NFTs are pricing everyone out
My almost NFT purchase, Solana, and transacting in the metaverse
Good morning everyone!
Today, I am going to take a dive into - what would have been - my first NFT purchase. I wrote a post about the basics of NFTs about 6 weeks ago. In that post, I had mentioned how the first half of 2021 had seen a total sales volume of $2.5 billion, which at the time was astronomical. August alone consisted of $3.4 billion. It is honestly unbelievable how the growth in this space seems to always outdo itself.
While a majority of the NFT sales volume has taken place on the Ethereum network via opensea.io, I was not too excited on the exorbitant gas fees I would have to pay make that happen.
Gas fees are similar to real world gasoline. It is the price to make a transaction happen on a blockchain. The payments are made to compensate for the computational energy required to process and validate transactions. For the Ethereum network, the gas fee is a base fee (which is “burned” when the block is mined) plus a tip that goes directly to the miner.
Recently, gas fees have soared due to network congestion. One of the transactions I was looking to make on the Ethereum/Polygon bridge had a gas fee $100! To early adopters who have a substantial portfolio of ETH, this is no big deal. But for a noob whale like myself it is simply out of the question.
In addition to this, while I do have a strong desire to join in on the fun and be an NFT owner, none of the projects seemed very interesting to me. I set a limit of $100 (.025 ETH) on OpenSea to see what that chump change would get me, and I was pretty disappointed. Also, why would I consent to paying $x amount of gas fees to make these transactions simply due to high congestion?
Solana
Solana, a completely separate blockchain from Ethereum, is meant to solve this issue of high transaction costs by better tackling the problem of scalability. Scalability is one of three core principles that blockchain developers are focused on when building.
It is referred to as the “Blockchain Trilemma” because building a chain with all three aspects is a tall challenge and often requires developers to sacrifice one for sufficient building of the other two categories.
Decentralization: As stated in the word, this is the management and control over a network by all participants, or not at a central location.
Security: Networks need to be built with ironclad defenses against hacks and malicious entities that want to drain assets from the network. (Polygon, a Layer 2 scaling solution for Ethereum, was hacked for $600 million worth of digital tokens)
Scalability: Blockchains should be able to support an enormous number of transactions in a short amount of time and at a low cost. This is Ethereum’s main issue, in which ETH2 is aiming to solve. (I would love to go into detail on this one right now, but for length’s sake, it will have to wait).
Quick Knowledge:
Ethereum is a network that uses the Proof of Work (PoW) consensus mechanism to validate transactions. This is what is referred to when you hear of “miners” for Ethereum and Bitcoin. Essentially, the miners use increasing amount of computing power to solve increasingly challenging math problems for validation.
PoW does not have the capability to handle a large amount of transactions in a short amount of time and at a low cost. Right now, Ethereum can only handle about 30 transactions per second (TPS)1. For comparison, Visa (which for some reason is always the comparative stat for this metric) handles about 24,000 TPS.2
In order for Solana to solve the Trilemma, the developers created a robust set of technology that make it the first web-scale blockchain. Most of that article is filled with technological and blockchain jargon that is hard to comprehend. If you want to go down the rabbit hole, please do, but for our purposes I will keep it brief.
Solana uses a combination of Proof of History (PoH), its core innovation, and Proof of Stake (PoS) to improve throughput and scalability. Throughput and scalability are referring to the potential TPS that can take place on a chain. When aiming to reach a high volume of transactions, the internal clocks in which computers (nodes) operate on, can become problematic when time discrepancies occur. Solana has a built in system that creates a synchronized time across all nodes to support a peak of 65,000 TPS. Here is a quick video explainer of PoH.
Anatoly Yakovenko, founder of Solana, does a great job of going in detail on what I just quickly summarized.
With all of that out of the way, we can reasonably say that Solana is scalable, secure, and decentralized*.
*One of the main issues contrarians have with Solana is its lack of decentralization. There are high hardware costs in order to become a validator, and 60% of SOL tokens are controlled by the founders and Solana foundation. This is on the trajectory to be solved in the future. I will be looking further into the implications of this and suggest you do too.
So… Back to the NFT world
As I said in the beginning, one of the main reasons I considered venturing away from purchasing an NFT on the Ethereum network was due to the high gas fees. Solana can process transactions for fractions of a penny, averaging $.00025 cost per transaction.
Currently, the website that I have been using to browse for NFTs on the Solana network is DigtalEyes. It has a simple UI and navigation tools, however after spending some time looking into the projects, again nothing stood out to me to that justified the prices.
It is worth noting that SOL started the year at $1.84 and now sits at $157, so those early holders have no problem paying 10 SOL for a jpeg of a rock (or equivalent)
That is one of the big issues I’m currently observing with this NFT boom. Many crypto enthusiasts tout how anyone can access the space and reap the benefits, however current activity prices out the vast majority of users.
Future projects
Although it has been slightly discouraging being on the hunt for an interesting NFT at a fair price yet coming up empty handed, there is a specific project that I am excited about.
Wanaka Farm is a blockchain based game in which users will immerse themselves in a role of a farmer by cultivating land, growing crops, breeding pets, and decorating their land. The harvested items can then be transacted with on the NFT exchange market for $WANA tokens.
Ex-Farmville and Minecraft players will likely appreciate the relaxing nature of this game:
Play-to-Earn is a gaming model that has contributed to the NFT and crypto boom of summer 2021. Players will earn the native token of the game, as well as potential NFT items that can be traded on exchanges.
Wanaka is scheduled to be released this quarter. Join the Discord here and keep eyes on their Twitter for updates.
Other Projects
On top of this, you can access a list of upcoming NFT projects on Solana from HowRare.is, which also lets you access the discord, twitter, website, and other useful links of the project.
How to actually transact in NFT marketplaces
In order to actually use OpenSea or DigitalEyes, you need to have a wallet. For the Ethereum network (OpenSea), I use a Metamask wallet, and for DigitalEyes I use Phantom. Setting these wallets up can seem a little weird, but it is a pretty simple process. I will be making a video soon walking through the process for both wallets. However, if you can’t wait, watch this video which gives a very thorough and clear explanation.
Sending assets from your CoinBase or BlockFi account (or other centralized crypto exchange) is fairly easy. Once you do that, the assets will be in your wallet and you are good to go!
Closing thoughts
This can all seem overwhelming, and it is. I barely covered anything relative to how the NFT world and Solana both operate. Things are also continually changing in this environment. New developments, hacks and risks, exponential depreciation and appreciation in assets all point to the fact that this is in the VERY early stages of development.
Only play with money you are comfortable with losing. SOL has recently exploded in price, those who were in early are seeing insane gains. Do not let this be a source of FOMO for you, please gain an understanding of projects and coins you are investing in prior to doing so.
Well, that wraps up the first newsletter of this new style I am going for. I had a lot of fun going into detail on this today. I left out so many things in an effort to keep in digestible, but if you were looking forward to more detail, please let me know!
Have a killer week and I will talk to you all soon.
Fun Facts:
Some of you have probably seen low pixel jpegs sell for millions (yes, millions) over the past month. For those who aren’t up to speed, this is CryptoPunk #3100, with the sole accessory of a headband, which sold for 4.2k ETH, or $7.58 million.
I hopped onto LarvaLabs, which aggregates the transaction history of all 10,000 punks to see what the punk had been up to since selling.
Two bids under .1 ETH probably hoping the owner would make a mistake, and 3 postings by the owner starting at $90.5M.
Knowledge of the day:
I also want to start doing a little knowledge of the day at the end of my newsletters. This will be anything that I come across as I am writing the post that doesn’t fit in with the topic, but is something that will be useful to know at one point or another.
This week, I learned in more detail about hedge funds. Hedge funds are largely unregulated, and one of the features of this is that they are not required to report their performance for the year. This creates a positive bias as most funds that do report returns had a successful year, whereas the negative or low returning funds elect to not report.
https://www.thestreet.com/crypto/ethereum/ethereum-2-upgrade-what-you-need-to-know#:~:text=Right%20now%2C%20Ethereum%20can%20only,using%20sharding%20and%20other%20tactics.
https://cointelegraph.com/news/eth-scalability-isn-t-going-to-be-an-issue-soon-vitalik-buterin-posits
Wow! Thank you, this is next level stuff. Easy to make an investment in ETH, but interesting to learn the inner workings behind it. Wanaka Farms reminds me of a videogame my kids used to play where they would earn money for doing jobs in the city. Who knew...???