[Bitcoin Twist] Are NFTs Valuable Enough to Spark a Frenzy?

NFT Craze Blowing in from Digital Content Companies
Digital Content Copyrights Already Protected by Related Laws... For 'Ssalmeok' Purposes?
World-Renowned Artist David Hockney: "Those Leading the NFT Phenomenon Are International Fraudsters"

Cryptocurrencies are sweeping across the globe. It is even likened to a so-called 'frenzy.' However, the more intense the frenzy, the more necessary it is to pause and observe carefully. If problematic aspects are swept away along with the hype, they are bound to resurface as bigger issues someday. This is a moment to calmly reflect on the cryptocurrency market, titled ‘Twisting Bitcoin.’

[Asia Economy Reporter Gong Byung-seon] On the 11th, NCSoft’s stock price closed at the upper limit for the day. The reason for the recent revival of NCSoft, which had been sluggish, is that it is developing a game based on non-fungible tokens (NFTs). Although the disclosed plans are not very specific, it seems preparations are underway. The game to be released next year will apply NFTs and blockchain, and in the mid-to-long term, it plans to utilize a metaverse platform.

The reaction was hotter in the securities industry than among the general public. DB Financial Investment raised its target stock price from 880,000 won to 1,250,000 won. This means the target price was raised by 42% solely because NFTs were introduced. Other securities firms showed similar trends. Ebest Investment & Securities predicted 1,180,000 won, Samsung Securities, Hanwha Securities, and KTB Investment & Securities forecasted 1,100,000 won. Shinhan Investment Corp. also raised its target price to 1,020,000 won, with most securities firms setting NCSoft’s stock price above 1 million won.

As the target price suddenly rose, controversy over overvaluation began to emerge. Critics pointed out that the target price was hastily raised despite NCSoft not presenting concrete plans regarding NFTs. However, there are rebuttals emphasizing focusing on potential, just as quality IT companies remained after the dot-com bubble burst. In other words, both those welcoming the introduction of NFTs by game companies and those judging it as overvaluation do not seem to have major objections to the potential of NFTs themselves.

In fact, it is hard to find game companies that have not recently participated in NFTs. Starting with NCSoft, there are Wemade, Netmarble, Krafton, Pearl Abyss, Com2uS, Devsisters, Gamevil, and others. Not only game companies but also any content-related companies are actively adopting NFTs. Entertainment companies such as YG Entertainment (YG Entertainment), JYP (JYP Ent.), HYBE, and even the internet broadcasting platform AfreecaTV have jumped into NFTs.

But do NFTs have at least the potential to cause some bubble? Are they based on technology capable of bringing novelty to this world? By examining one by one, we might understand the essence of the recent NFT craze.

The NFT craze started with artworks... Criticisms of it being a 'closed league'

In fact, the NFT craze has been mentioned since early this year. The art or artwork market led this craze. The NFT work “Everydays: The First 5000 Days” by digital artist Mike Winkelmann, known by the pseudonym 'Beeple,' attracted public attention when it was auctioned for $69,346,250 (approximately 81.79 billion won). This is the third-highest auction price among living artists.

Famous personalities also jumped into the NFT market. Jack Dorsey, CEO of Twitter, auctioned his first tweet for $2.9 million. Elon Musk, CEO of Tesla, cannot be left out. He also put up for auction a song about NFTs as an NFT, which received bids exceeding $1 million. However, Musk later withdrew the sale, so it was not actually sold.

Following this, the NFT market began to grow rapidly. According to blockchain data firm DappRadar, NFT sales in the third quarter of this year reached $10.7 billion, which is eight times the $1.3 billion of the previous quarter.

However, it was hard to perceive this as a widespread craze. It was a 'closed league' only for wealthy individuals. In the third quarter, the number of cryptocurrency wallets that recorded NFT transactions on the Ethereum blockchain was only 265,927. This is a natural outcome. Artworks themselves are mainly traded by wealthy asset holders, and investing huge sums in NFTs that only guarantee ownership rather than the artwork itself means that only very wealthy people can participate in this market. Remaining distant from us as their own league, the NFT craze related to artworks gradually cooled down.

Discovery of a new use as 'vessels for content'... A step forward in gaining popularity

Subsequently, NFTs discovered a new use: serving as vessels that contain intangible content such as the metaverse. Items within the metaverse and in-game currencies are intangible, but NFTs can give them at least a minimal form. Having a form means they can be bought and sold, thus generating economic benefits.

The reason NFTs are gaining tremendous popularity, unlike artworks, is as follows. First, they found value that can be sufficiently felt in daily life. The metaverse can be imagined through the game 'Roblox,' favored by teenagers, and games are enjoyed not only on desktop computers at home but also on smartphones.

Moreover, the active challenge of NFTs by companies within the institutional sector has had a positive impact. The primary goal of cryptocurrencies themselves is to gain recognition within the institutional framework. The fact that institutional companies are creating NFTs themselves has led to a surge in NFT-related cryptocurrencies such as Sandbox and PlayDapp, fueled by expectations of institutional adoption.

Rubbing eyes to look at NFTs, is this just 'Rice Eater'?... Unclear existence beyond money

However, something seems strange. There is not much to say about NFTs beyond money. Although NFTs claim to guarantee copyrights, criticisms of loopholes have already emerged. NFTs do not store the original but certify ownership of digital content derived from the original. Since they do not store the original, their value diminishes. This is also why limitations have arisen in the art market. Attempts were made to NFTize and sell works by artists such as Lee Jung-seop, Park Soo-keun, and Kim Whanki, but their families opposed, sparking copyright and authenticity controversies.

Although NFTs claim to hold copyrights for digital content without originals, they cannot prevent original duplication. No government worldwide has promised that NFTs guarantee digital copyrights. For example, even if AfreecaTV NFTizes and sells content generated on its platform, the same content can be paid for and viewed on YouTube. Even if someone claims to own the NFT of AfreecaTV content, it is unlikely to hold up. The situation becomes more complicated if the BJ (Broadcast Jockey) who created the content asserts copyright or ownership. This means NFTs cannot protect copyrights or ownership.

Digital content copyrights are already protected by relevant laws. In Korea, the Copyright Act, Online Digital Content Industry Development Act, Basic Electronic Transactions Act, and Information and Communications Network Act protect digital content copyrights. According to Articles 51 or 53 of the Copyright Act, if digital content is judged as a pure work, copyright registration is possible, and rights can be claimed.

What remains is money talk. In fact, the way game companies talk about NFT utilization is packaged as Play to Earn, but it is no different from 'Rice Eater.' 'Rice Eater' is a derogatory term for the act of cashing out in-game currency by buying and selling it. It became derogatory because the endless pursuit of currency by Rice Eater users collapsed the in-game economy. As a result, general users, excluding long-term players, were driven to a state where they could not enjoy the game.

A representative example is Wemade, which said it would NFTize characters for trading, but this is no different from the account trading we know. Also, Wemade claims that its in-game currency Black Iron can be converted into cryptocurrency, but this is no different from buying 'Mesos' in MapleStory or 'Gold' in Blizzard’s World of Warcraft with real money. If Wemade fails to regulate account trading or the currency ecosystem, it may follow the failed game path due to Rice Eater users creating farming operations.

'Points that must be truly addressed... Will NFTs improve game quality + Do NFTs pursue the essence of blockchain?

[Image source=Yonhap News]

Then, will NFTs improve game quality? It is presumed not. This is because it is no different from the profit-first management style of game companies that has continued since early this year. Users are already tired of domestic game companies prioritizing money, such as in the probability-based item draw scandals. The reason game companies are rushing to adopt NFTs seems to be a result of pondering how to open users’ wallets rather than improving game quality.

In fact, securities firms also seem to see through the essence while raising target prices for game companies attempting NFT businesses. Hanwha Investment & Securities added this reason when raising NCSoft’s target price: “We consider the origin of Play to Earn to be Lineage... The first game that made users feel the value of assets acquired in-game as real is none other than Lineage.” And “Ultimately, NCSoft is expected to operate its own game asset marketplaces like ItemMania and ItemBay through NFT adoption.”

Then, do NFTs uphold the essence of blockchain? It appears not. Decentralization has vanished. In the introduction of the paper by Satoshi Nakamoto, the creator of Bitcoin, he thoroughly excluded central financial institutions from the flow of money. Instead, he introduced a method, though inefficient, where all transaction participants verify transaction information.

Game companies, entertainment companies, and platform companies are likely to operate NFT businesses through centralized control methods that Satoshi Nakamoto warned against. It is difficult to attempt decentralization from an efficiency standpoint, but if decentralization were actually introduced, companies could not perfectly guarantee transaction trust. Above all, if companies cannot guarantee transaction trust, they cannot charge users fees. Companies would not choose a method that does not make money.

World-renowned artist David Hockney, upon seeing Beeple’s NFT work auctioned for about 81.7 billion won, said, “They are international con artists.”