Zhu Jiaming: Digital Economy and the Era of Non-Homogeneity - NFT, Virtual Demand and Virtual Supply

Author: Zhu Jiaming

Source: Digital Asset Research CIDA

Editor's Note:

On March 26, 2022, ForeChain and Zero One Think Tank hosted the "Global Trends of Digital Collectibles and China's Innovation ------ Annual Report on Global Digital Collectibles Release Conference." The Hengqin Digital Chain Digital Finance Research Institute served as the academic support unit for the conference, where Zhu Jiaming, Chairman of the Academic and Technical Committee of the Institute, delivered a speech titled "Digital Economy and the Non-Fungible Era ------ NFT, Virtual Demand, and Virtual Supply," advocating for the popularization of NFTs, stating that "everyone can create NFTs, and everyone can have their non-fungible needs met; only then will NFTs have hope."

Thinking also has a period for cultivation and a period for harvest. ------ Ludwig Wittgenstein

Today, I chose a background of an NFT product that was sold for $91.8 million on December 4 last year, called The Merge. The content of this work consists of several balls. The issuer of the work is digital artist Murat Pak, who first created a token called ASH and then issued this NFT. More than 20,000 people participated in the purchase of the work, and the final sale price reached $91.8 million. The Merge contains a series of characteristics of NFTs. However, its most fundamental characteristic is the creation of a unique, singular virtual creative supply that ignites a previously existing virtual demand, ultimately achieving a transaction through blockchain-supported smart contracts and tokens. In short, this is a typical NFT case.

Quantum Static Image Source: Kevin McCoy It is widely recognized that Quantum, issued in New York in 2014, is the first NFT, created by artist Kevin McCoy, and it has been eight years since then. However, NFTs entered the public eye and garnered attention and participation from various sectors in 2021.

Here are my basic observations and thoughts on NFTs:

1

Existence is the foundation of NFTs; NFTs are a form of expression of existence. The so-called NFT is predicated on NF (non-fungible), meaning non-homogeneous. This world is composed of various non-homogeneous material and spiritual existences. The phenomenon of non-homogeneity in the real world is everywhere.

The famous quote by German mathematician Gottfried Wilhelm Leibniz (1646 - 1716) is: "No two leaves are exactly alike." Each person has a unique life process. It can even be said that every life is a non-homogeneous performance art. Therefore, existence is a non-homogeneous "collection." Thus, existence and non-homogeneity are equivalent and are the premise of NFTs. In ancient agricultural societies, economic behaviors, and even financial currency behaviors were also non-homogeneous. It can be said that non-homogeneity is a fundamental characteristic of human civilization since ancient times.

2

Homogeneity coexists with non-homogeneity as a tendency in human civilization. Throughout the process of human civilization, there has also been a strong pursuit of homogeneity. This is true in the realms of thought, spirit, and values, as well as in economic and social activities. By the time of the industrial era, homogeneity became the mainstream of economic activities. The non-homogeneous handicrafts of the pre-industrial era were replaced by homogeneous products produced by large machines. The essence of large industry is to pursue low costs, high profits, and marginal benefits, which require standardization and scaling. People need to gather in factories to work. Because of homogeneity, both micro and macro economies can be quantified.

In summary, without homogeneity, there would be no industrial revolution; the industrial era is an era of high homogeneity. Thus, people's clothing, food, housing, and transportation exhibit homogeneity; consumerism is based on homogeneous consumption; advertising is aimed at homogeneous demand; brand names are a result of homogeneity; mass media is also a homogenization of non-material products. It can be said that the industrial era is an era dominated by homogeneity.

3

The information society promotes the return of non-homogeneity. Due to digital technology, the digital economy and information society have formed, and people have begun digital transformation, transitioning from homogeneity to non-homogeneity. Because of digital technology, people can break through the material and physical limitations constructed by the industrial era, allowing their imagination and creativity to flourish.

In the information society, everyone is a producer, creator, and consumer of information. Information products expressed in non-material forms do not need to be, nor can they be, homogeneous. Thus, the demand and supply in the information society are no longer quantifiable. In fact, all activities in the spiritual realm are driven by supply from creation, which stimulates demand. For example, Hollywood's products create market demand, not the other way around.

4

The core features of NFTs, blockchain, and smart contracts have already manifested value transactions through tokens. NFTs are NF plus T, where T stands for token. Because of tokens, any non-homogeneous existence gains value manifestation. Of course, just as non-homogeneity is not a new thing, tokens are also not entirely new. However, the exciting part is that the tokens of NFTs themselves are diversified and exclude singularity in digital tokens.

For example, the token supporting The Merge is ASH, which is only a few months older than The Merge. However, the significance of NFTs is not only in achieving the combination of non-homogeneous products and tokens but also in absorbing internet, blockchain, and smart contract technologies, thus realizing their value through digital trading platforms.

5

The scarcity of NFTs is an early phenomenon. If scarcity is defined as an important characteristic of NFTs, it may be misleading. If NFTs are scarce, it means that each specific NFT product is likely unique and possesses scarcity. Traditional economics is based on the assumption of the scarcity of economic resources; if NFTs are defined as a form of digital economy, it is difficult to say that the resources supporting the NFT economy are also scarce, leading to the conclusion that the NFT economy belongs to a scarcity economy.

In fact, NFT resources are not specific material resources; they are not only not scarce but are also abundantly rich and can be continuously reproduced. Therefore, if one believes that NFTs possess scarcity, it refers to specific NFTs or the characteristics of NFTs in their early stages.

6

NFTs are in a phase of explosive growth in both total demand and total supply. The current NFT market size is limited, and its price is highly volatile, lacking stability in market value. In particular, some NFT products are evidently being speculated and manipulated. This indicates that the demand and supply of NFTs have not yet entered a historically balanced state.

The deep virtual demand triggered by NFTs is the first non-material demand in human history and is still in a chaotic and ambiguous state. Because of this, some specific NFT products may generate prices that exceed people's imagination, driven by a demand akin to that stimulated by art auctions.

7

NFTs have an inherent logic of popularization. In the digital age, with the development of digital technology, especially the advent of smartphones, the public has the ability to simultaneously create non-homogeneous resources, as well as to create and consume non-homogeneous products, occurring anytime and anywhere. In fact, Douyin is a base for producing non-homogeneous resources. Therefore, NFTs need to step down from the "altar" and integrate with people's lives to achieve popularization.

In summary, NFTs must be transformed into an industry or ecosystem that the public can produce, purchase, and trade. Everyone should be able to create NFTs, and everyone should be able to have their non-homogeneous needs met; only then will NFTs have hope. Thus, there should be more and more convenient platforms for NFT creation, on-chain, and trading, reducing the prices and transaction costs of NFTs. Of course, the popularization of NFTs does not exclude the niche nature of specific NFT products.

8

NFTs have the potential for industrialization. NFTs have now formed categories, including: electronic art, music, video games, sports moments, trading cards, memes, domain names, electronic fashion, and Twitter tweets, etc. Clearly, each of the aforementioned fields could develop into an industry, thereby forming an NFT industrial system.

The foreseeable NFT industry will at least have these characteristics: (1) based on digital technology, closely integrated with computing power and algorithms; (2) mediated by digital finance; (3) high public participation; (4) driven by imagination and creativity; (5) achieving distributed storage and distributed energy; (6) incorporating carbon footprint management, low carbon, and reducing material resource consumption; (7) NFTs possess both indivisibility and divisibility, with divided ownership of NFTs.

The industrialization of NFTs will trigger a significant economic revolution. NFTs need to transcend the confines of categories such as fine arts, music, and sports, because an idea, a concept, or a discovery could be the primary driving force of the NFT industry.

9

In the U.S., the main buyers and sellers of NFTs are millennials Source: Morning Consult

Currently, the main drivers of NFT prices are millennials. The NFT market is not primarily supported by the general public but mainly by millennials. Millennials' enthusiasm and ability to participate in NFT trading surpass that of Generation Z. Why are millennials the largest buyers of NFTs? Because they are truly the first generation to generate virtual demand.

10

Internet meme Shiba Inu Doge Source: HitBTC.com

The challenge for NFTs is to break through human imagination. Memes have created an open model for NFTs. 【1】 However, whether it is the Shiba Inu or the cat face, they reflect that human imagination is limited. Human imagination is not as limitless as people might think. So, what will happen when the limited supply of human imagination meets the expanding virtual demand? This will lead to most NFT products in the future lacking shock value, causing people to quickly enter a stage of aesthetic fatigue.

Thus, some NFT markets for certain arts or cultures that are currently thought to be able to sustain growth will decline. Even works by Qi Baishi or Picasso do not possess infinite charm and market value. Therefore, the non-homogeneous demand for NFTs will constitute a continuous driving force for people's imagination and creativity.

Conclusion

NFTs are still in their early developmental stage, primarily concentrated in the field of art products—though there is a market, speculation, and value, all belong to various forms of experimentation. However, NFTs have opened a new era of pursuing and appreciating various non-homogeneous existences, completely different from the predominantly homogeneous industrial era. In other words, the current digital transformation is a transition from the homogeneity of the industrial era to the non-homogeneity of the information age, and this historical process has just begun, with NFTs being the precursor of this historical process.

In particular, in the non-homogeneous social and economic movement represented by NFTs, there are material NFTs; for example, any bicycle used by someone, a backpack, or a book can become an NFT. However, more importantly, NFTs must be spiritual, intellectual, and artistic. A scientific discovery and theorem, a new concept, can all become NFTs. The measure of the value of NFTs will be the content of imagination and creativity within them. Therefore, because of NFTs, the metaphysical and physical aspects of human wisdom will enter a new realm.

Finally, it is worth mentioning that the metaverse and NFTs are interdependent: the metaverse will provide multidimensional development space for NFTs, and the metaverse will also be enriched and fulfilled by NFTs.

Footnote:

【1】The concept of "meme" was first introduced by Richard Dawkins (1941 - ), who originally created the term to extend beyond genes. This concept has since been applied in disciplines such as psychology and sociology, and some scholars have used it to describe the mechanism of cultural transmission. As genetic factors, genes serve as cultural hereditary factors, evolving through processes of replication (imitation), variation, and environmental selection.

For example, concepts (memes) in the human brain are replicated to different people's brains through imitation or learning. The replicated concepts do not completely match the original concepts, thus resulting in variations. These similar yet different concepts compete with each other during dissemination, producing different content that affects their dissemination ability, leading to a phenomenon similar to natural selection. However, there is currently no widely accepted conclusion regarding the concept of memes, and debates continue regarding the definition of memes, the applicable species, and whether it is sufficient to explain the process of cultural change.