wang Chuan: Why the potential of high-quality NFT is far greater than that of physical collectibles (1)
Editor's note: This article is from investguru (ID: investguru), author: Wang Chuan of Silicon Valley, reprinted by Odaily with authorization.
1/ On March 12, 2021, under the watchful eyes of 22 million live viewers around the world, the famous art auction house Christie's (Christie's) put the post-80s Internet artist Beeple's work "Every Day: The First Five Thousand Days" Made an NFT (Non-Fungible Token, translated as "non-homogeneous token) in Chinese, and sold for a sky-high price of 69.3 million U.S. dollars (corresponding to 42,329 ethers at the time).
2/ This auction price ranks third among all living artist auction price records for a single artwork in history. The first place is the Rabbit of Jeff Koons (born in 1955), which was auctioned in 2019, at US$91.1 million; the second place is the Potrait of an artist, 97, of David Hockney (born in 1937), which was auctioned in 2018 $0.3 million. The traditional old artists obviously haven't realized the challenges of the young upstarts in the blockchain world. Covid has seriously affected the offline business of traditional auction houses. Christie's aggressively entered the NFT auction market because of the situation, but the results far exceeded expectations.
3/ Beeple's real name is Michael Winkelman, and he has been creating a painting every day since May 2007 without interruption. Thirteen years of accumulation has given him 1.8 million followers on Instagram. In 2019, his work was adopted by the fashion house Louis Vuitton. In 2020, his work was showcased during the Super Bowl halftime show.
4/ In October 2020, he made a piece of work into an NFT, which was his first test of water, and was auctioned on the online platform Nifty Gateway, with a transaction price of US$66,666. In December, he sold another 20 works as NFTs, earning a total of 3.5 million US dollars.
5/ No one can succeed casually, longing for the dream of making an NFT out of thin air without any accumulation and foundation, and quickly selling sky-high prices, you can wake up.
6/ The first reaction of the average observer to the purchase of this virtual artwork is disbelief. All digital audiovisual works can be easily copied, why can your NFT be worth so much money? Are the buyers all sb?
7/ The buyer of "Every Day: The First 5,000 Days" is Vignesh Sundaresan, an Indian entrepreneur in Singapore, nicknamed MetaKovan on the Internet. According to his self-report, he started from nothing. As early as early 2013 when he was still studying in Canada, he started Do a bitcoin exchange business. According to Sundaresan: he participated in and created history in this auction, and the NFT he bought will become an important object in the history of art; it will take time for things like NFT to be understood by more people, and the medium of art is quietly moving towards the district. Blockchain migration, there will be thousands of creators joining this ecosystem; in the future of NFT, there will be many low-value items and a small number of high-value collectibles; as the new owner of NFT, he will Find ways to earn money in the virtual world.
8/ According to Beeple himself, the buyer does not own the copyright in the traditional sense of the work, but only the property rights to the NFT. But the relationship between artists and collectors is a symbiotic and win-win relationship. We are all in the same boat, working together to take care of each other, so that the value of artworks can continue to appreciate. This property right has been recognized by many people through the publicity auction. Of course, anyone else can copy the original work and create an NFT again, but it will not be recognized by the majority.
9/ The traditional art collection circle has long been troubled by the problem of counterfeit works. The director of the Metropolitan Museum of Art in New York was once asked, "How many of these artworks on the walls do you think may be fake?". He replied, "I don't know either". Documentaries on Netflix in 2020,"Let you see: A true story about fake art" (Made you look: A true story about fake art) tells that a female con artist in New York, since 1994, paid a street painter named Qian from China , to imitate works of famous masters, pay less than 9,000 US dollars for one copy, then make up stories with clever words, and resell them to big art dealers. The ultimate loss caused by fake paintings to collectors is as high as 80 million US dollars. There are 165 Knodeler, an old art distribution store inherited in 2011, also closed down in 2011. Many buyers believe that Knodeler is a conspiracy of fraud, and various lawsuits against Knodeler executives did not come to an end until 2016. This is far from 1994 Twenty-two years have passed since the first fake painting entered the market.
10/ Art dealers usually rely on third-party experts to verify the authenticity of artworks. But appraisers always serve the interests of the bosses who pay them. If your negative appraisal will cause the boss who paid you to suffer huge losses immediately, do you dare to poke this basket immediately? Therefore, buyers of artworks will take greater risks if they only rely on the appraisal documents of experts hired by the seller. Knodeler sold fake paintings from 1994 to 2003, and it has been smooth sailing. It wasn't until 2003 that a buyer from Goldman Sachs asked a third-party expert to verify the authenticity of a work and found that the work used dyes that did not exist at that time, and the scam began to be exposed slowly. Usually if one cockroach is found in the kitchen, there must be several more undiscovered. Knodeler is closed, but how many other resellers are selling fakes that have yet to be caught? We can never fully know.
11/ There is a word in the world of collectibles called"Provenance",Meaning a written record of an item's origin, resale history, and storage location history from beginning to end. Because NFT itself is recorded on the blockchain, it can be said that it is"Provenance native",Comes with Provenance. From the establishment of the origin to each resale transaction, it is automatically recorded on the chain, and anyone can publicly verify it. There is no ambiguity and ambiguity, and there is no room for falsification. This is unmatched by physical collections.
12/ A typical question of ordinary people is: I can touch real paintings and art collections, but I can't touch a virtual NFT, why do you say it is valuable?
13/ If you still remember the author's old article,
Wang Chuan: The key to success = network, network and network
There are two examples in the fourth section. One is a work in a certain museum. At first everyone thought it was an authentic work by Rembrandt, but then suddenly an expert said it was a copy by a student of Rembrandt, and the crowd receded immediately. The second example is that after a certain collection was suddenly recognized by several authoritative experts as an authentic work of Leonardo da Vinci, the price immediately skyrocketed. This is the instability of centralized authentication.
14/ The rhetorical question from this perspective is: If an expert presents evidence today that your physical collection is a fake, its value may immediately return to zero. Otherwise it may suddenly become very valuable. Do you really enjoy the art itself, or do you enjoy the "comments given to you by experts"? If you think that experts’ comments are far more valuable than the visual and tactile experience of art, then wouldn’t an NFT that can be independently and publicly certified on the blockchain and cannot be tampered with be more credible than a letter issued by several experts?
15/ Why in the world of traditional art collections, everyone feels at ease about taking the risk of being identified as counterfeit and worthless by other experts after purchasing an artwork; while for NFT, which seems unfamiliar, the cost of authenticity is almost Zero, a new medium that makes appraisal experts unemployed, but is terribly afraid?
16/ So, for NFT, how do you prove that this work is an authentic work certified by the original author? The common practice is to simultaneously release news on major social media before the mainstream auction website releases the news as a kind of circumstantial evidence. For Beeple who has millions of followers on Instagram, Twitter, Facebook, it's very simple. Therefore, maintaining the long-term existence of their real names (or corresponding stage names) on major social media must be done in advance. This is not something that can be done in a day or two. If you open an account, only a few days after registration, and only a few hundred fans, the audience has no way of knowing whether this is a fake account casually registered by a scammer.
17/ Once the NFT is registered on the blockchain and the public sale is completed, all data can be publicly and independently verified, and no one can tamper with it, and the authenticity cannot be challenged. As time goes by, the irreversibility of this authenticity consensus, just like the confirmation of btc after more than six blocks, is rock-solid, and even the original creator cannot change it. You don’t have to worry, as in the case of purchasing physical collectibles, a “so-called” expert suddenly jumped out and said that a certain painting was not the original work of Rembrandt, but an imitation of his students! This kind of nightmare that physical art collectors may face is not a problem at all for NFT collectors. This is the advantage of decentralized consensus.
18/ The core of NFT on the blockchain is two things, one is the address of the smart contract on the chain (currently mainly Ethereum), and the other is the ID corresponding to that smart contract. For example, the "every day" released by Beeple The NFT used is a smart contract called MakersTokenV2, and the corresponding ID is 40913. You can see that this NFT was transferred to the new owner's wallet on March 13th on Ethereum.
19/ The mainstream standard of NFT is the so-called ERC-721 (later there was a new and improved ERC-1155 standard, which is not detailed here). Universal standards mean that in theory, the same NFT can be easily switched to different platforms for auction, as long as you authorize the address you control and link the platform through the wallet software.
20/ Currently Opensea.io, the largest NFT platform on Ethereum, claims to have more than four million different NFT objects on sale. Artists who are unwilling or unable to program can easily directly use platform tools to convert their artwork into NFT.
The picture below shows the first NFT that the author is currently auctioning on the opensea.io website. Search on the website"svwangchuan"can be found. The auction will end within 45 hours after publication, interested readers can go to opensea.io to directly inquire)
21/ Where/how the image of the artwork itself is stored is not its core key. This is actually the same as the underlying logic of physical collectibles. Experts’ identification of authenticity is the key. If experts say it’s a fake, no matter how beautiful it is, it’s useless; If it reaches the wall, it can also fetch a high price.
22/ At present, the purchase of NFT on the mainstream platform requires the buyer to have a certain amount of Ethereum (ETH) and the corresponding wallet software Metamask (commonly known as "Little Fox" in the Chinese community). Considering that most people in the world have never even touched BTC, and Metamask only has one million monthly active users in October 2020, the expansion potential of the NFT market is actually very, very large.
23/ In addition to being able to disclose the source and verify the authenticity, the biggest difference between NFT and physical collectibles is that it can endow program logic and produce endless combinations with various software programs or smart contracts.
This includes, but is not limited to:
The original creator can set program logic in the NFT, and a certain percentage of commission can be automatically withdrawn each time the platform is resold (the upper limit set by opensea is 10%), so that the original creator can also enjoy some dividends from the future appreciation of the NFT.
NFTs with high liquidity, frequent transactions, or long-term transaction history can be used as collateral in the future, and can be quickly borrowed in the Defi ecosystem; (art collections in traditional finance can also be mortgaged and loaned, but the costs involved and cumbersome procedures, several orders of magnitude higher than Defi)
Because the NFT and its owner can be accurately confirmed by the address on the blockchain, the smart contract in any application scenario can set the program logic to give the NFT owner some special rights. Once the smart contract is deployed on the chain and widely used by the community, the original author of the contract cannot be tampered with. The stickiness of use and the accumulation of value come from this.
24/ Unisocks can be said to be a representative of this programmable NFT. Originally launched by Uniswap in May 2019, unisocks has only 500 shares, and the only right is that NFT can be exchanged for the corresponding 500 pairs of socks. The trading price of Unisocks in the liquidity pool is determined by the so-called Bonding Curve formula in a smart contract. The initial price was only $12, but today's market price is about $80,000, an increase of nearly 7,000 times in two years. In the past two years, 185 buyers have exchanged NFT for socks (it is estimated that they all regret it). Onlookers are bewildered by the current high prices. But looking at it from another perspective, a baseball signed by Bill Clinton can be sold for $900 each. Uniswap, as the world's largest decentralized exchange with only a dozen or so employees and a market value of more than $10 billion, has created a pair of decentralized exchanges. A limited-edition sock NFT priced by a smart contract sold for $80,000. Isn’t that outrageous?
25/ NFT is essentially a software protocol. The value of a software protocol does not lie in its individual and isolated characteristics, but in the essence of how many nodes will adopt and access this software protocol in the future, and how large a network it can form. People in the canal network cannot understand the value of the railway network; traditional newspaper networks cannot understand the value of search engine networks and social media networks. Chickens and ducks cannot communicate, and whoever has the bigger network is more reasonable in the end. The value of NFT does not lie in the artwork itself bound to it, but in the community identity behind the work and the potential for future development of the community network.
26/ For those who say that NFT cannot be touched and is air, the response is actually very simple: when the Internet first came out 30 years ago, didn’t domain names also seem to be air? But not long ago, voice.com was sold by its original owner, Michael Saylor, for $30 million. In the past two decades, a small number of interested people have accumulated countless wealth by preemptively registering a large number of scarce domain names. Their gains are far greater than most engineers who have worked hard on the front line of the Internet but ended up in vain. You can refer to the author's old article
Wang Chuan: The legend of domain name tycoon Ye Yun -- why investing is not just buying stocks
27/ Yes, most ordinary NFTs may indeed be of low value, but a very small number of high-quality NFTs, relying on the rapidly growing community consensus connected by the software protocol behind them, may absorb and carry far greater value than physical collectibles.
(to be continued)
(to be continued)
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About the author: Wang Chuan, an investor, currently lives in Silicon Valley, California. WeChat account 9935070, Twitter account"Svwang1",Sina Weibo "Silicon Valley Wang Chuan". All articles express the author's personal opinions for reference only, and do not constitute investment advice on the assets mentioned. Investment is risky, and you must be cautious when entering the market.
