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Why was Ethereum at the forefront of the NFT boom and why are most NFT projects based on the Ethereum blockchain? Is it the only way to go about making an NFT? Find out more here -
Non-fungible tokens (NFTs) made their debut in 2017, with the likes of Cryptopunks and Cryptokitties quickly grabbing buyer attention. Since then, the NFT market has exploded, with Ethereum being one of the main contributing factors.
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But why was Ethereum at the forefront of the NFT boom? And why are most NFT projects based on the Ethereum blockchain? Is it the only way to go about making an NFT?
Not really. Other blockchains such as Solana, Cardano, and BNB Chain also host NFTs. Moreover, NFTs need not be purchased using Ether only — you can also buy, sell and trade digital assets using SOL, ADA, BNB, and other tokens.
This brings us back to our original question, why Ethereum?
The ERC-721 token and smart contracts
Ethereum was the first smart-contract-enabled network. Smart contracts made it much easier to provide ownership and govern the transferability of NFTs. Moreover, Ethereum also created a token standard called ERC-721 especially for the minting of NFTs. Therefore, Ethereum laid the foundation for NFTs and paved the way for the digital asset revolution.
Further, since most projects were based on Ethereum, wallets such as Metamask were created in a way that the NFTs had to be compatible with the Ethereum Virtual Machine (EVM). Only then could they support Ethereum-based NFTs.
The EVM acts like a decentralized computer — a virtual machine — that handles the millions of projects built on the Ethereum network. It is the bedrock of Ethereum’s operating structure. Therefore, NFT creators had to be sure that their projects were EVM compatible; another reason why they had to build on Ethereum.
Therefore, as NFTs began to pick up steam, Ethereum was one of the only blockchains that could support these digital assets. Sensing the massive, several Ethereum-based NFT marketplaces, including Rarible, OpenSea and Nifty Gateway, began cropping up, and customers started flooding in.
Hence, while Ethereum is not a prerequisite to minting and trading digital tokens, it is undoubtedly a leader. It also has an extensive network of buyers, thanks to its exposure over the years. Naturally, creators would prefer Ethereum over others.
Popularity comes with its share of problems.
The popularity of Ethereum also caused a lot of problems. A large number of projects leads to an influx of network traffic. This traffic eventually causes a rise in transaction fees. The increase in traffic also slowed down the network. Transactions began to take a lot of time, and users were forced to pay higher fees to prioritize their transactions.
Then there are the environmental issues. As per studies, the annual power consumed by Ethereum is comparable to the power usage of several countries.
Therefore, many other blockchains began to crop up addressing these issues. For example, you don’t have to pay any gas fees on the Polygon blockchain. A gas fee is the amount users have to pay on top of the transaction fee to prioritize their transactions. Plus, for converting ETH to Polygon, you only have to pay a minimal fee. The Polkadot network has also become known for its ‘green NFTs’ that solve the sustainability and environmental issues associated with Ethereum.
The Solana blockchain also emerged as an alternative to Ethereum. It could process up to 60,000 transactions per second, as opposed to Ethereum’s 13. Transaction fees on Solana are also minimal, as is its impact on the environment. Thanks to these features, the Solana blockchain overtook Ethereum in terms of daily NFT sales on May 24, 2022 for the first time.
However, NFTs created on such platforms should still be EVM-compatible if the creators want them to be accessed using wallets like Metamask.