By Alexander Mitrovich
The cultural ascension of NFTs in 2021 has at times appeared as if it manifested out of thin air, but non-fungible token (NFT) technology made its debut with the now-popular Cryptopunks and Cryptokitties back in 2017. The popularity of these projects however has led to network congestion that has caused both slower speeds and increased transaction fees, and threatening to slow mass adoption.
Even with these same limitations in play again during the recent NFT mania of 2021, Ethereum was responsible for the sector’s exponential growth. At this point, even your most tech-proficient relative has probably sent you an article along the lines of "WTF are NFTs anyways?" NFTs are boasting billions of dollars in trading volume every week on marketplaces like Open Sea and So Rare. They're gracing the covers of Fortune, selling for over 20 million dollars at Sotheby's, and being used by McDonald's in the form of a virtual Big Mac.
The possibilities, and global appetite, for what NFT tech can offer culture and commerce is undeniable. Now it's time for NFT tech—and the blockchain powering it—to start offering more.
The current state of play sees the majority of NFT traffic occurring and originating on Ethereum.
What we've seen so far as a proof-of-concept for NFTs is the most basic iteration of the technology. As a result of this, NFTs are at risk of becoming synonymous with the most primitive use cases, such as digital trading cards. Though Ethereum has led the conversation as proof of NFT concept, it's not truly built for non-fungible assets, but rather for cryptocurrencies (fungible assets).
So what am I getting at here? What's the solution? The Ethereum Alternative?
To start, Polkadot is doing it correctly. Having prioritized being a shared, heterogeneous, multi-chain architecture that enables external networks and customizable layer one "parachains" to communicate, Polkadot has created an interconnected internet of more efficient blockchains. Its underlying "backbone," Substrate, offers technology that improves the limitations of Ethereum (high gas fees; low sustainability; network congestion) and provides a better foundation for next-generation NFTs to scale. Innovation will come in the form of flexible economic models (freemium gaming), complex and scalable native NFT functionality, advanced interoperability and most importantly - forkless updates. This will enable systems or software to exchange and make use of information, allowing NFTs from one parachain to communicate with another, and creating new possibilities for developers, players, and artists to evolve and grow over time.
Ever since the heyday of CryptoKitties, congestion, environmental issues, and high gas fees have been clear obstacles for the growth of NFT technology. While these are substantial obstacles for the community, they are solvable. (You'd also be surprised to know that it's not even the greatest problem for NFTs on Ethereum, which is full dependence of functionality on smart contracts).
When the market gets saturated with trading cards like with NBA Top Shot, it dilutes the space and opportunity for advanced functionalities of other NFT use cases, like gaming. This is because these popular NFTs rely on slow, expensive, inefficient, and limited smart contracts to power the transactions. Complex functionality can’t be achieved with Ethereum smart contracts, which are better designed for a block that can fit a paltry four hundred transactions. If you want to do a thousand a minute, the infrastructure on Ethereum just isn't there.
According to recent studies, Ethereum consumes around 44.94 terawatt-hours of electrical energy annually, comparable to the power output of entire countries. Chains like Polkadot, Kusama, and Unique Network utilize a consensus mechanism that natively supports clean solutions and “green NFTs,” by virtue of their computational power required being incredibly reduced. Don’t blame the technology, blame the power generators, we have renewable energy refusing to be implemented, which has nothing to do with NFTs.
None of this is to refute that NFTs were born on Ethereum and will continue to play an important role, even in a multichain future. That's why being Ethereum-compatible is essential to new ecosystems. NFT platforms should still be EVM compatible so that they can be accessible with Ethereum wallets like Metamask. This is also why the Polkadot ecosystem is so effective; it allows you to start building your project with a multichain future in mind. There will be many blockchains operating in concert with one another — and that's a good thing.
New Economic Models
As Polkadot founder Gavin Wood says: "With second-generation blockchains like Ethereum, you have 'very opinionated' technology around it that tells it what it can and can't do. That's the kind of problems we must continue to solve with next-generation tech like Substrate." Flexible economic models and refungiblity don't require smart contracts to execute, so they're infinitely more scalable than what’s capable via a mere smart contract transaction.
Then comes smart scheduling and nested NFTs, which come with tokens that enable NFTs to ‘unlock’ and even ‘evolve’ into something different from its original creation. While this exciting feature is still being developed, we are close to a future where NFTs own other NFTs, and “natively unchain” which will enable them to evolve based on complex ownership structures and activity. Bruno Skvorz, founder of RMRK.app, suggested that soon someone will even be able to purchase a billboard in the Metaverse and watch it change over time as different advertisers purchase it as an NFT
When NFTs Eat The World
In the interchain future that's very quickly unfolding, asset and network compatibility across blockchains will be essential. The global mission shouldn't be to proscribe or release NFTs in a proprietary way. The mission should be giving anyone the tools to launch their own dApps with advanced NFTs.
Our role as pioneers in the NFT space is to be an enabler for not just one project, but for hundreds, and thousands of disparate NFTs, no matter what shape they take. It must be seamless to spin up a marketplace, launch, and trade unique assets with limitless parameters. As technologies evolve, the only way to future-proof them is by building flexibility into the tech. That's the most unique and special feature that Substrate, Kusama, and Polkadot have - forkless upgrades. The paradigm that blockchain is perfect-as-is and shouldn’t change might be good for Bitcoin, but if you want to use blockchain as a technology to build more than just one thing, it has to adapt and evolve.
Alexander Mitrovich is a tech leader by nature who believes in the power of properly structured ecosystems, and their ability to drive breakthrough technologies. For the past 30 years he has led teams at innovative companies like Luxoft and others. In 2017 Alexander founded the Blockchain Lab at Usetech, and has used this platform to investigate blockchain use cases that can drive mass adoption through project development across disparate blockchains.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.