The digital collectibles landscape is stirring: major companies are making their moves

Author: Shiba Inu

Original Title: 《The Rise of Digital Collectibles

The path to large-scale development of digital collectibles is still long, but the current discussions on this issue are quite interesting.

In the past year, the digital collectibles market has changed rapidly.

From an international perspective, the trading volume of NFTs has shown explosive growth. For example, the overseas NFT trading platform Opensea had a trading volume exceeding $1 billion by August 2021, compared to less than $20 million for the entire year of 2020.

In the domestic context, despite the turbulent year of 2021 for the internet industry, major companies still chose NFTs as a direction for their layout amidst many uncertainties about the future.

With the popularization of the internet and the increasing digital lives of people, how can the vast amount of digital assets generated by individuals on the internet be confirmed in terms of ownership? What about intangible assets like images, codes, domain names, trademarks, and programs that carry hidden value? With the development of blockchain technology, it has technically ensured the marking of ownership through timestamps, featuring characteristics of immutability and traceability.

However, this also brings new problems.

In terms of technical support, China's encrypted collectibles platforms are all supported by consortium chains, rather than being decentralized. This contradicts the original intention of blockchain's inherently "decentralized" design.

Regarding platforms, many companies are promoting their own digital collectibles platforms, but compared to foreign situations, the transaction volume of a single platform is still very small, failing to break out of the niche, resulting in low transaction volumes. Currently, there are no leading platforms emerging.

In terms of trading models, limited by laws and regulations as well as trading mediums, the sale of digital collectibles is still primarily focused on the primary market, with collectors lacking a secondary trading market for transfer and circulation.

1. 2021: The Year of Flourishing Beginnings for Digital Collectibles

Overall, the domestic NFT market started relatively late, mainly focusing on primary market transactions of digital collectibles. Companies like Alibaba, Tencent, and Baidu have laid out their respective platforms such as Ant Chain, Zhixin Chain, and Super Chain, with representative platforms including Tencent's Huanhe, Alibaba's Whale Exploration (Ant Chain Fan Particle), and NFT China.

For example, in June 2021, Alipay launched two limited edition "Dunhuang Feitian, Nine-Colored Deer" payment code NFT skins on the "Ant Chain Fan Particle" mini-program. In August 2021, Tencent's PCG division launched the NFT app Huanhe and initiated the "NFT Artist Program," planning to sell more NFT digital art products in the future.

Recently, there have been daily announcements of new digital collectibles being launched.

On January 6, it was reported that musician and rock artist Zhang Chu's unpublished digital tape "Goat" was released in a limited edition on Tencent Music's "TME Digital Collectibles."

On January 5, 2022, the first digital collectible based on a web literature IP, "The Great Feng's Night Watchman in All Realms," opened for reservations, limited to 2,000 copies, and officially went on sale on January 8. This is a cryptographic digital product issued based on Tencent Cloud's "Zhixin Chain" technical protocol, marking the first project of the Yuewen Group's entry into digital collectibles.

At the same time, on January 5, Bilibili's official certified account "Bilibili Digital Collectibles" released a dynamic announcement, stating that its first digital art avatar "Pigeon De" was officially open for registration, limited to 2,333 copies. This means Bilibili has officially joined the ranks of digital collectibles issuers.

On New Year's Day 2022, Xiaomi publicly released the digital collectible "Chip Era" 3D model, while Tencent almost simultaneously launched the "2021 Annual Concern Canvas" digital collectible, and OPPO also introduced the Find N Metaverse Journey digital collectible limited gift box.

On December 26, 2021, the official website (nft.500px.com.cn) and mini-program (Yuan Visual Collectibles) of Vision China (000681) officially went live.

As of January 4, 2022, there were 14 types of digital collectibles available for sale on Yuan Visual, including photos, original paintings, and computer-generated digital images such as Jia Wei's "Like Flowers in the Wild: Garden NO.1," Li Ge's "Matrix THE MATRIX," Wang Sibao's "Light Painting of the Classic of Mountains and Seas Beasts" series, and Sun Lue's "Snowflake Workshop" series.

In terms of business model, Yuan Visual collaborates with upstream creators on a revenue-sharing model. After signing an authorization agreement, digital works are launched for sale after review, selection, and scheduling, with sales revenue distributed to content creators according to the agreed sharing ratio. If the content is owned by the company, no sharing is required.

Although starting later than abroad, the digital collectibles market has shown a flourishing state in the past year with various companies entering the field. In addition to major companies, the film, e-sports, painting, theater, and museum industries have also widely launched digital collectibles.

2. Still Fragmented Islands:

Non-"Decentralized" Development

Blockchain is essentially an open-source distributed ledger, which is the core technology behind Bitcoin and other virtual currencies, efficiently recording transactions between buyers and sellers while ensuring that these records are verifiable and permanently stored. At the same time, blockchain inherently features decentralization, information transparency, immutability, and security.

However, in specific applications, many different situations have emerged. A few days ago, we published an article titled "Pursuing a Better Blockchain," one of the core viewpoints being that creating a greener, faster, and truly decentralized blockchain is not easy. Contrary to the original intention of blockchain designers, it appears that in many cases, blockchain and cryptocurrencies are extremely complex, energy-consuming, and, contrary to common understanding, are in fact centralized.

In terms of the domestic digital collectibles market, it is still a "land grab" by various companies. Especially from a technical perspective, domestic encrypted collectibles platforms are all supported by consortium chains: for example, Ant Chain provides technical support for Alipay and Alibaba's digital collectibles; Tencent's Zhixin Chain supports Huanhe; JD's Zhizhen Chain supports Lingxi. Ant Chain, Tencent's Zhixin Chain, and JD's Zhizhen Chain are all permissioned blockchain networks (consortium chains).

From a technical standpoint, the biggest difference between consortium chains and public chains is that consortium chains have entry barriers; not anyone can participate. The members of the consortium are predetermined. Therefore, consortium chains are essentially centralized, or at least semi-centralized.

In contrast, Opensea supports encrypted assets based on mainstream public chains. Opensea is a project deployed on Ethereum, requiring users to prepare an Ethereum wallet and Ether as transaction fees in advance. Opensea supports payments in tokens including ETH, WHALE, RARI, WETH, USDC, DAI, etc.

However, these tokens are not recognized as trading mediums by the authorities in China. In September 2021, the People's Bank of China, the Central Cyberspace Affairs Commission, and other ten departments jointly issued a notice to prevent the risks of virtual currency speculation, clearly stating the essential attributes of virtual currencies and related business activities: virtual currencies do not have the same legal status as legal tender.

In other words, virtual currencies like Bitcoin, Ether, and Tether have characteristics such as being issued by non-monetary authorities, using encryption technology and distributed accounts or similar technologies, and existing in digital form, which do not possess legal tender status and should not and cannot be circulated as currency in the market.

In summary, domestic digital collectibles trading differs from overseas: firstly, it is more of an innovation or extension of existing platform products or services; secondly, it mainly serves the purposes of collection and self-appreciation, lacking a circulating secondary market; thirdly, the trading currency is RMB, rather than virtual currencies, making it incompatible with overseas digital collectibles markets.

3. The Positive Significance of Digital Collectibles

With the in-depth development of internet technology, the efficiency improvements brought to various industries are undeniable. However, in the art collectibles market, due to the non-standardized and scarce nature of products, the trading frequency is relatively low compared to other everyday products, and the degree of online transactions is also not high.

Generally speaking, for low-frequency trading goods, intermediaries play a larger role in facilitating transactions between buyers and sellers, resulting in higher transaction costs.

From the previous development of e-commerce platforms in China, the rise of the e-commerce model has been disruptive to the retail industry, especially in improving transaction efficiency and reducing transaction costs. In terms of price performance, this translates to lower product prices—because internet platforms directly connect buyers and sellers, the real-time and convenience of transactions gradually drive intermediary profits toward zero.

Will the stories that have occurred in other retail goods be replayed in the digital collectibles market, or in the larger collectibles market?

It is undeniable that, unlike traditional art collections, digital collectibles have their own uniqueness. Digital collectibles/NFTs, based on blockchain, give digital files unique identifiers and metadata, allowing them to be distinguished from one another.

In the technical aspect, each digital collectible is stored on the blockchain, creating an immutable record that includes information about the token's creation, sale, the association of the digital collectible with specific digital assets, and the scope of permissions for owning or using the digital asset. Based on the characteristics of digital collectibles, they can be used in various scenarios such as art, gaming, fashion, supply chain, real estate, media, entertainment, sports, and public welfare.

Currently, the sources of digital collectibles include digital art works jointly released by young and middle-aged artists and platforms, as well as the release of IP derivatives. The artistic value depends on the digital native creative ability of the artist and the recognition of digital collectibles by the new generation of consumers.

If direct sales e-commerce platforms become the main trading venues for digital collectibles in the future, one possible scenario is that the previously high intermediary fees for art consumption will disappear, art prices will decrease, and more people will enter the art consumer market. An obvious fact is that the development of blockchain NFTs has helped many young people express themselves artistically, allowing more people to see their works. This process itself is also a market discovery of the value of young artists and should be supported.