In 2021, non-fungible tokens (NFTs) have had their best year yet. Although the technology itself was created many years ago in 2015, last year was when they truly went mainstream.
Yes, it’s largely thanks to buying and selling interest in NFTs that demonstrated their collectibility nature, with multimillion-dollar deals for art and pop culture NFTs stealing the headlines, but when you’ve got big brands and big names like Mattel and even Formula 1 all looking to employ NFT aspects into their marketing and business, you know that the tech is going to enjoy a long and prosperous future in blockchain and beyond. Even when dealing with an NFT fail like the one we talked about when gaming giant Ubisoft upset their fanbase, it’s clear that these crypto tokens are in the minds of a lot of people both on the side of the industry players and on the side of consumers.
Development is lagging behind
But NFTs, in a way, are becoming victims of their meteoric rise to fame and success. As applications widen, stretching out from beyond gaming and art collectibles, to marketing and now metaverse projects, many problems affecting both users, collectors, and developers are becoming more and more apparent.
The core reason now is that the underlying blockchain infrastructure for decentralized applications (Dapps) that enable people to create and use these NFTs is becoming too slow and, more importantly, too expensive for mainstream use. Essentially, to create NFTs (or to mint them), to post them for sale, and to finalize the transfer, requires a truly exorbitant cost to the user. So much so, that in extreme periods of network congestion on the most-used NFT network, Ethereum, it is completely uncommon to hear of people telling stories of paying hundreds of dollars simply to mint and list their NFTs on marketplaces.
These marketplaces like OpenSea are also struggling to continue to attract users and maintain growth, simply because it is becoming too slow to process sales, and too expensive to trade NFTs. Add to the fact that all of these marketplaces charge the traders some kind of fee (whether as a listing fee or commission percentage of the final bid), the user’s profit margin becomes smaller and smaller.
Scalability isn’t the permanent solution
Currently, the industry focus on tech development has been to build new marketplaces on new blockchains that are deemed faster and cheaper than Ethereum. Binance Smart Chain has always been a competitor and has slowly been eating into the Ethereum market share. The Solana (SOL) blockchain has also emerged as a powerful rival in NFTs. Seemingly, the problem is solved with cheaper and faster minting, made further attractive by allowing all these processes without commissions or fees.
However, users and projects aren’t able to see beyond scalability. While it may be expensive to mint and transact on Ethereum, it is also inherently more secure. The challenger networks like Solana actually use Proof-of-Stake (PoS) as a consensus algorithm, different to Ethereum’s current Proof-of-Work (PoW). Although Ethereum is also slowly migrating to PoS, the reason it has taken so long is that it is mindful that PoS is not yet proven to be as mature or as stable, giving up the hard security aspects of PoW for the more energy-efficient PoS.
When we consider that the true value of blockchain assets lies in the confidence of investors and users in its security — Bitcoin is realistically safe from a malicious attempt to takeover it (the so-called 51% attack) as it would be financially unviable for anyone to attempt to do so with PoW. PoS, on the other hand, may be relatively easier to take over since it doesn’t require computational power.
There are other reasons to feel less confident in new blockchain mining algorithms as well, simply because they haven’t been battle-tested enough.
Besides, the scalability issues of the past have definitely taught us that even Bitcoin, with its low transaction capacity, has never come close to being overtaken by rival cryptocurrencies that are supposedly far more advanced in terms of scalability. The same can be said for Ethereum, which continues to dominate the DeFi space despite many alternative platforms. Successful hacks on second-layer networks and challenger networks in DeFi have also proven that security is still lacking on them and the market easily demonstrates this lack of confidence when you view the price of all their native digital assets.
NFT technology is also lagging
Another point to consider is that scalability simply isn’t the only or even the main problem that the NFT sector is facing.
As we pointed out before, NFTs themselves are actually a relatively old piece of token technology. ERC-721 and ERC-1155 — the most commonly used standards in NFT implementations today — have not undergone a lot of changes in recent years, while the demand for more use cases and sophistication for the tokens have been on the rise.
We’ve spoken previously about why the industry needs a new protocol and laid out the reasons behind why we at Cradles are going to implement the new EIP-3664 NFT protocol in our game. If used, it will result in ERC-3664 tokens, a completely new standard that ticks all the boxes for regular NFTs but also adds a whole new range of capabilities that will completely change the way NFTs are currently viewed.
EIP-3664: the most sophisticated NFT standard yet
For most NFT users, the most obvious change EIP-3664 brings is that it makes NFTs customizable. Instead of static NFTs like today, these EIP-3664 ones can be combined, taken apart, and reassembled in unlimited ways, with each other and with new ones crafted.
That itself would be a huge change in gameplay, and we plan for Cradles to demonstrate how players no longer need to purchase NFTs just to play the game. Instead, players can harvest raw materials in the game and craft their own NFTs, resulting in NFTs that carry and combine the different traits in each material.
For developers, EIP-3664 is an extension of former standards, dividing NFT attributes into 4 categories that can be fully represented by smart contracts: general changeable, transferable, upgradeable, and evolvable attributes.
The final attribute, evolvable, is perhaps the most ground breaking concept in gaming, as this will allow every NFT — character, item or element — to evolve their traits specified with the passage of block time. Cradles will use this to create a new type of metaverse featuring what we call “entropy increase”. Essentially, a virtual world that changes, progresses, or even deteriorates with time to reflect the same rules of physics that affect us in the real world.
Simply put, the world of gaming, which is the sector most active in utilizing NFTs, has modern needs and requirements that have long outgrown these existing NFT standards.
We hope that with new NFT standard proposals like our own EIP-3664, we can begin to truly explore the many exciting opportunities for NFT technology not only in the rapidly growing world of blockchain gaming but also in real-world social applications.
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