"NFT Tokens Issued on Most Platforms Are Perishable" - Cliff Smyth

March 25th 2021 439 reads

@SergeenkovAndrey Sergeenkov

Cryptocurrency analyst. Founder and editor at btcpeers.com

In 2021, a new wave of excitement brought decentralized currency back to the central stage. The DeFi market has already tripled since the start of the year, which has led analysts to build a highly optimistic prognosis of Bitcoin price – according to some predictions, it may reach $220,000 before the year ends. Unsurprisingly, all of this points to a growth of public trust in digital currency, which could result in 72% of well informed US investors flocking the space sooner than later.

The allure of DeFi is obvious, and constitutes to surprise investors with innovative financial products. From machine intelligence to AI, now everything finds place in this rapidly-growing niche, which is expected to change the balance of forces in the financial industry in the long-term. With DeFi, it’s always important to keep up with the latest developments and trends - and one of the latest of those trends are Non-Fungible Tokens (NFTs).

Starting out as a way to codify the value of a collectible into a one-of-a-kind, unreproducible asset, NFTs quickly earned the reputation of a ‘certificate of authenticity’. This is directly applicable to artwork, but can also be used in more practical areas of human life – for example, to keep track of items in the supply chain for medical supplies. The use cases of NFTs are limited only by the imagination, as one of the most crypto-enthusiastic entrepreneurs, Elon Musk, just proved: he put his tweet with an NFT-themed techno song for sale, later turning away the $1-million bid. Apparently, NFTs can reach very high valuations.

could play an important role in the recovery. Representing a new-generation of crypto development platforms, PRüF permits developers and creators from various industries to launch their own tokens without possessing any coding skills. With the help of an easily-customizable tool, PRüF can turn the process of kick-starting your own NFT project from a major software undertaking into a matter of minutes of simple customization.

Hi, thanks for joining me! Let’s begin with the question – how would you outline the future trends of development of the DeFi industry? What are the main challenges it may encounter on the way to becoming a global mainstream movement?

Cliff Smyth: Watching the growth of Defi over the past year has been really exciting. There has been a lot of innovation -and even more copying, and some really big success stories in the space, both for the teams and for users.

I think what we are going to see, besides more DEX’s popping up, is going to be projects that try to create real value from staking instead of just making a nifty mechanism for gaming the tokenomics. I think we can agree that if you take the long view, gaming the tokenomics of a system that isn't actually generating real-world value of any kind is likely to eventually run into problems in sustainability.

A great example of generating value is community governance. With governance, you can align incentives by sharing revenue to stakers based on the performance of a node. If stakers are rewarded by staking on a node that produces a desirable metric, and the node is thereby empowered in governance, we have the beginnings of a meritocratic system. Of course, there still needs to be revenue being generated for-value, in order to have revenue to share with stakers in the first place. This is what we have done with PRüF in PIP-173, our newly revised staking and governance protocol. 

As for challenges, there are some bumps in the road. Someone, probably us, is going to have to invest in creating a legal framework for making NFT tokens binding as licenses, proxies for physical possession, and recognized as legal evidence of ownership. This process will likely have to be repeated in many jurisdictions globally before it becomes accepted as a de-facto legal precedent.

In addition to legal standing, NFT tokens issued on most platforms are mostly perishable. This obviously undermines one of their fundamental premises as an asset, and frankly I can't see why this hasn't been more aggressively addressed. The data or media that NFTs point to has to be permanent, or the NFT can easily lose its content and value. Most platforms fail to address this critical issue and prefer to merely sweep this inconvenient fact under the rug. Blockchain storage is the only way to achieve data permanence, and PRüF makes blockchain storage of NFT media simple and economical.

Which factors, in your opinion, could spur the DeFi adoption, and what role does the government have in setting the roadmap of its future development?

Cliff Smyth: Defi adoption needs to open up to people outside of the blockchain space. When people using Defi don't know that they are using the blockchain, that's when we will see the sector absolutely explode.

Interestingly, NFTs are sort of a half-measure in this regard. I think that NFTs have the potential to bring a lot of people into the blockchain space that otherwise would not have on-boarded.

Some of those people, inevitably, will end up in the Defi space just by exploring the technology. 

As far as the government goes, I don't really know.

I mean, it would be great if dot-gov started a Defi portfolio for a small fraction of social welfare funds or something like that, but they are so closely tied to systems that Defi is eventually going to replace that I don't see that as being even remotely likely in the near future.

On the other hand, in the NFT space, I can see a strong value proposition for governments to tokenize a lot of the business that they do with the public regarding asset ownership.

Systems like PRüF can help governments, individuals, or organizations authoritatively manage asset dispositions - so I can definitely see huge cost savings for governments where they administer ownership.

In areas like vehicle titles, land titles, and other records that are typically assigned to an individual, PRüF could enable huge savings while eliminating extremely problematic perverse incentives that exist in that space - ultimately providing a benefit both to governments and to the people that they are supposed to serve.

In your opinion, how has the perspective on decentralized assets already changed with the arrival of Covid-19? Could we say that the global pandemic symbolizes a new era – an era in which digital currency will become the driving element of the global economy?

Cliff Smyth: I think that the pandemic gave a lot of people a lot of time to think, as well as a motive to reexamine the underlying assumptions of their worldview.

This was a fantastic side effect of an otherwise disastrous event - and yes, I do think it was a major contributor to the Defi boom, as well as the spin-up in crypto adoption in general.

I don't think that people give nearly enough thought to identifying the basic assumptions that underlie the majority of their decisions. I find it useful to periodically examine some idea that seems axiomatically "true" and explore what the underlying assumptions of that "truth" are. Often, it is surprising just how shaky the foundations of many common "obvious truths" are.

I think that this is what a lot of people ended up doing last year, when many of the fundamental assumptions they had made about the continuity of their lives was upended.

As to whether or not this will define a new era, I think that yes, actually it already has. A lot of dialog follows the "before" or "after" the pandemic memetic pattern, so clearly this is a cultural milepost for society. 

This time of global introspection has happily coincided with the availability of new and exciting financial technologies, and I think this confluence is in the process of creating an enormous shift in value from fiat economies to the cryptosphere.

That this is happening precisely at a time when central banks are printing their way out of the crisis and massively devaluing fiat currencies, is leading to a great deal of uncertainty about the actual value of fiat. We see a great deal of fluctuation in fiat value when expressed in cryptocurrency prices, but the global consensus seems to be that the value of fiat relative to blockchain assets is plummeting.

Speaking about NFTs – do you see any practical use cases for it in the situation of pandemic? What could become the most widespread NFT use-case, in your view?

Cliff Smyth: I don't really know of any "pandemic specific" NFT use cases, but I think that the Covid-19 crisis stressed societies in a way that exposed some of the hidden strengths and weaknesses that have long been overdue for examination.

Remote work is a great example. There were a lot of assumptions regarding the value proposition of a shared office space, and many of those assumptions quickly proved to be false. Others, not so much, and still other sources of value showed up that no one had noticed before.

As people become more accustomed to living their lives in the virtual - and more conscious of the actual value gained in physical interaction - I think we are going to see more people looking to virtual solutions for problems that don't gain from physicality.

A good example of this is "title", or ownership. Ownership is only data about who owns or controls something. It gains nothing and is only burdened by physicality. With PRüF, we acknowledge this simple fact by creating a platform optimized for the provenance and management of both physical and virtual assets.

I think in the near term, we will see explosive growth in the NFT art and collectable space. We have positioned PRüF to be a major player in this space by creating an on-ramp for NFT content creators, making it easy to create fully branded and differentiated sets of NFTs without having to write any contract code whatsoever.

On the traditional market, buyers and sellers are the ones who set the price for goods or services  Could you explain to our readers how the pricing mechanism works when the token is one of a kind?

Cliff Smyth: Where an NFT represents a physical commodity, that item will probably already have an established market price, as you mentioned - so I am assuming you are referring to digital artwork or unique collectibles.

In the case of unique items where no clear method of valuation exists, the value is often established by an auction. One of the business logic extensions that we are working on is an auction contract, so that PRüF enabled NFTs will have built in auction functionality. If an NFT minting authority, or ACNode holder, mints their tokens in PRüF with auction functionality enabled, the item will have a simple "sell at auction" option when the owner decides to put it up for sale.

That is just one of the many advantages that launching on PRüF gives content creators - a wide array of monetization options, sales contracts and more that can continue to deliver dividends to NFT creators long after the sale.

How can NFTs be useful for simplifying business operations? Which industries will be the first to take on this new trend?

Cliff Smyth: When we think of NFTs in the context of business operations, we need to remember exactly what we are talking about. In this context, we are less concerned with the item that the token represents, and more interested in the information that it can attach to the item. 

For supply chain tracking, for example, tokenized raw materials can establish provenance and documentation for the acquisition and logistical processes that bring the materials to the factory. Then, each subassembly made from these materials is linked to that tokenized batch of raw materials, and added to that is the manufacturing process details, time and date, supervisor, etc. In turn, this subassembly is then linked with others in the final product, which now bears all of this information in its digital “DNA”. Any flaws or defects or exceptional features can now be trivially tracked back to their origins, even years later. 

Once in the hands of a buyer, a tokenized item is more than just an item represented by a token. It can also include documentation, usage data, information about the owners desire to sell the item, any pricing, etc.

Using PRüF as an example, this turns physical items into a virtual showroom in the real world. See a bike you like chained to the rack outside the store? Just scan the PRüF tag with your phone. You don't need any special application, just your typical camera app is fine. This will open a link to the manufacturers AC-node, which will display whatever information that the owner of the bicycle wishes to display.

By default, it might have the basic manufacturer info about the bike, and a link to any for sale in your area, or if there aren't any, a link to a big dot-com retailer that can ship one to your door in a day. If the owner of the bike has it for sale, it might show a price. If you decide to buy it, you get the combination to the lock, or maybe you have it delivered to your apartment later. All of this is enabled by the data that is linked to the asset by the NFT.

If we reflect on the existing problems that NFTs can solve, what would be those? And what would you name as the main risk NFT creators and holders are exposed to?

Cliff Smyth: NFTs can be used to solve any problem where a unique, unforgeable token can be used to represent or give access to a digital or physical item.

Think of an NFT as a safe. It can contain anything, a deed or title,  a painting, a key, whatever. So NFT's can be used to directly control digital assets, software, or access.

In the physical world, they can be connected to physical items by being attached to a serial number or other unique characteristic of that item. In that case, the token is assumed to represent certain rights in regard to the item, or it may just represent digital rights associated with it.

Addressing risks tokenholders, and by proxy the entire NFT space,  face; I would say that the most urgent risk that the majority of NFT tokens face at this time is data and framework persistence.

Many NFTs are dependent on off-chain resources to store their data or the environment in which they operate. For example, if an NFT artwork points to a web resource that contains the image, and whoever was paying that server bill decides to not pay it anymore, the NFT becomes a dead internet link. Likewise, with collectables like crypto-kitties, if the crypto-kitties website goes down, the token links to nothing- 404-kitten not found.

It's hard to make an argument for enduring value when the method of storage is so fragile. Most NFT assets are a lot like paying for an ice sculpture - it's only there until it melts.

PRüF is solving this problem by giving NFT creators the option to store their resources (both media and software) in blockchain storage, so that the data is as permanent as the token. Only with blockchain storage can a buyer have confidence that what they are buying has real value.

Now turning to PRüF – what inspired you to follow the idea of the NFT token launchpad? What would you say are the predictions for the industry in the years ahead of you? And, last but not least - is there a risk of the market ever becoming oversaturated?

Cliff Smyth: If we really trace it back, the development of what we now know as PRüF started back in 2017.

We were working with solidity development for the first time, and we developed an NFT based basic income token we called "beancoin", as a toy project.

That morphed into an idea we called Alethea, which is targeted at authenticating media events to ensure that they were recorded when and where they are supposed to be from, and that they have not been altered in any way.

The thesis behind Alethea was that as technology advanced it would become impossible to distinguish authentic recordings from AI generated fakes - and we are seeing that become a reality now.

Fundamentally, governments are information processing engines, and democracy uses crowdsourcing as a way to get accurate information, historically more efficiently than more centralized forms of government. With media accuracy poisoned by AI driven fakery and targeted disinformation like we see with social networks, crowdsourcing efficiency and accuracy is at risk. Between that and the huge data funnels available to modern despots, the efficiency advantage of distributed governance has been reduced if not reversed.

I see this as a real threat to democracy, and when you compound that with the efficiency gains that pervasive surveillance has given autocracies, I think it is really quite worrying.

At any rate, PRüF is an ancillary development of the Alethea ideal, and hopefully we will someday be able to eventually unify that vision with the success of PRüF.

As for saturation, I can't imagine that as being an issue in the wide view. Certainly,  market segments may become overpopulated, but NFTs are like keys. Keys have been around for hundreds of years, and aren't in danger of getting "saturated" despite their nearly universal presence.

Could you say a few words about the development team of PRüF? What aims they were pursuing when kick-starting this platform – and may it happen that they’re possessors of NFTs themselves?

Cliff Smyth: The PRüF team is unique in that many of us are related. This has given us some enormous advantages in trust and cultural understanding. We have literally a lifetime of experience working together, and have completed some truly remarkable projects, both as a team and separately. Our incentives are extremely well aligned with each other, and we have taken great care to align them with the success of PRüF.

Between the 4 core developers, we have well over a half century of programming and technology experience, including three decades of successful entrepreneurship.

PRüF was launched by the desire to privately hold assets in a provable way without invoking governments, coercive force, or giving up privacy in the process.

We think we have done a really great job of making a platform and protocol that makes that possible for all of humanity.

On the way, we discovered a lot of other use cases, so we made sure that the platform can support just about any NFT scenario, and do it better than any other platform in existence.

AS far as holding NFTs - Of course, we hold NFTs! PRüF is designed with the dogfooding principle in mind, using NFTs for many aspects of the system.

I would not buy any digital content NFT offering that did not have data persistence worked out though - I want the things I buy to deliver lasting value, and art or collectibles should be heirlooms, not dead links. I'm really excited to make data durability the new standard with PRüF.

Talking about the future development plan of your project: how do you see yourself in the span of 2-5 years? What would be the most innovative way to use NFT tokens?

Cliff Smyth: In 2-5 years, I would expect that PRüF is fully decentralized, so my role would be very different. My direct involvement with the project except as a stakeholder will hopefully be limited to an advisory role by then. I have a bunch of ACNode based projects I wish to launch on the PRüF platform, so hopefully I will be busy building in the PRüF ecosystem instead of building PRüF itself. 

When I imagine the future, I think that the most innovative uses of NFTs probably haven't even been thought of yet. Because of this, PRüF has been designed to grow and adapt as the technology develops, in anticipation of new use cases. PRüF is open, standards compliant, and infinitely extensible - so the future is wide-open!

One of the things I have imagined that NFTs make practical and has immediate application, is the gamification of limited edition consumables, such as luxury beverages or other similar items. 

We are all familiar with the value that certain wines and liquors can achieve. Now imagine that each bottle of a limited vintage is tokenized. When first sold, let's say there are 500 bottles of bougie1995  limited edition single cask scotch. 

Every time one is consumed and the happy host scans the QRcode concealed under the wax-sealed and stamped cap, the bottle is registered as opened. The bottle owner gets a shout-out from the brand on twitter hyping their gathering and supporting the worthy cause of their choice, including 25% off their next single-cask offering.

Now, there are known to be 499 remaining bottles. There is already a pool of standing offers for sealed bottles by thirsty aficionados, and the value just went up.

Eventually, there are just a few left, with the standing offers now reaching the cost of a modest car or even higher. The social credit of the brand and the remaining bottles continues to rise, and the hype and publicity creates a winning combination for influencers, brands, and socialites alike. 

I think scenarios like this - where the fusion of technology and social credit creates new social and financial value - will be among the most visible of the changes that physical item tokenization will bring to the public sphere. 

PRüF is designed to make this type of customer engagement possible for brands large and small, with our secure, turnkey, feature rich NFT platform. Using PRüF, brands or artisans can roll out this type of an experience without the time, expense, and liability of writing custom contract code.