With the recent news that Binance will be opening its own NFT Marketplace in June, we have decided to take an in-depth look into what is currently happening within the NFT ecosystem, and what effects this is having on the overall Cryptocurrency space.
NFTs (Non-Fungible Tokens) are essentially data stored on a blockchain, where each NFT represents a unique digital asset, making them non-interchangeable with any other asset. The rapid adoption of NFTs has delivered enormous attention towards cryptocurrency and blockchain technology. The headline debut of NFTs actually occurred back in 2017 when blockchain business Dapper Labs created a game called ‘CryptoKitties’, which accounted for 95% of the Ethereum network’s usage when it peaked at the time. Today, the trading volume of NFTs dwarf those of 2017, with last month handling just over $73 million. NFTs have been unearthing the creative use cases of blockchain and cryptocurrency, and are becoming increasingly more accessible and familiar to many new users. The space is currently being dominated by established and emerging artists alike, with both groups being able to profit from their artwork by tapping into a diverse audience of flippers, collectors and art lovers like never before.
Just like physical money, cryptocurrencies are fungible, meaning that they can be traded or exchanged for one another. NFTs have shifted this norm by making each token unique and irreplaceable, removing every possibility for one to be equal to another - thus the name ‘non-fungible’ token.
The minting or production of an NFT results in a cryptocurrency token where the digital assets contain identification information recorded within smart contracts. NFTs allow holders to trade the representation of and claim the ownership over these assets, and also provide a medium of investment and value. And, like any other cryptocurrency, the underlying blockchain ensures the transparency of an NFT’s transactional history. Without being able to be reproduced or counterfeited, NFTs bear the qualities of scarcity and uniqueness that make them possess lucrative potential.
The format for the majority of tokens on the Ethereum blockchain goes by the term ERC-20. On the contrary, NFTs are built on a variant format known as ERC-721, a protocol that describes and enables the development of a non-fungible token. Whilst an ERC-20 token represents a single type of asset, an ERC-721 token represents a class of assets. For instance, in the CryptoKitties game, its ERC-721 token contract represents all of the unique kitties in the game, as well as its respective owners.
According to Google Analytics, the search term ‘NFT’ reached Google’s peak popularity measure of 100 on March 12th 2021, after many major news outlets picked up on the news that US artist Beeple (Mike Winkelmann) sold his ‘Everydays: The First 5000 Days’ NFT for $69 million at a Christie’s Auction on March 11th. ‘Beeple’ was searched over 100,000x in the US on this day, clearly sparking the interest of many new individuals who were yet to consider the wider uses of blockchain technology beyond just Bitcoin and Ethereum. As many NFT platforms are built on the Ethereum network, this cultivates greater, newfound volume and usability to ETH as a dominant cryptocurrency. However, this increase in network traffic came with its share of side effects, increasing Ethereum network-based transaction costs, referred to as gas fees.
The platform, OpenSea (originally created in December 2017), is currently the most widely used market for individuals who are looking to buy, sell or create NFTs. In just the last 30 days, OpenSea has seen over 28,000 individual wallets interacting with the platform, creating over $73 Million (USD) in trading volume. Trading on OpenSea occurs through the use of smart contracts built on the Ethereum network, meaning there is no central authority that holds custody over NFTs, enabling full, individual control over one’s non-fungible tokens. The plot below illustrates the massive gravitation towards OpenSea’s NFT Platform over the last 3 months, with the last 30 days alone recording more than 104,000 unique transactions.
The OpenSea plot above is also an illustration of the enormous amount of traffic the Ethereum network has faced due to this NFT craze. As previously mentioned, the majority of NFT tokens are built upon ERC-721, meaning that all transfers amongst buyers and sellers must take place on the Ethereum network. Naturally, gas fees have seen unprecedented highs due to this increase in volume, with the mean transaction cost reaching as high as $38 (USD) per transaction at the time.
To tie these all together, the plot below illustrates this spike in Ethereum Network fees and when mapping it against the OpenSea data plot above there is a clear strong correlation in movements of both over the last 6 months. With increasing transactional volume, it's only natural for fees to increase, as individuals compete for their transaction to be verified and mined on the network first, pushing up demand. Nonetheless, despite these increases, Ethereum’s price has actually been trending up over the last few months, with a new all time high of $2,757.36 set on the 29th of April. For a detailed critical analysis of Ethereum, please check out our article titled ‘A Deep Dive into Ethereum’.
To circle back, Binance’s new NFT platform in June will aim to offer crypto enthusiasts the best place to gain exposure to unique offerings and project collaborations. The Binance NFT platform will share the same account system as binance.com, meaning that buyers, sellers and creators will only need to set up one account to access all of its features. There will be two main ways to interact on the NFT platform: the ‘Premium Event’ category that offers exclusive sought after projects, and the ‘Trading Market’ that will be used by all participants to create NFTs.
The NFT ecosystem is growing exponentially, with brands and celebrities quickly following suit. Already, a number of celebrities such as Logan Paul, Paris Hilton and Lindsay Lohan are cashing in on their own NFTs. Brands and corporations such as NBA and Taco Bell have also jumped on board, with NFT drops garnering mass media attention.
NFTs have presented a huge opportunity for crypto adoption from individuals, brands and corporations who would otherwise have not taken part in the space originally. The focus of mainstream crypto adoption has always centered around Bitcoin and other cryptocurrencies such as Ethereum. However, NFTs have offered a fresh alternative, capturing significant attention and acquiring millions of individuals into the blockchain space.