The Growth of NFTs
Non-fungible tokens (NFTs) had their best year ever in 2021. Although the concept of NFTs dates back to 2015, they’re now a mainstream phenomenon with big name brands—such as Asics and Mattel—implementing them in their marketing mix.
At its most basic, an NFT is a digital asset attached to proof of ownership via a blockchain. An NFT can be bought, sold and transferred, but cannot truly be replicated. Theoretically, they are each one of a kind. The impact of NFTs on the collectibles market have been astounding, with individuals paying unbelievable sums for simplistic pieces of artwork such as “CryptoPunk #7804,” which sold for $7.5 million in March 2021.
Challenges to the NFT Infrastructure
The rise of NFTs and their widening applications in marketing, video games, the metaverse and as collectibles has given rise to several issues. As NFTs are becoming more popular, the infrastructure that creates (“mints”) them, posts them for sale and affects the final transfer has become slow and expensive at times.
Many of the NFT marketplaces, such as OpenSea, are based on the Ethereum (ETH) blockchain. While Ethereum is the most popular blockchain for building decentralized apps, its popularity has caused its blockchain network to become heavily congested — leading to slow processing times and high costs per transaction. Further, most NFT marketplaces take a percentage of an NFT sale’s profits, usually between 2.5% and 3%.
Metaplex’s Proposed Protocol
Competing with these established NFT players, a new name in the NFT field raised a whopping $46 million this month to support its move into a growing field. The Metaplex Foundation, an organization dedicated to developing the Metaplex Protocol, has closed a $46 million funding round co-led by Multicoin Capital and Jump Crypto. The raise also saw participation from Solana Ventures, Alameda Research, Animoca Brands, and was backed by big names like Michael Jordan, Allen Iverson and Kevin Love. The Metaplex Protocol is seeking to streamline the NFT minting and auction process to make it cheaper and more accessible.
The key difference of Metaplex is that it employs the Solana (SOL) blockchain instead of Ethereum’s. Currently, Solana offers several advantages that allow Metaplex to offer faster and cheaper NFT minting and transfers without commission fees. Solana is capable of processing transactions a thousand times faster than Ethereum with far lower costs per transaction. Further, Solana uses a more efficient “mining” process known as Proof of Stake (PoS) or Proof of History (PoH). Compared to Ethereum’s far more energy-intense Proof of Work (PoW) method, Solana transactions are 99.9% more energy-efficient, using a fraction of the energy required to complete the same task.
These advantages, combined with the recent influx of funding, may see Metaplex growing to a dominant player in the NFT and Metaverse space. Metaplex intends to use the funds to expand the potential use cases for Solana based NFTs, not only in the budding NFT-driven metaverse and video games, but also in real-world social applications. Either way, NFTs and blockchain-based technologies are only set to become a more mainstream part of our everyday lives.