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Owning a piece of history: How NFTs can help maintain our collective memory

Non-fungible tokens aren’t merely novelty items — they can play a valuable a role in preserving history and culture, says Artifact Labs chief Gary Liu

The NFT market has been hit hard by the Crypto Winter in recent times. Last month, the number of unique NFT buyers dropped below 500,000 for the first time in a year, with total sales at less than 15% of its 2022 peak in January, according to NFT data aggregator CryptoSlam. But even as the frenzy fades and confidence wavers, some in the Web3 community say NFTs have yet to reach their full potential.

“At the end of the day, what NFTs are is just a certificate. And they’re a certificate that’s immutable. So it can’t be changed. It can’t be destroyed. That creates scarcity and authentication on the internet. That has never existed before,” Gary Liu, founder and chief executive of Artifact Labs and a former CEO of the South China Morning Post (SCMP), told Forkast in a video interview.

Started as an NFT project by SCMP last year, Artifact Labs became an independent company in March, aiming to build a marketplace designed for the sale and trading of historical NFTs as a key founding player of a brand-new economy.

“The goal was to create a universal standard that not only the South China Morning Post could use, but other news organizations, historical institutions and cultural institutions can use to tokenize — as we say in this world — their assets, effectively take historical archives, make them into NFTs, and eventually hopefully build a new business model out of it, and in doing so, help preserve our collective human history on chain,” Liu said.

Custodians of history such as libraries and museums — and, perhaps most visibly, the news media — suffered as a result of the Web2 revolution, which posed an enormous challenge to their ability to remain economically viable. But Web3 technologies like NFTs may offer a game-changing opportunity for such historically and culturally significant institutions.

“(The content on these platforms) rush(es) to zero value if put on the internet, because it’s effectively given away for free,” Liu said. “Or if it’s put in a social media network, a distribution network like YouTube or TikTok or Instagram, it now effectively belongs to a giant company who can monetize it as many times as they want with a tiny fraction of the revenues going back to the creator. That’s a problem … When I look at Web3, what I see is an evolution of technology that meets the expectations of the next generation. I see what having intrinsic value and digital assets could mean to struggling businesses like media industries.”

According to Liu, the current digital asset bear market is actually a correction that should encourage developers to explore more deeply the utility of Web3 technologies, and help the industry adjust to cyclical conditions. But the NFT market faces a long road to maturity, and regulators are still struggling to keep up with Web3 evolution. 

Watch Liu’s full interview with Forkast Editor-in-Chief Angie Lau to learn more about how NFTs can help preserve history and create income streams for cultural institutions, what the Crypto Winter means for the industry, and how Web3 technologies are regarded by regulators in Hong Kong and mainland China.

Highlights

  • Artifact’s origins: “The South China Morning Post, in early 2021, after several years of studying blockchain technologies for media, decided that we wanted to experiment with NFTs … What we realized very quickly, however, was that there was no existing standard that properly valued existing IP (intellectual property), and historical assets in particular, on the blockchain. So we’re going to put our archives on the blockchain and open them up for decentralized ownership. We wanted to make sure that the right context was imbued into the assets so that hopefully long-term the historical significance and the historical value will stay with the NFT.”
  • Value in authenticity: “NFTs, because they are a certificate of authenticity, of scarcity, of provenance, I believe can solve this issue (of the infinite reproducibility of content). Even if an image can continue to be copied, the original will always have greater value. We’ve seen this in the world of traditional art. This is why, when you buy a painting at Christie’s and Sotheby’s, it’s not just the painting you get — you get an entire ‘database’ of where this painting came from: Who has owned this painting before? Where has it been exhibited? All of these small pieces of data that lead you to believe that this is an authentic piece. It adds value.”
  • Challenging times concentrate minds: “There was a massive hype bubble for NFTs. Look at the prices of PFP (profile picture) collections out there. But I think the majority of NFT collections out there at one point were just massively overpriced, and we’ve seen the correction of the market take place … (The Crypto Winter has) changed the industry, and I think it’s a good change. I think this bear market will focus a lot of the efforts that entrepreneurs and businesses like ours are putting into the development of Web3. I think it will help us actually adjust to cyclical conditions, which I think are always going to exist in effectively a commodity marketplace, in a retail marketplace. And I think you’ll get rid of a lot of the speculators, but also a lot of the bad actors on the creation side.”
  • Web3 with Chinese characteristics: “What’s really interesting is that China is not banning blockchain. China is actually investing in developing blockchain technology. So, obviously, the state does believe that this technology is important and matters. In fact, if you look at the 14th Five-Year Plan — and China’s entire political system runs off of these five-year plans — they’re taking it incredibly seriously … There’s a huge digital collectible market in China, but they want to stamp down on speculation. They want to make sure that they protect the retail investor to a degree that even Western regulators haven’t thought about or don’t have the ability to do.”
  • Regulatory risks: “It’s extremely opaque. The actual blockchain, NFT, crypto entrepreneurs are not involved in these discussions. And regulators don’t seem to be spending enough time truly understanding not just the technology, but the expected applications of this technology in the future … There’s a lot of copy and pasting of traditional regulation into this new world … And the second concern that I have is that there isn’t enough nuance and separating out … If there are broad-stroke regulations that take anything to do with blockchain and crypto and regulate them as securities or put them under the purview of a securities commission here in Hong Kong, the United States or wherever else, I think that’s really, really dangerous.”

Transcript

Angie Lau: Abstract or surreal, static or moving, neon-colored or black and white, apes or chickens. We’re talking about NFTs. They come in all shapes, all sizes and prices, and they’re often the first glimpse that one has of the Web3 world. Well, someone who comes from arguably a traditional media space is creating a brand-new platform for NFTs, with a bird’s-eye view on one of the hottest NFT markets in Asia right now. We’re talking to him right now.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. And it’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.

Well, today I’m very happy to welcome back Gary Liu, now with a new title. And in fact, Gary, it’s one of your first (interviews) under your new title as founder and CEO of Artifact Labs. And it’s great to have you here.

Gary Liu: Thanks so much for having me. Glad to be back.

Lau: This is really part two of our conversation. Gary, when we last talked to you, it was while you were still CEO of SCMP — South China Morning Post — and you were telling us about Artifact. And this was a brand- new initiative from SCMP to really sell some of its historical front pages, historical stories from its 118-year history as an NFT. So, do tell us, how has that journey taken you from SCMP to now very firmly at Artifact?

Liu: So, the history of Artifact — the relatively short history, about a year and a half — is that the South China Morning Post, in early 2021, after several years of studying blockchain technologies for media, decided that we wanted to experiment with NFTs — not surprising to a lot of people. In 2021, NFT markets took off and everyone thought, ‘Ok, if there’s now intrinsic value in media, especially digital assets, then maybe we can make something of it.’ And SCMP thought the same.

What we realized very quickly, however, was that there was no existing standard that properly valued existing IP, and historical assets in particular, on the blockchain. So we’re going to put our archives on the blockchain and open them up for decentralized ownership. We wanted to make sure that the right context was imbued into the assets so that hopefully long-term the historical significance and the historical value will stay with the NFT.

So, because they said it didn’t exist, we decided to create it ourselves. That was where the project began. It was about metadata. It was about creating a standard universally co-created, by the way, with our curators and auctioneers, with archivists around the world, with think tank leaders, and, of course, with blockchain technologists and experts. The goal was to create a universal standard that not only the South China Morning Post could use, but other news organizations, historical institutions and cultural institutions can use to tokenize — as we say in this world — their assets, effectively take historical archives, make them into NFTs, and eventually hopefully build a new business model out of it, and in doing so, help preserve our collective human history on chain.

SCMP started working on this, and the more conversations we had, the more we realized that entire industries wanted not only the standard, but wanted somebody to help them with the technology and the product to make this possible. So early this year, in 2022, we made a pretty — I wouldn’t call a rash decision — big decision for the South China Morning Post, which was to spin out this project as an independent company.

Now, when we did eventually spin it out, the crypto market had just started to weather, and then eventually we’re now in a bear market. The NFT markets are in turmoil, but the mission stays the same. There are so many historical archives that are locked away that people don’t get access to, that are under-monetized, but more importantly, underappreciated and underserved in education, so we decided that, ‘Ok, we’re going to take the bet anyway.’

So, Artifact Labs now, as a company, builds this kind of NFT infrastructure to help other organizations like the South China Morning Post turn existing IP, turn archives, into next-generation consumer products, memorabilia and eventually, hopefully, an entire ecosystem of history on the blockchain.

Lau: But I’m curious… why this idea? Gary, I mean, you went from head of labs at Spotify to CEO of Digg. You were tapped to be the CEO of South China Morning Post, where you’ve spent the past couple of years. One would say that you are a media executive with a lot of experience. And you have ridden along on this journey of media in the traditional space as it really transformed itself in Web2, and now into Web3. Why this idea? What is so critical about NFT in the media space that you saw synergies there.

Liu: That’s a great question. I’d say that the way I see my career, it’s always been at the intersection of technology and media. And I think that my roles have always allowed me to think as a consumer first, and then hopefully bring that insight into media organizations, including one as storied as the South China Morning Post, so that we could serve the reader and our global audiences better.

So, in that sense, when I look at Web3, what I see is an evolution of technology that meets the expectations of the next generation. I see what having intrinsic value and digital assets could mean to struggling businesses like media industries that — because of internet economics — have been upended and dissected over the course of the last two decades. Because of that, I see the opportunity in Web3, and my hope was that if I step away from — I guess, a very, very public job — a big platform, and take this big bet, there will be others that would follow. Or, at the very least, I could break down some branches, carve a little tiny path that others can walk through and do bigger and better things in the future.

Lau: The thing about monetization is that media has not necessarily always gotten it right. We’ve seen the rise and fall of a lot of legacy media platforms, and right now we’re seeing a lot of this migration into the NFT space. What is it about NFTs specifically, you think, that really maintains the value, potentially, or the ability of monetization for these media organizations?

Liu: I’m not going to speak for everyone, because there are a lot of folks in the NFT space for speculation right now. There was a massive hype bubble for NFTs. Look at the prices of PFP collections out there. But I think the majority of NFT collections out there at one point were just massively overpriced, and we’ve seen the correction of the market take place.

At the end of the day, what NFTs are is just a certificate. And they’re a certificate that’s immutable. So it can’t be changed. It can’t be destroyed. That creates scarcity and authentication on the internet. That has never existed before. Whenever the South China Morning Post, as an example, publishes a picture — something that has taken not only, days and weeks to find that story and to capture that moment, but also potentially decades for the photographer to have built up the skill set to get that perfect image all that costs into a single image — the moment we publish it online, that image is kind of in a race towards zero value, because at that point it can be infinitely replicated. And that’s just the nature of the internet. It can be copied and copied and copied, and there’s no attribution on the internet.

At the end of the day, an image can be used widely, freely, and the cost and time and skill that went into that specific creation is lost. It’s not just pictures — it’s journalism, it’s the words in an article, it’s digital art, it’s music, it’s video, it’s everything that is created by creators today on the internet. They rush to zero value if put on the internet, because it’s effectively given away for free. Or if it’s put in a social media network, a distribution network like YouTube or TikTok or Instagram, it now effectively belongs to a giant company who can monetize it as many times as they want with a tiny fraction of the revenues going back to the creator. That’s a problem.

But NFTs, because they are a certificate of authenticity, of scarcity, of provenance, I believe can solve this issue. Even if an image can continue to be copied, the original will always have greater value. We’ve seen this in the world of traditional art. This is why, when you buy a painting at Christie’s and Sotheby’s, it’s not just the painting you get — you get an entire ‘database’ of where this painting came from: Who has owned this painting before? Where has it been exhibited? All of these small pieces of data that lead you to believe that this is an authentic piece. It adds value.

And so I think in the digital world, that NFTs, that certificate that gives you that provenance, that creates a scarcity and authenticates that product opens up — it’s not really near infinite — (but great possibilities).

Lau: The platform that you’re building is really interesting. It really shows an evolution and a graduation from being a simple NFT collection of the very beginning to what seems to be a fuller and richer NFT ecosystem. So you’ve got free minting, you’ve got play-to-earn integration for games and metaverse, you’ve got a lot of bells and whistles there. What are you aiming to fulfill in the NFT space?

Liu: I’m trying not to overpromise. The idea is that if we start with the basics, today we can introduce traditional institutions as well as new consumers to Web3 as simply as possible. Onboarding in this world is a problem. We know that. So we’re going to start with simple products that look like memorabilia. People buy them because of nostalgia, because there is a personal connection. Some might buy them because they do actually think these assets will have value long-term. But easy onboarding — with the NFT, like I said, there’s so many different types of business models and so many things that we can do in the future.

A hope is that by building this base platform and by getting the ball rolling, getting these traditional companies to start experimenting in the blockchain world, we can help them invent those longer-term models, whether it’s learn-to-earn, play-to-earn, all these Web3-native terms that no one truly understands. Or it could be subscription models based off of NFTs. NFTs are inherently tradable, which means that there can be a liquid market for all sorts of new assets. And today, if we continue to restrict how people can access our product and don’t let users kind of exchange access or exchange these assets, I think we’re limiting the value of our overall work. So yeah, hopefully we’re not overpromising, but there’s so much to be done, and so much to be invented, because this technology is really a new creative canvas.

Lau: Gary Liu, formerly known as the CEO of SCMP, and now you’re a founder, you’re a start-up creator. All of those fun things in the midst of Crypto Winter. It’s been an interesting journey, no doubt. The NFT market in Hong Kong, in China, specifically, has also been quite rocky. How have you been navigating the space?

Liu: The China system is going to be separate. I think we all guessed that early on. I think there was maybe an idealistic hope that even with the Great Firewall of China — where it’s effectively created two versions of the internet, the global internet and the Chinese internet — blockchain would be the technology that eventually bridges these two worlds. But blockchain is inherently a financial tool, and so I’m not surprised at all that China has a separate blockchain.

But what’s really interesting is that China is not banning blockchain. China is actually investing in developing blockchain technology. So, obviously, the state does believe that this technology is important and matters. In fact, if you look at the 14th Five-Year Plan — and China’s entire political system runs off of these five-year plans — they’re taking it incredibly seriously. And the most recent one has an entire section on the digital economy and digital life. And even though it doesn’t bring up blockchain specifically, you read the section about digital life and how it’s meant to empower especially the rural populations to have a more vibrant life connected to the world through the digital realm, through digital technologies. And you can see how blockchain and Web3 play in that.

And this is why China actually has put… (missing video). There’s a huge digital collectible market in China, but they want to stamp down on speculation. They want to make sure that they protect the retail investor to a degree that even Western regulators haven’t thought about or don’t have the ability to do.

At the end of the day, China determined that this is better for their country and it’s still worth paying attention to, because I do think that there are going to be aspects of China’s blockchain development — at least on the technology side and the application side — that can’t be replicated in much more decentralized, global and open blockchain ecosystems that will do us some good as well. So that’s the China ecosystem, my take on it.

Lau: It’s something that you have to be sensitive to, specifically, at Artifact, and that you particularly have to balance. Artifact is supported by SCMP/Alibaba, which has spun off Artifact Labs. You still have the support of Alibaba. I wonder how they balance investing in NFT space, and yet this is the reality domestically in China.

Liu: Well, let me clarify. Artifact Labs has SCMP as an equity holder, investor and client. But this is an independent company. It’s not a subsidiary of South China Morning Post, so therefore it’s not a subsidiary of Alibaba. Alibaba actually so far has had no interaction with Artifact Labs. Alibaba has their own digital collectibles strategy and platform within mainland China.

For Artifact Labs, as of today, we are not pointed towards mainland China. We are not actively minting on Chinese blockchains. And our intent is to continue preserving historical assets in the layer-1s, the public layer-1s that everyone knows. We started off with Flow. Eventually we’ll get to Ethereum, Ethereum Virtual Machine-compatible blockchains, Polygon, Avalanche, Solana. There are plenty that we want to work on as well. The platform is meant to be cross-chain.

So, we’re not pointed inwards towards mainland China. We’re very curious about what’s going on there, and we’re watching it very closely. But today we’re pointed to the open blockchain. And from an ownership standpoint, that’s not much of a concern for us because Alibaba is not an owner or associated with Artifact Labs today.

Lau: I want to talk about the NFT space in Hong Kong. Artifact Labs is obviously taking a look at the global perspective. But Hong Kong’s home base and the city’s market watchdog, the SFC (Securities and Futures Commission), recently said that NFTs can be regulated if they present similar characteristics to securities, which points to fractionalized NFTs in particular. Do you have an opinion about how this is regarded as you build out your business? Are you fractionalizing?

Liu: Yeah, absolutely. We’re thinking about it every single day. Artifact Labs’ approach is not to use NFTs as fractionalized assets. We’re not trying to securitize existing things, physical objects or things of value in the real world. That’s not the goal of Artifact Labs today.

But I want to make a point about regulation. I think there are two things that I worry about when it comes to the regulatory dialogue that exists in Hong Kong and in many other places around the world right now.

The first is that it’s extremely opaque. The actual blockchain, NFT, crypto entrepreneurs are not involved in these discussions. And regulators don’t seem to be spending enough time truly understanding not just the technology, but the expected applications of this technology in the future. So, all they see is they see the traditional financial risks of securitization — and understandably so. These regulators are focused on protecting the retail investor. And there’s a lot of copy and pasting of traditional regulation into this new world. And I don’t think that that’s necessarily relevant or helpful. And I think oftentimes that may dampen innovation.

And the second concern that I have is that there isn’t enough nuance and separating out. Blockchain and crypto products that are in fact securities with blockchain and crypto products that function as currency, with blockchain and crypto products that function in other ways like membership cards. And if there are broad-stroke regulations that take anything to do with blockchain and crypto and regulate them as securities or put them under the purview of a securities commission here in Hong Kong, the United States or wherever else, I think that’s really, really dangerous.

And so my hope is that regulators will spend more time with entrepreneurs in the industry understanding what we are envisioning for this new world, for Web3, and then be able to develop the nuance to actually separate out different assets and hand them to different regulatory bodies. I believe in regulation to be clear. (But we need to) make sure that it’s the right regulatory bodies that are looking at the right products. And I think that if we take away the opacity, then it will start speeding up the innovation in a city like Hong Kong.

Lau: I couldn’t agree with you more … All right, Gary, I feel like we’ve talked about so much of it, but I’ve got to congratulate you. The idea is phenomenal. But the timing — one could argue — can never be right. We can never time it out.

Liu: That’s right.

Lau: Look, I mean, I didn’t time it out either in the first Crypto Winter, when we started (Forkast). And who could imagine that this would rear its bearish head again. But as you take a look at the NFT space, has that really impacted the appetite and the interest amongst folks that you’re talking to from an investment level, from a client level, about the NFT space?

Liu: It has impacted the community. It has impacted collectors. I mean, it’s changed the industry, and I think it’s a good change. I think this bear market will focus a lot of the efforts that entrepreneurs and businesses like ours are putting into the development of Web3. I think it will help us actually adjust to cyclical conditions, which I think are always going to exist in effectively a commodity marketplace, in a retail marketplace. And I think you’ll get rid of a lot of the speculators, but also a lot of the bad actors on the creation side.

With regard to partners, we’ve found that partners are still extremely excited about this technology. First of all, they’re thinking far longer-term than a buyer is, and so when they’re experimenting with NFTs and Web3, most of the time, the correct way of doing it is that the first few tries in this world should not be about revenues. I personally believe that if you’re focused on revenue as a top line (key performance indicator), you’re focusing on the wrong thing. You’re missing out on the importance of community and what it means to have an engaged and entitled group of buyers that are actively invested in something that you’ve produced, you’ve created. They know that they need to get into the market early now to learn, to start building up a core of Web3 users, and then over time, be able to develop a long-term scalable business model. So I’m encouraged by that.

Lau: Well, look, retail buyers accounted for 80% of NFT transactions in 2021 — this is according to Chainalysis. And it’s kind of remained consistent throughout 2022 — still made up close to 70% of NFT trading activity. What about those institutional-grade investors there, though, seeking exposure to NFTs? Do you think that the NFT space could attract that type of money?

Liu: I’ll never say never, because, like we said up front, the NFT technology, we haven’t even dreamt of all the ways in which NFTs can be applied in the world and to Web3. So, there might eventually be a series of products — maybe a myriad of products — that institutional investors can and maybe ought to pump a lot of money into leveraging NFT tech. But as of today, I just don’t think NFTs are institutional-grade products. Based on the products that we have today, it will be a retail product. That’s the way that Artifact Labs is thinking about it.

And in fact, our mission is to decentralize the ownership of our collective human history, so we don’t necessarily want big players to come in and buy up an entire collection of archives, because all we’re really doing then is shifting ownership from a newspaper or a museum to maybe a hedge fund or a (private equity) firm that now owns all of the assets. And again, we lose out on the advantage of individual ownership, which usually translates to greater access.

Lau: Gary, as always, a pleasure. It’s great to hang out with you in this space and to geek out on this a little bit more. And congratulations on what you’re building, and we can’t wait to see it. And when the weather warms up, this is really when we can see some exciting things on the horizon. Appreciate your time.

Liu: Well, thank you so much for having me. And, as always, great conversation.

Lau: As always, welcome back any time. And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau, Forkast Editor-in-Chief. Until the next time.

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