What are virtual assets?

Regarding the definition of virtual assets, the author has not found a reasonable authoritative definition. A more authoritative discussion is the relevant speech made by Gou Wenjun, director of the Anti-Money Laundering Monitoring and Analysis Center of the People's Bank of China, at the first Lujiazui National Financial Security Summit on November 26, 2021, stating that the supervision of emerging virtual assets should be strengthened. He believes that virtual assets are assets that meet certain privacy, currency trust and wealth appreciation needs, and have the characteristics of centralization, anonymity and borderlessness; virtual assets will not stop at the current virtual currency, NFT, metaverse, etc., but they are naturally isolated from the real world.

Director Gou Wenjun believes that it is necessary to strengthen the supervision of virtual assets. He also mentioned that since 2013, my country has issued a series of laws and regulations, which have denied the legitimacy of virtual currencies as currencies and securities in domestic transactions and free exchange from the institutional and execution levels.

Therefore, virtual currency is not issued by the monetary authorities, does not have the monetary attributes of legal tender and compulsion, is not a real currency, does not have the same legal status as currency, cannot and should not be circulated and used as currency in the market, and citizens' investment and trading in virtual currency are not protected by law. Here, virtual currency is mentioned. Cryptocurrency is the main virtual currency, and the corresponding is crypto assets. According to the definition of crypto assets in the "Careful Treatment of Crypto Assets" issued by the Basel Committee on Commercial Banking Supervision [i]: Crypto assets are private digital assets that mainly rely on cryptography, distributed ledgers or similar technologies, while digital assets are digital representations of value that can be used to pay, invest or obtain goods or services. From this definition, it can be considered that the value of virtual assets is derived from digital, virtual, non-real world currency, goods and services.

Whether it is China's regulatory ban on cryptocurrencies and crypto assets, and continued strengthening of virtual asset supervision, or international commercial bank regulators' cautious treatment of crypto assets, virtual assets have become one of the assets that cannot be ignored.

Are sky-high priced virtual assets a bubble?

On November 30, 2021, a piece of virtual land on the game platform Sandbox (https://www.sandbox.game) was sold for $4.3 million. It was a jaw-dropping price. Sandbox is a metaverse game based on the Ethereum blockchain, where players can use the tools provided by the platform to create, explore their own virtual worlds and trade with each other. Another well-known virtual world platform is Decentraland (https://decentraland.org). More and more investors are starting to snap up "land" in virtual worlds such as Sandbox and Decentraland.

The value of land in the real world is evaluated by discounting future rental cash flows. Let's evaluate the value of land in the virtual world. If a world full of imagination is built in the virtual land on the Sandbox platform, players from all over the world are willing to pay to play there. The flow of people will definitely be greater than that of Nanjing East Road in Shanghai during the National Day holiday. In theory, the throughput of virtual land is unlimited. Such an evaluation is somewhat like the dream rate, but companies that can be valued at the dream rate are more valuable. Isn't there a professional securities analyst who estimates that CATL will have a global market share of 15% to 25% by 2060? I have to say that if you imagine it, it is also reasonable.

The famous singer JJ Lin is said to be good at digital operations. Recently, he announced on Twitter that he spent about $123,000 to buy three virtual lands on the Decentraland platform. It is entirely possible to build a membership-based virtual space there to facilitate fans to reach their idols.

It is generally believed that the sky-high price of virtual assets is a bubble, but it is unknown when this bubble will burst. It depends on the game between regulators, virtual asset investors, and other social participants.

Is developing a virtual world a dead end?

Liu Cixin, a famous science fiction writer, said that the Metaverse advocated by Zuckerberg, the founder of Meta (formerly Facebook), is not the future, and the Metaverse will lead mankind to a dead end. A long time ago, Liu Cixin wrote a short science fiction novel "Festivals that Cannot Coexist", which describes two festivals that cannot coexist, the Birth Day and the Abortion Day. The Birth Day refers to the day on April 12, 1961 when the first astronaut of mankind entered space, representing that mankind was truly born from the womb of the earth that nurtured us, and came to the vast universe, and began to explore and seek knowledge of the mysterious mysteries of the universe. The Abortion Day represented by the first direct connection between humans and computers on October 5, 2050 (hypothetical in the novel) marks that we have lost our way in the virtual world, given up the exploration of the starry sky, lost ourselves in the virtual world, and become a short-lived civilization in the universe.

In the novel, the earth scientist describes that "the virtual world is really a paradise, where everyone is really God, and its beauty is beyond any imagination. I just want to imagine the real world at that time. At first, there will be fewer and fewer people in reality. The virtual paradise is so good, who would want to stay in the miserable reality? Everyone will rush to upload themselves." This is very familiar with the slogan of Decentraland's official website. "Welcome to Decentraland, you will be immersed in an imaginative and ever-evolving world. From outer space planets to medieval dungeons and mazes, use your imagination and work with like-minded friends to create an ideal paradise and experience an incredible world." (Author's paraphrase)

Humans may sink in the digital virtual world. But regarding the cause of human extinction, the author is more inclined to believe the story in Liu Cixin's other science fiction novel, The Three-Body Problem. The book describes a hypothesis of the Dark Forest Law of the Universe. Once a certain cosmic civilization is discovered, it will inevitably be attacked by other cosmic civilizations. In the novel, the extinction of mankind is because scientist Ye Wenjie replied to the information of the Three-Body People and exposed the coordinates of the earth. From this point of view, exploring the universe is more harmful to mankind. Of course, humans will not give up exploring the universe just because science fiction novels have a certain rationality.

Will the digital virtual world destroy human creativity?

Humans need diversity. This view comes from What Technology Wants[ii]. In his book, Kevin Kelly, a technology prophet, infers that one of the directions of biological evolution is diversity, and that one of the directions of technology is also diversity. Genetic diversity, scientific diversity, and the diversity of human development will generate more options, more opportunities, and more relationships. These various diversities are the source of human progress.

Kevin Kelly compared the inventory of items owned by King Henry VIII of England with his own. When the king died in 1547, the inventory of his property (the national wealth of England) listed 18,000 items. The types of items in Kevin Kelly's home are close to 10,000. Indeed, after industrial civilization, with the progress of mankind, the types of items have doubled to meet people's increasingly diverse needs.

On the Zhangqiao Research website (www.zhangqiaokeyan.com), the search for relevant Chinese patents with the theme of "chair" shows that from 2012 to 2021, there are about 500 patents each year; the number of patents for "high-speed train" has increased from more than 4,500 in 2012 to more than 15,000 in 2020; and the number of patents related to the digital-related "time series computing" theme has jumped from more than 5,300 in 2012 to more than 60,000 in 2020. It can be foreseen that with the development of digital computing such as digital twins, the efficiency of doing experiments and inventions in the digital world will be multiplied compared to doing experiments and inventions in the physical world. Therefore, if diversity is the future of human development, then the digital world should be more conducive to people's discussion of diversity.

Fernando Pessoa, a famous Portuguese writer, likes to write under a pseudonym. What is a "pseudonym"? According to the famous book critic Liang Wendao, "Pessoa is really like an actor acting. When he writes under a pseudonym, it's like recreating a character. He will imagine his personality, birth background, occupation, and lifestyle for this pseudonym, and then find a literary voice that belongs to him, so that this pseudonym produces an independent personality. In this way, he constantly creates different characters and roles, and each character is a writer. They each have their own works, including poems, novels, essays, literary reviews, and even astrological reviews." This requires a genius with a rich spiritual world to write like this. Novels and other literature bring people another life experience, and so do games and virtual worlds. Therefore, the author believes that the virtual world will enrich the human spiritual world and will not lead to a lack of creativity in the spiritual world. Many science fiction films and animations describe scenes where humans are trapped in the digital world. Most of the protagonists strive to return to the real world. Even those supporting characters who are addicted to the virtual world live a spiritually rich virtual life. Who would be willing to live for 1,000 years on a sunny beach in a room facing the sea? How boring that would be?

Those who are lost in the virtual world will also be lost in the real world.

The vanity of virtuality is the same as reality.

Virtual assets are an inevitable product of the digital age

According to the description of social psychology, human needs are divided into five levels. After solving basic physiological needs such as food, clothing, housing and transportation, the other levels are spiritual needs. In September 2021, the Tianjin Institute of Industrial Biotechnology of the Chinese Academy of Sciences published the research results of artificial synthetic starch in the journal Science. It does not rely on plant photosynthesis, but uses carbon dioxide and hydrogen produced by electrolysis as raw materials to successfully produce starch, making it possible for starch production to shift from traditional agricultural planting mode to industrial workshop production mode. It can be foreseen that when humans solve the food problem, the spiritual world will account for a larger proportion in future economic life.

The primary task of a market is to gather participants to a certain density. Operations such as asset securitization are to build more standardized financial products to increase market density and thus improve asset liquidity. In the digital age, with the help of seamless access in the digital world, it is easier for both parties to gather together, and technologies such as blockchain smart contracts may build a more diverse market. People's diverse spiritual needs will be met, and at the same time, the scale of virtual assets may continue to grow explosively.

About the Author:

Yuan Junfeng, Master of Finance from Fudan University, currently works for a large domestic securities firm. This article only represents his personal views. Author of "What Artificial Intelligence Brings to Financial Investment". Focusing on the digital age, the digitalization and intelligence of financial investment, as well as the changes in the financial field brought about by digital currency and the metaverse, welcome to discuss. WeChat ID: jake_80