Digital ownership is a new term that has just been defined. Nonfungible tokens (NFTs), have been around for a while, but mainstream media has only recently started to pay attention to them. In the third quarter of 2021, NFT trade volumes across blockchains exceeded $10 billion. This is a significant increase on Q2’s $1.2 million.
NFTs are digital assets that can be used to prove ownership. NFTs are proof of ownership and can be used to prove anything from art and digital collectibles, to real estate and other assets. This is creating a seismic shift in many industries. It improves the efficiency of ownership transfers and opens up new possibilities for digital assets.
Jonathan Choi, chief investor officer at Metaplex, the Solana protocol which established open standards for digital asset issuance and ownership, stated that NFTs are getting more attention from mainstream audiences for artwork, profile pictures and collectibles. However, the technology behind NFTs has much greater meaning.
He told Cointelegraph that NFTs could be used to represent ownership of physical assets like real estate, loans and luxury items, as well as digital assets such audio, files, degrees, certificates, and other types of digital assets.
As with most platforms in decentralized finance (DeFi), most NFT-based projects were built on Ethereum blockchain. Ethereum is the most active smart contract-enabled, active blockchain worldwide. NFT sellers are looking for an audience more than anything.
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Beyond Ethereum’s dominance
Ethereum has played a much bigger role than just a hosting platform in the growth of NFT industry. It was actually the iconic ERC-721 token standard which sparked the NFT revolution. CryptoKitties was launched almost a decade ago. While the platform was extremely popular at launch it may not have fully considered the limitations that blockchains presented at the time.
Many players have retreated from the NFT space due to network congestion and unpredictable, sometimes absurdly high gas prices. But this is not the case anymore. Outfits such as Decentraland and Axie Infinity are pushing the GameFi and NFT narratives further than ever. There is no set time for the Ethereum 2.0 upgrade or its scalability updates. Not all projects agree that it is the best place to establish a business.
CryptoKitties announced a switch to their own Flow blockchain due to issues with Ethereum’s limited throughput and high fees. Although the platform isn’t as big as it used to be, it’s still a major player in the NFT space. Its departure from Ethereum could lead to more projects moving onto other networks.
Choi stated that Ethereum will continue to be a leading chain for NFT launches and will have one of the most active communities in crypto. However, due to its limitations, there will still remain challenges and concerns for developers and wider audiences.”
Cardano, Solana, and other networks are expanding into NFTs. Solana launched a $5 million fund to help creators and fans join its ecosystem. Solanart is the most well-known NFT platform on Solana’s blockchain. It has produced collections such as SolPunks and Aurory, along with hundreds of millions in trades.
Frederik Gregaard of the Cardano Foundation said that NFTs have a lot of potential and that they are currently being explored. “For example in decentralized financing, NFTs could help to implement security mechanisms to ensure the uniqueness and correctness of each order submitted and prevent front-running attacks.”
He also spoke of other technical uses for blockchain ecosystems, including access control mechanisms for utilities and assets on public Blockchains, and the ability to ensure the uniqueness and security of an eUTXO-decentralized app (DApp). He added that NFTs have mass adoption potential outside of the immediate ecosystem when it comes to property rights for individuals and communities.
Although Cardano isn’t making as much progress in NFTs than Solana’s, it is still making great strides. CardanoKidz, the first NFT project launched on Cardano after the network’s Alonzo hard fork enabled smart contracts. SpaceBudZ was able to sell the first NFT on the network for $1 million last month.
Users could still sell and mint NFTs on Cardano without having to have a contract address. However, metadata properties, such as metadata, were not transferable over the blockchain. Smart contracts have attracted far more users to Cardano, which has led to a spike in NFTs on Cardano. The blockchain has now established a NFT metadata standard for native tokens, thanks to the Cardano Improvement Proposal 25.
This will solve various issues related to identity, authentication, and governance regarding NFTs on a network. You can also destroy any previous representations of NFTs once ownership has been transferred. This adds an entirely new level of exclusivity. The reigning smart contract platform, Ethereum, is in for some serious competition.
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Young, dumb, and not-so broken
Solana and Cardano are layer-one blockchains that offer an alternative to high transaction costs on the Ethereum network. They also lower entry barriers for a wider audience. These platforms are well-positioned for developers who use Web3 because they provide key factors such as cost, speed, and community growth during development, especially for newer projects.
Interoperability is the next goal of blockchains. This could lead to projects launching on different platforms and then connecting to Ethereum to benefit from its vast user base. NFTs have seen a huge rise in popularity and acceptance, but there is still much to be done before they are widely used across all industries.
Tor Bair, the founder of privacy-focused nonprofit organization The Secret Foundation, said to Cointelegraph that NFTs today are more like dumb receipts rather than smart ownership. They have no native access control and privacy for buyers or content. These issues can be solved and NFTs will grow to hold trillions of dollars worth of art, financial, and content assets.
To be able to compete with Ethereum in this space, blockchains will need to provide new use cases and design opportunities that are based on their unique functionality. This could be done through native data privacy, increased scalability or global interoperability. Both Solana, Cardano, and other NFT platforms could be more widely used in the long-term. They could launch unique products on their networks in order to attract users.
This month, Steve Aoki, the world-famous DJ, launched an NFT collection for Solana with Todd McFarlane. It was his first NFT collection in more than 30 years.
Cardano, Solana, and other layer-one blockchains are making moves in NFTs. Other prominent platforms such as Polkadot and Flow are also pushing the technology to new markets.
Cointelegraph was told by Abhitej Sing, co-founder and CEO of Persistence, a Cosmos-based DeFi platform. “NFTs are similar to golf club memberships compared with cryptocurrencies which are more like liquid money.” He said that becoming a member of a golf club is dependent on many factors, including early membership, exclusiveness, community, and other elements that only liquid cash can provide.
He said, “The scarcity of members and their exclusivity result in high membership costs both economically and socially for new members.”
The complications of Web 3.0 have been simplified by the introduction of new protocols such as Flow, Solana, and Cardano. In the coming years, NFTs will likely be one of the most important utilities of blockchain technology and not just on Ethereum.