NFT's empowerment of the crypto ecosystem is far from being exploited. The discussion I had with element founder last year is still relevant today. We've compiled it and reissued it in the past two days, hoping it will be enlightening for developers and investors.

mp.weixin.qq.com Xiaoqi Studio The Star Spy

Editor: Song Qinghua, Initiator of Xiaoqi Studio

Guest: Wang Feng, Founder of Element

Don't mention the Metaverse without NFT. The discussion on this topic continues in multiple strategic mobilization meetings initiated by Wang Feng, the Founder of Element. Based on this, this article will further analyze why NFT is a crucial element (blood) of the Metaverse, and explain the value capture logic of NFT and the mechanism by which everyone can participate in NFT......

During Element's development and beta test in June and July 2021, we made many exchanges and discussions. After 11 hours of recording sorting and text editing, this article was planned to be released on Mars Finance when Element was launched, which was postponed for some reason. Today, Xiaoqi Studio, dedicated to representing blockchain leaders, is officially launched, and Wang Feng is invited as the first guest to meet with readers.

————————Editor's Note

The talks about NFT and Metaverse have to be started with CryptoKitties. Since the launch of CryptoKitties, we have embarked on the journey of the Metaverse, but many people have not realized that. Because of Tencent's influence in the traditional Internet era, especially in the field of online games, everyone is telling that the Complete Reality of the Internet (CRI) depicts a new scenario. This is a misunderstanding that needs to be clarified - this is fundamentally different from the Metaverse we talk about. Many people engaged in online games believe that the Metaverse is a market composed of VR and AR, a product of the visual revolution, and a so-called holographic vision technology with a more open economic model. Is World of Warcraft with VR glasses a Metaverse?

Some people consider it as a very easy-to-use tool for video production or interactive games, which can open the editing environment and API to connect different worlds, similar to Roblox, a company currently worth USD 60 billion which puts Metaverse in their prospectus. However, this is not the Metaverse I understand, either.

Metaverse originated from games, but inevitably, surpassed them. Professor Zhu Jiaming, Chairman of the Academic and Technical Committee of the Chinese Institute of Digital Assets, gave a grand Metaverse scenario in his keynote speech “How to Perceive the Accelerated Metaverse” - the Metaverse has absorbed the achievements of the information revolution, the Internet revolution, the AI revolution, VR, AR, ER, MR, game engine and other VR technology revolutions and shown the possibility of building a holographic digital world parallel to the traditional physical world to human beings; it has triggered the interaction among information science, quantum science, mathematics, and life science and changed the scientific paradigm; it has impelled the breakthroughs in traditional philosophy, sociology, and even the humanities system; it has integrated blockchain technology, NFT and other digital financial achievements and enriched the digital economy transformation mode. In short, the “Metaverse” has provided a new path for human society to realize the final digital transformation and has an all-round connection with the "post-human society", showing a new era with the same historical significance as the big voyage era, the industrial revolution era and the aerospace era.

NFT is mentioned here, and its value is recognized from the height of digital economy transformation, but this definition seems to be not accurate enough. This is not the logical explanation of NFT's core role in the Metaverse. Empty talks about the basic structure role of NFT in Metaverse will make people perceive it an unreachable future story. Therefore, we will start with the fact that NFT has created the necessary conditions for the paradigm shift for the realization of creators.

01 Creators’ Realization Paradigm Shift and Mechanism of Possible Participation of Everyone in NFT

The impact of the past changes in the Internet era on users' creation comes to my mind. In those years, the tools and scenarios were:

#Personal website production, HTML, CSS and JavaScript

#Yahoo and Google

#Blog-

#Twitter and Facebook-

#Youtube and Bilibili

#Tiktok

There are changes in two dimensions: one is the change of file media form; the other is the change of content creation and sharing mode. The changes run through the whole process of Internet information services. However, what has not changed is the business realization mode, that is, the advertising mode. This is the limitation of the traditional Internet mode.

Is it possible that the valuable information on the Internet today will become valuable assets on the blockchain tomorrow? It is truly possible. From the information revolution to the financial revolution, it is the most essential ideological leap from Web2.0 to Web3.0. Blockchain is a technology prepared for the financial revolution, and trading is the basic feature of blockchain industry applications.

Today, the tools and scenarios are:

#Smart Contract, Solidity, ERC721 and ERC1155

#CryptoKitties

#SuperRare and Mintbase

#Opensea and Raribes

#CryptoVexols and Decentraland

Therefore, I believe that NFT has created the necessary conditions for the paradigm shift of realization for creators. I prefer native NFT works. The most representative is CryptoPunk, which is a native NFT project in the crypto community, with a total of 10,000-pixel punk avatars.

CryptoPunk sold less than 1ETH in last December and now can be sold for at least 15ETH. Will anyone agree with me that CryptoPunk is the bitcoin for crypto artworks? Is there any possibility if I say the average value of each CryptoPunk will reach 100ETH in 3 years?

We can do a regression analysis and a calculation. In fact, the two questions I asked above will help us to think clearly about many issues about NFT investment. Good native NFT assets, like Ethereum and Filecoin, can be crypto asset portfolios.

I used to believe it was a good concept and story, a good work of designer, and a fan effect. Now I think it is a pilot field of decentralized autonomous organizations (DAO). A DAO improves the operation mode of finance and enhances the efficiency of commercial management with the technical means-based blockchain ecology. The most fundamental function of a DAO is to rely on smart contracts to enable people to directly or indirectly control or use the assets of the organization. Members can participate in decision-making and asset or service management and obtain the rights and interests of members' profit share through their membership.

There will be a great opportunity to make some new NFT assets with good concepts if we connect artist design with community co-creation. We might as well boldly imagine that if new teams continue to come in to combine DAO and NFT technologies and redefine the relationship between role development and ownership, it can not only untie the conceptual design, creativity, and production of works but also reduce the threshold for online communities to bring new roles into the world. Everyone can participate in NFT. If there are 10,000 people in a community, there are 10,000 NFTs with different serial numbers. In terms of the traffic demand of a trading platform, artists and community members participating in DAO can fully represent the communities supporting them with their roles.

In the short term, this is an investment opportunity for creators’ realization and for DAO community members to participate in NFT issuance and trading. But there is another great significance in this process, i.e., everyone can participate in NFT, which has corrected the saying that everything can be NFT; In the process of the continuous expansion of the Metaverse, the most essential and core significance of NFT is not to complete the mapping of real assets, but to promote the future residents in the Metaverse to understand the role and value of the original NFT warrants - crypto assets, identity roles, and social relations can be freely converted between various crypto islands or even between various Metaverses through the original NFT.

The progress of the underlying technology of blockchain, the advancement of Ethereum, the development of some projects that return to the essence of NFT, and the practice for everyone to participate in NFT constitute the foundation of the Creation Metaverse, as the essence of both NFT and Metaverse is generated from the original crypto economy.

Meanwhile, in the process of Metaverse expansion and ecological construction, the value of NFT will be certified, and the trading market of NFT will also grow and prosper, because I can hardly imagine that the whole generalized market of NFT will have real development if the Metaverse cannot show an obvious existence or value that we see.

At present, compared with the early applications like art and real asset mappings like culture and entertainment, the original NFT products in Metaverse ecology still have a large space for development. However, we have seen signs of active elements close to the native crypto NFT market - one of the most important trends in the last quarter was NFT avatar projects, for example, CryptoPunks continued to be popular. This emerging industry generated nearly USD 350 million of secondary sales in the second quarter of 2021, and nearly USD 600 million in the first half of 2021. Compared with the previous pursuit of crypto art and asset mapping in the traditional world, this is a more positive signal, behind which is the opportunity for the integration of Metaverse and NFT ecology.

02 Why Metaverse is Inseparable with NFT

Since the launch of Element, I have been thinking about Metaverse and NFT. During the holiday (Dragon Boat Festival), I read the history of western philosophy in Aranya for 3 consecutive days. My wife thought I was so pedantic and complained to me that “why you didn't come out to play? Are you so boring with me?”

How could I discuss with her the dead God of Nietzsche and Einstein's view of the universe? I think these apply to the Metaverse. There must have been the first person who wrote the first Metaverse. I think CryptoKitties is the first Metaverse. First, it defines the ERC721 rule, which is the first-generation rule of NFT; secondly, it wrote a Demo for its protocol, which is CryptoKitties, and also designed gameplay that could reproduce. The real presence of the Metaverse will continue to emerge with the creation of new Metaverse scenarios. You will certainly find that the earliest CryptoKitties will live in all eras of the Metaverse. The person who wrote the codes may be gone - one day he will be taken as the father of the Metaverse. Can I call him God? Will he die? But the Metaverse will still exist and continue to expand.

In fact, the underlying logic of the Metaverse world we are looking into is to explain its structure. Blockchain technology, especially NFT, plays the role of the basic structure, which is the most invincible, because its essence lies in interoperability, circulation, exchange, or cross-industry, including openness, composability, and splicing.

We are building a Metaverse parallel to the real physical world, which is close to our life, including economic relations, life, and creation, as well as political, social, and ethical relations. This is a story comparable to the Pan Gu epoch. The power of change brought about by human evolution towards the Metaverse will be greater than the energy of the aggregation of those key milestones including “the big voyage era + industrial revolution/information technology revolution + joint-stock economic relations + ongoing AI, genetic engineering and aerospace exploration” that have driven the process of human society.

The core element in this process, or blood we call it, is NFT. Without NFT, we can’t talk about Metaverse. Interoperability (composability) has emerged and played its role in the world of Defi; in the field of NFT, this is just the beginning, and all this is coming together with the Metaverse.

03 Further Discussion on Value Logic of the Creation Metaverse and NFT

CryptoPunk may be the earliest NFT product, which was launched before CryptoKitties. Since the ERC721 standard had not been written into the Ethereum developer ecosystem at that time, it could only be completed by software engineers through writing codes. Today, ordinary NFT players need not learn how to write ERC721 contract codes, who can publish them directly with the casting tools and trading agreements provided by the trading market and put them on the market for auction or direct sale.

Compared with traditional games that expect to make people feel the Metaverse through technological progress such as AR/VR, the crypto world makes people enter the Metaverse through the changes in openness, composability, and economic relations. Everyone can participate in NFT, and any creative person can mint their works into NFT and connect with fans in a programmable way; people with vision and common goals can initiate and organize a DAO and practice it at a low cost……

NFT provides a method to mark the ownership of native crypto-assets (i.e., assets existing in the crypto world and originating from the crypto world), and this ownership can exist in the storage scheme of decentralized services. The NFT asset issuance and the development of a trading platform implemented in decentralized storage is the key basic structure construction of Metaverse. NFT and Metaverse are very important native blockchain application scenarios for decentralized storage.

We believe that the value of NFT mainly comes from intrinsic value (casting cost) + use-value (identity certificate and game props) + premium brought by market transactions, of which the core is the use-value, but this part is relatively ignored at this stage, which needs to look into the internal essence and value logic of NFT based on the construction of Metaverse ecology. Before the Metaverse, we discussed the use-value of NFT only based on its value in applications (a game or a single crypto product). However, based on the interoperability of NFT, its identity certificate will make NFT embedded in other applications and obtain corresponding value incentives.

At this stage, we have to admit that the analysis based on market speculation and trading and the narrative analysis with celebrity effect (scarcity) are the main forces vitalizing the current NFT market. Therefore, it can be said that we ignore the use-value (fundamentals) of NFT assets.

Someone may say that the value measurement standard on a blockchain is different from that in the real world. Blockchain regards scarcity as the king, which is the value logic and rules of the crypto world. However, ignoring the conflict between the scarcity in the blockchain brought by use-value and the real value is a major obstacle to the development of Metaverse - if healthy values cannot be developed in the virtual world, a healthy virtual world cannot be developed, either.

If we can look at the interoperability of NFT based on its value in use, the basic function of NFT in the Metaverse endows it with infinite imaginable value-added space. The so-called interoperability can be understood as the interoperability of TOKEN assets / NFT assets on different blockchain projects, the crypto islands of the Metaverse, the co-existed multiple Metaverses, and even can be understood as the integration of the real physical world and the Metaverse.

The fundamental function based on NFT interoperability is vital for the construction and prosperity of the Metaverse ecosystem, which will integrate the power of a person/creator/crypto island, who or which is difficult to reach space exploration and boundary expansion in the Metaverse, to form a joint force to complete the Creation Metaverse.