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NFT 2.0: a Pathetic Attempt to Save the Sector or the Future of the Crypto Industry?

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Алёна Инжеева
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The first iteration of NFT is more about the tokenization of digital assets, which makes them unique, non-fungible and cryptographically secure. In essence, NFT 1.0 paved the way for digital asset ownership. However, these are not just digital pictures that just lie idle and gather dust. Like any other form of technology, even NFTs can be upgraded and streamlined. The next version of NFT is already in development. We are talking about a new iteration, NFT 2.0, which is more focused on utility and also should solve many of the industry's current problems.

What is NFT 2.0?

As the name suggests, NFT 2.0 is an updated version of NFT 1.0. A group of crypto enthusiasts expects NFT 2.0 to be an improved form of non-fungible token technology in every way. When it comes to NFT 1.0 projects, non-fungible tokens are nothing more than a pixelated embodiment of multimedia objects using blockchain technology. In the new version of NFT, it will be possible to do everything that could not be done in the previous version of the non-fungible token technology.

NFT 2.0 is not an independent project. The launch of NFT 2.0 will simply allow new features and capabilities to be built into the existing infrastructure. NFT 2.0 will empower the industry by creating new digital asset markets with multiple use cases.

How is NFT 2.0 different from the NFT archetype?

In an earlier version of the technology, NFTs cannot be changed once created, while in NFT 2.0 the dynamic feature was introduced that allows you to change the nature of already created non-fungible tokens. In NFT 1.0, all transactions are linked to each other in a ledger of blockchains, and in NFT 2.0, it is possible to create digital assets in the form of NFTs using algorithmic randomness. Also, one of the interesting differences is that NFT 1.0 is mainly used as proof of ownership of some digital asset, while NFT 2.0 has its own concept of ownership, according to which non-fungible tokens can be linked to other NFTs and can also be used to represent a fungible token.

In fact, NFT 2.0 has four principal features: “generativity”, “combinability”, “interactivity” and “experimentality”, which distinguish the new version from the previous one.

Combinability

This special attribute allows collectors to be creative and explore new possibilities by combining different assets into one. Secondary assets are not limited to other non-fungible tokens, they can also be fungible assets, such as cryptocurrencies.

In other words, NFT holders can expand the practical value of their NFTs by combining them with other digital assets. Thus, unlike in the original state, the NFT element will be able to serve multiple purposes.

Interactivity/Dynamism

Through combination attributes, the latest iteration of NFT allows tokenized digital elements to evolve from their original state. However, "dynamism", which can be otherwise described as interactivity, allows existing NFTs to be modified.

In fact, if each NFT is equipped with smart contracts, then they will literally become "smart" and "intelligent" and be able to receive information from users, as well as from other suitable sources. The introduction of smart contracts into the existing NFT infrastructure will also allow existing NFTs to be linked and modified.

In addition, depending on input from external sources, the latest iteration of the NFT will allow users to change their tokenized assets from their existing state according to current needs or goals. This will be especially true when using various decentralized applications, including the GameFi projects, Metaverse, IP Patenting and more.

Generativity

Another important property of NFT 2.0 is the ability to create algorithmic randomness in tokenized digital assets. To understand how generation works in NFT, let's look at a specific example:

Let's say you have three devices: an iPod that only supports text and music, an iPad that supports video, and a photobook that only supports photos. NFT 2.0 allows you to combine different kinds of assets (in this case, content) into a single whole. As a result, NFT uses AI-based algorithmic randomness to select what is appropriate for each device when it is read by that device. Therefore, if you access the NFT from an iPod, then only sound will be played, while other devices will play video, music, and images, respectively.

Experimentality

The above three properties combine to provide a unique user experience with NFTs. This means that besides commercializing the tokenized digital asset, the owner can further explore other options for using NFT in their daily life.

To understand the issue in more detail, we asked experts how NFT 2.0 is fundamentally different from NFT 1.0 and what new functions and opportunities are opening up for users.

Victoria Ustimenko, CEO of PR agency PRETOBUSINESS, explains that NFT 2.0 is a protocol layer. As the industry comes to the professional level of galleries and art critics, new solutions need to be introduced. Otherwise, NFT would have gone into oblivion because the demand and value of NFT would have fallen. Unlike NFT 1.0, the new format has the characteristics of extensibility: they can be upgraded and dynamically changed and alter the ecosystem. According to the expert, NFT 2.0 will allow users to interact and play with the digital asset they have purchased or earned.

Alexander Belenov, head of the blockchain laboratory of the Idea Research Center, says,

“NFT 1.0 is loud, noisy and well-known, but there are few people who actually use NFTs. Collections of paintings and pictures, video performances, objects from the metaverses—only a few people use all of these today. In fact, these are one-time transactions with the subsequent storage of the acquired NFT in your wallet and, possibly, re-listing the lot on the exchange in the hope of reselling at a higher price. This is static. And that is why, in my opinion, the NFT concept in its current implementation cannot survive on its own. To maintain interest, NFT 1.0 requires informational hoaxes, drug scandals.”

NFT 2.0 is interactive. This is not an artificially invented interaction, but obtaining useful functionality. NFT itself is not limited to pictures, picture collections or items from virtual worlds. NFTs are, in the future, tickets to theaters, cinemas, concerts, with the possibility to resell them. Now, for example, you cannot sell your e-ticket, because the buyer is not sure that you have not already sold it to someone else, and the token linked to the seller’s wallet and transferred to the buyer’s wallet is understandable and verifiable. NFTs are real estate and a quick way to check ownership. NFTs are objects that have unique properties that can change over time. NFT is our diplomas, our reputation. There are many such everyday uses. Of course, we cannot do without changes in legislation, but we can safely say that such changes will occur at due time.

Vladimir Gorgadze, head of the master's program "Blockchain" at MIPT, Co-Founder of the Atomyze tokenization platform and Newity IT company, says,

“What is NFT (NFT 1.0) now? These are just receipts certifying the owner’s right to something, but let’s not forget that all tokens ‘live’ online, these are smart contracts!

“It is assumed that the next generation NFT (2.0) will be able to link to other NFTs or fungible tokens, NFTs will be able to “change” the content, be divided into parts and managed by DAO and many other possibilities, depending only on the imagination of architects. Thus, blockchain projects will have additional flexibility to implement almost any business model. So the concept of NFT 2.0 is at least a move in the right direction.”

Dmitry Noskov, an expert at the StormGain crypto exchange, explains that NFT 2.0 is a somewhat more advanced system from a technological point of view, but in fact, it does not have such cardinal differences from NFT 1.0. He says,

“In fact, this is an attempt to play on the hype, revive interest in such tokens and attract new investors to them. NFT 2.0 provides the ability to connect to and interact with other NFTs, as well as the ability to upgrade.”

Paul Lerner, an entrepreneur, expert consultant on the crypto market and blockchain, emphasizes that NFT, like any other technology, can be upgraded, becoming an improved version of itself. This is exactly what happened in the transition from NFT 1.0 to NFT 2.0. In the broadest sense, NFT 2.0 is everything that goes beyond the original technology. The expert highlights the key differences:

  • One of the main characteristics of NFT 2.0 is its expandability. That is, one NFT can now be linked to another NFT.
  • In NFT 2.0, “ownership levels” appeared, the number of which is limited only by the will of the creator of the tokenized object.
  • NFT 2.0 supports the ability to update the tokenized object in the future.
  • The next characteristic worth mentioning is multiple resources. A resource is one of several manifestations of a tokenized object. For example, a book might have three resources: a pdf version, an audio version and a jpeg cover image.
  • Another important point: NFT 2.0 provides for the possibility of collective ownership of objects of tokenized art (this is necessary when it comes to expensive works, the acquisition of which is unprofitable for one collector).

Many experts do not see anything unique and dramatic in NFT 2.0. In their opinion, this is a banal expansion of functionality that should have happened a long time ago.

Denis Bagrov, Product Manager, Founder of the SoundLab platform and co-founder of DUO META AGENCY, says,

“NFT 2.0, in our understanding, is what NFT projects should have been at launch. In fact, there is no breakthrough in this, rather pure utility. If in the early days of NFT many managed to draw attention to their collections simply by the fact that it is an NFT and on the blockchain, now many consider what actually lies behind the token and what interesting opportunities open up from its ownership.”

Anti Danilevsky, CEO and Founder of Kick Ecosystem, says,

“NFT 2.0 is not very different from 1.0, it just has a little more functionality. Moreover, the functionality for NFT could have been done earlier, off-chain, and on-chain too, if you programmed them yourself. Therefore, there is no big difference. 2.0 introduced features such as ‘NFT within NFT’, links to each other, and so on. This will make it possible to do some related things, but, again, in fact, all this could be done before.”

What sector problems will NFT 2.0 solve?

The market of non-fungible tokens has long been criticized for its “bubble nature”. Some think this technology is focused primarily on profit, not on utility. Also, many experts agree that NFTs have rather limited use cases beyond tokenizing JPEGs and auctioning them off for exorbitant amounts. However, with the advent of NFT 2.0, the situation may change dramatically. Essentially, NFT 2.0 is an updated iteration or evolution of the NFT technology. It is about introducing updates to the existing NFT infrastructure.

We asked experts what current problems in the NFT space can be solved by NFT 2.0.

Ivona Gutovich, COO of Green Crypto Processing, says,

“The NFT technology itself can be useful, but this does not mean at all that any funny pxiel monkeys released should be a success. In fact, the story that we observed in 2017 on the blockchain is repeating. From every iron, stories were heard about how disruptive the distributed ledger technology was and how businesses would be incredibly happy to implement all this into their processes. What do we see now? Some rare experiments within corporations still take place, but there is no saying about any mass implementation. Corporations do not need any serious decentralization, especially if it reduces work efficiency, just like tokens, whose value is constantly changing. The main application of the blockchain now is the creation of DeFi projects, of which only a few can boast of a long life.

“The appearance on OpenSea of ​​new cool, but often not very, pictures is not at all a sign of the development of the sector. A bit vulgar example, people don't bulk buy JPEG files just because the format is very convenient and the images are beautiful. NFTs are of interest to speculators only because of the brilliant work of marketers, while there is no intrinsic value in all these copies of copies of collections created solely for the sake of making money. It is extremely difficult to maintain people's interest in such a thing for a long time.

“Much is said that some NFT 2.0 will finally attract the attention of corporations and then everything will finally be fine. First of all, we should say that now NFTs are used by companies solely as a PR—they say, ‘we are on the same wavelength, young people’, while things do not go further than some one-time promotions with their collections. Yes, and such promotions can easily be carried out without NFTs. Remember the various codes on bottle caps and other ‘non-digital’ methods.”

The expert emphasizes that the main problem with NFTs is that they are simply not needed and you can easily do without them. She says,

“Proof of ownership? Contracts deal with this just as well. Splitting an asset into parts and assigning each of them to a separate owner? Timesharing, shares and other ways. This is a more useful technology only for a decentralized world, but in this case we must be sure that a significant part of the real economy will someday switch to this format. So far, during the existence of the blockchain, such a trend has not been noticed. As a result, the main usefulness of NFT still lies in the possibility of selling game items on the market. Again, this can be done without using tokens—see the CS:Go skins market.”

Evgeny Goltsman, Co-Founder of the SOLOMON.help business club, believes that the main problems of the NFT sphere are related to the fact that at the peak of NFT popularity, the entire technology sector was in huge growth. Now, when this sector is in decline and there is much less investment in risky assets, the market is being cleared of unwanted projects. Really useful projects continue to develop successfully and find new opportunities.

Denis Bagrov notes that the main problem that NFT 2.0 solves is interest in the sphere, which inevitably fell after the top collections soared in price and the market was overflowing with useless cheap low-quality pictures. Now, according to the expert, the main motivation for buying is the sphere of use of the token, and real digital products appear.