Nature and Future of NFT
BSN LONG STORY SHORT SERIES #20
In this latest episode of BSN’s Long Story Short Series, we focus on what NFTs are and their use-cases and understand the nature and future of NFT in depth.
In this webinar, we have an excellent line-up of true experts in this field to address the evolution of NFTs, the pros and cons of NFTs. For today’s discussion, the three distinguished guests include Duc Luu (Executive Chairman at Spores Network), Rajesh Dhuddu (VP & Practice Leader at Tech Mahindra), and David Shin (Head of Global Adoption at Klaytn). The talk was moderated by Tim Bailey (Vice President of Global Sales at Red Date Technology).
Introduction about Panelists
Rajesh leads the blockchain and cyber security practice for a global IT giant called Tech Mahindra. His role includes driving digital transformation and internalizing blockchain.
David is based in Singapore and works for Klaytn, Korea’s largest software company. He is responsible for ensuring the global adoption of Klaytn.
Duc: He is the Executive Chairman of Spores Network, the platform that decentralizes art culture, including games, content. Spores Network is also a gamify incubator launching NFT play-and-earn games. The organization is also launching VR (virtual reality) gallery and retail space (Phase1), and Phase 2 will happen in 2022.
What is the simplest definition of NFTs?
David: Consider a traditional analog world where we live today- infinite scarcity and assets, artwork, gold, or diamonds. All these assets are deflationary, and they create value because they are scarce, which leads to sentimental value and then financial value. NFTs, in this context, are related to creating digital artwork due to the scarcity of artwork. In other words, synthetic diamonds can be made with high-end technology (with no one identifying the difference) except when GIA (the Gemological Institute of America) validates them. Similarly, NFTs are ERC-20 contracts that focus on scarcity and decentralized authentication of digital assets.
Rajesh: Consider millennials and digital natives who spend more time online. Now, as they spend more time on digital media (like Metaverse or anything like this), they need to create a unique identity for themselves — assets, collectibles, or holdings (exclusive to tech). Until NFTs appear on the horizon, it was possible to do so. Still, it is possible to establish ownership of such assets or collectibles globally is possible with NFTs. So, for example, you want to pay $500 or $1000 for a digital asset. Now, anyone can copy it and violate copyright arrangements. With NFTs, original ownership and authentication of digital assets can be established. As a result, the digital collectible industry will be a multi-billion dollar industry globally. NFTs also bring monetization to the immersive experience powered by VR, AR (e.g., Decentraland).
How to distinguish between Bitcoin and NFT? What are their fundamental differences and connections?
Duc: Entertainingly, he mentioned that the human race is fungible, but David, Tim, and Rajesh are non-fungible. Explaining further, he stated that if you go to the US treasury and ask them to give US dollars for US dollars, they will provide you with the US dollar, and this is called fungibility. Similarly, one Bitcoin can be exchanged for another identical Bitcoin of the same value(i.e., Bitcoin is of fungible nature) whereas, NFTs are non-fungible.
Spores Network is working on two aspects of NFTs — NFT art and NFT entertainment. For example, a celebrity put out an NFT token with tradable value but no intrinsic value. So, NFT art aims to establish the value of digital collectibles. In terms of Metaverse and gaming, NFTs are all about providing utility. For example, one can buy a Michael Jackson outfit from the digital toolbox to go on for a date. All the NFT sub-groups are shifting towards utility. He also added that he attended a ferocious paint party, where new NFTs were created from physical art. On the contrary, Metaverse includes platforms like Sandbox, Decentraland.
Why do you think NFT has become such a big deal in several months?
David: He mentioned that it is just a continuation of the broader acceptance of digital assets. Traditional investments like real estate, securities (bonds and Equities) have become a thing of the past for Generation Z and Millenials. They are responsible for the upward movement of the adoption curve. Other factors include the ability to trade 24/7 and fast-moving markets. According to him, the difference between Bitcoin, Ethereum, and non-fungible assets has that perception and demand drive the value of NFTs. Also, Bitcoin and Ethereum are more about utility and liquidity.
Duc: Duc: He added that in addition to perception, the community is also a significant factor that has driven the adoption of NFTs.
How do you see NFT technology being used now and in the future by large clients you work with?
Rajesh: As far as adoption is concerned, Visa has collected digital assets from Cryptopunks by paying hundreds of thousands of dollars to portray that they are not behind the technological revolution. Similarly, other global brands are adopting NFT assets to monetize and create a different level of customer base. The diversity of thoughts among established players is fascinating, according to him.
As a partner of large companies, are you pushing the clients into NFTs, or are you being pulled into it?
Rajesh: It is a combination of both push and pulls. In some cases, it is more consultative in nature (such as to drive customer engagement). In some cases, when competitors adopt technologies like blockchain, clients are being suggested to adopt them to survive the competition.
Are there industries today that you consider NFT not being used at all, but this could be a game-changing technology in that industry?
Duc: In the music space, it is not just about minting NFTs rather fractionalizing income streams, designing new music labels; tech will be ahead of the legal framework. Revenue from songs can be earned in perpetuity, and singers can earn tokens as equity.
More details for the unique aspect of the NFT word “fractionalization”? What doors does it open in terms of business models?
Duc: It is like derivatives that provide liquidity to the market. For instance, you have a 50 million board ape in your possession that you can sell as shares so that people can monetize and offer a lending mechanism. NFC-20 is trying to do baskets of board apes and provide utility on that.
What do you see with the NFT in the area of Kakao or Klaytn?
David: In Kakao or Klaytn, any conversation with large enterprises involves Metaverse. It means the NFT economy will grow as Metaverse will grow. Metaverse is about a multiplayer interactive environment that can be a game but other things too, as events and concerts. It is about blending various industries and creating an economy to transact. Blockchain is the pivotal engine to drive this economy. Klaytn or Kakao do not see NFTs as only digital art pieces or collectibles but as avatars (from a Metaverse perspective). NFTs can change shape, colors. In addition to that, interoperability of NFTs- play the game and earn and take out assets on-chain and stake those assets to earn yield.
How do you view the global development and implementation of NFTs? Can you tell us about the regulation of NFT in different regions? Although the nature of NFTs and cryptocurrencies are different, existing NFT applications are centered around Cryptocurrencies. Thus, the laws and restrictions against crypto also limit NFT development. For better adoption, how do you think NFT will overcome this limitation?
Rajesh: The first question he gets is ‘I have invested thousands of dollars in NFTs’- now, how to protect the assets from being copied. Other questions include what happens if I lose it and if someone steals it. Unfortunately, regulators are still silent on the regulatory aspect of NFTs, according to him. Today, courts of law do not recognize such assets. Therefore, such assets can only be secured by registering them just like physical assets, but this activity will bring physical components to the digital assets. So, the regulation needs to emerge in this merge. A lot of facilitative work needs to be put into place for cryptocurrencies, blockchain technology, and crypto assets before talking about the regulatory framework for NFTs. Currently, it is a white space with lots of blue ocean area that needs a lot of work to be done.
Do you think regulation is essential for the mass adoption of NFT as technology or do you think it will happen anyway without any type of regulation?
Duc: Regulation is always good as it creates room to monetize what we see in the financial and commodity market all the time. Regulation is coming in the NFTs space, which is undoubtedly for good! The concern about NFTs is that they are non-fungibles, but securities are generally fungible in nature. Also, NFT poop tokens are a grey area governing bodies have to decide on.
When is the big moment that NFT becomes a genuinely mainstream technology like the Internet?
David: We will have a watershed movement of mass adoption when we have more trusted and regulated marketplaces. Crypto is still a scary place for many people, unlike email. Here, you cannot easily recognize the players. So, adoption depends upon the trusted entities that can advise people on KYC procedures of Coinbase, OpenSea, etc. Positive news will also play a key role in making NFT a mainstream technology like the Internet. The push by the government will drive the adoption of NFTs too.
Rajesh: He agrees that trusted intermediaries are required to drive the adoption of blockchain technology. However, the role of intermediaries is marginal in the digital space.
Duc: Web 1.0 was the early version of the Internet, Web 2.0 was all about centralization, and now in Web 3.0, we are in desperate need of decentralization (trustless transactions). Crypto natives want trustlessness because the traditional banking system takes a lot of time to authenticate the transactions. Semi-trusted organizations like Binance exist, but they are not entirely decentralized.