Could NFT auctions be moving away from Ethereum? One new group is betting they will – TechCrunch

Could NFT auctions be moving away from Ethereum? One new group is betting they will – TechCrunch

Could NFT auctions be moving away from Ethereum? One new group is betting they will

NFTs were arguably already taking off when Beeple sold his NFT artwork for $69m. But another crypto project attracted attention when it bought an original Banksy artwork for $95,000.

The group literally burnt the artwork and sold its NFT on the OpenSea platform for $400,000. Although the stunt was covered by CBS News, BBC News, The Guardian, and others, it did actually make a significant point.

By removing the physical piece, the group — calling itself “Burnt Banksy” — proved that the value of the piece wasn’t affected by being destroyed, given that the NFT went up so much in value.

Now that project is turning that stunt into an actual blockchain platform for art auctions.

Burnt Finance says it has raised $3 million for a decentralized auction protocol built on the Solana blockchain.

The project is being incubated by Injective Protocol (which recently raised $10 million from investors and Mark Cuban, as well as Multicoin, DeFiance, Alameda, Mechanism, Vessel Capital, Hashkey, Spartan, Do Kwon (CEO of Terra), Sandeep (COO of Polygon), and others.

The reason why it’s worth mentioning all this is that in trying to auction the painting, the Burnt Banksy group stumbled on an increasing problem in the world of NFTs: The rising congestion on the Ethereum network is leading to larger and larger gas fees. This is making both the creation and bidding on NFTs increasingly expensive, just from a baseline.

As a result, the team decided to build the Burnt Finance NFT auction platform away from Ethereum and hit upon the Solana blockchain, which has comparatively good speed, performance and lower transaction costs. It will use “Solana Wormhole,” which connects ETH and ERC20 tokens to SPL Tokens.

A spokesperson for Burnt Finance, “Burnt Banksy” told me: “Most auctions are Ethereum based, and currently the Ethereum gas fees are extremely high. It can cost you up to $70 to make an artwork, which doesn’t work if you’re selling an NFT for $50. We chose Solana mainly because of the ecosystem. It’s fast-growing, in addition to the technical aspect of it.”

There’s another reason why we may see other crypto projects move away from Ethereum as ETH rises in price and as gas fees increase: the potential for bad faith actors in NFT auctions.

If a bad actor tries to leverage the congestion on Ethereum and manipulate the transaction fee, they might sway the results of an auction. This would be quite something, if the auction was for, say, $69 million.

There are two very real reasons Ethereum is taking off

Ethereum is up more than 50% in the past week. In 2021, the world’s second largest cryptocurrency has risen more than 360%. And since the stock market bottomed late last March, Ethereum is up an astonishing 2,200%.

During the 2017 crypto boom, Ethereum shot up to more than $1,400. After falling more than 90% during the eventual bust, it just surpassed that level in January of this year. Now it’s worth more than $3,200 as of this writing.

Bitcoin is performing well this year but it’s up “only” 100%. So why is ETH up so much more than Satoshi’s invention of late?

You can never drill these types of price moves down to a singular reason, so let’s look at what Ethereum is and does to get a better sense of the euphoria in this digital asset.

Back in the 2017 crypto bubble there were no use cases beyond using it as a store of value on the security of the blockchain. Now, there’s nothing wrong with a store of value as the main selling point for something like Bitcoin. Bitcoin has the potential to become the digital version of gold, which has itself been a store of value for thousands of years. And gold has an estimated market value of around $10 trillion.

Ethereum is more than a store of value. The bull market in 2017 was all about the possibilities of this technology, but there were no applications or real world uses for cryptocurrencies.

The crypto run this time has two features the 2017 version didn’t—institutional adoption and actual applications. According to the Financial Times, [hotlink]Coinbase[/hotlink] now has more than $122 billion in institutional capital on its platform, up from just $45 billion at the end of 2020. For most of its existence, crypto has been driven by individual and retail adoption. That is changing.

But it’s the use cases that are likely driving Ethereum higher. Ethereum is a blockchain just like Bitcoin but it differs in that it is programmable. This means developers can write code, create rules, and make applications on the platform. These “smart contracts” can be used to validate agreements securely.

Story continues

You can think of the applications that can be built on Ethereum much like the apps that can be developed on Apple’s App Store or Google’s Android system. The biggest difference is there are no giant tech behemoths behind the scenes controlling Ethereum’s network. This is what attracted so many people to crypto in the first place: It’s decentralized in terms of who controls it. The general idea is you can create rules for proof of ownership and avoid scams or hacks because of the security of the blockchain.

And you need Ethereum to buy things on Ethereum’s network. According to the Wall Street Journal, more than 7 million new accounts that hold Ethereum balances were created in the first four months of 2021, bringing the total up to more than 55 million. And transactions totaled $1.5 trillion in the first quarter, more than the previous seven quarters combined.

There is a lot of stuff going on behind the scenes in decentralized finance (DeFi) that could prove to be transformational in the years ahead, but the use case most non-crypto people would be familiar with are non-fungible tokens (NFTs).

Smart contracts are simply code that is stored on the blockchain. Now blockchains themselves are essentially worthless, but NFTs provide a unique ID for a piece of digital art that can have its own rules for transferring ownership. So you could write into a smart contract for a digital piece of art being sold as an NFT that the original artist earns a certain percentage of any future sales of his or her creation. This is a huge leap forward for creators.

The most famous example of a digital artist taking advantage of this technology is Beeple, who sold an NFT of his work for $69 million. In concert with the National Basketball Association, Dapper Labs created NBA Top Shot, which essentially allows fans and collectors to buy and sell short highlights of NBA players that are stored on the blockchain. Some of the most sought-after moments have traded hands for six figures on the platform. The Kings of Leon even released their new album as an NFT, selling tokens that will give fans perks including specialty albums or front-row concert seats.

The hope is these smart contracts could displace or work alongside many of the tasks and services we use that are bogged down with paperwork and outdated practices. You could see a world where the sale of art, concert tickets, music rights, or title insurance, and money transfers or other financial transactions are performed using smart contracts.

The hope in the crypto community is Ethereum can become the platform that powers many of these future use cases now that there are real-world examples that actually work.

From a purely financial asset perspective, none of this helps us determine what the fair price is for Ethereum itself. The soaring price is likely taking into account the future potential of this technology. There is also an element of momentum, speculation, and the fear of missing out at play here.

It’s impossible to know what the “fair” value of Ethereum is or could be. Crypto is like a commodity in that there are no cash flows, profits, dividends, or income streams to use for valuation purposes. It’s all supply and demand.

Right now, the demand for Ethereum remains strong. Assuming the use cases continue to grow, that demand could remain for a while.

Ben Carlson is the director of institutional asset management at Ritholtz Wealth Management. He may own securities or assets discussed in this piece.

More must-read finance coverage from Fortune :

This story was originally featured on Fortune.com

Mark Cuban: The 3 ways Ethereum ‘dwarfs’ bitcoin

Ether, the cryptocurrency that runs on the Ethereum blockchain, hit a record high on Tuesday.

Though it is still second behind bitcoin in market value, there is growing excitement surrounding Ethereum and its capabilities.

According to billionaire investor Mark Cuban, “the number of transactions and the diversity of transaction types along with the development efforts in Ethereum dwarf bitcoin,” he tells CNBC Make It. “The utilization of Ethereum is much higher.”

First, the Ethereum blockchain consistently processes more transactions per second than bitcoin’s, making payments faster and more productive.

Second, it can support the creation of applications. Ethereum is known for its smart contracts, which power and build decentralized applications, like DeFi (or decentralized finance) apps, and NFTs (nonfungible tokens).

“Right now, bitcoin is a more established store of value and there is no reason to think it won’t continue to be for a long time,” Cuban says. “Ethereum, on the other hand, is booming with development that I think will create so many new applications.”

Third, Cuban says that as an upgrade to the Ethereum blockchain called Ethereum 2.0, which launched in 2020, continues to roll out, “the impact of Ethereum could be greater than we currently imagine.”

Investors agree that there are several benefits to Ethereum 2.0. First, it could make Ethereum even faster — investors say the changes could allow several thousand more transactions per second on the blockchain, as CNBC reported. They also say it could be more secure, among other things, “all of which will be hugely positive as a whole for Ethereum,” Cuban says.

The only “challenge with Ethereum as an investment” is that until its update is complete, it’s difficult to predict which improvements will come to light and which will not, Cuban says, which can “create some confusion along the way.”

Though he is overall bullish on both Ethereum and bitcoin, Cuban also notes that new entrants to the market can always disrupt the status quo.

“Just like all major tech companies are at risk of new technologies superseding them, there is always the risk of a better decentralized chain coming along to disrupt bitcoin and Ethereum,” he says.

Billionaire investor Ray Dalio, founder of hedge fund Bridgewater Associates, said similar in a January post titled “What I Think of Bitcoin.”

“I presume that a better alternative will be invented and pass it by,” Dalio wrote, “because that is the way the evolution of everything works.”

In Cuban’s opinion, it’s “not likely. But always possible,” he says.

Cuban has been at the forefront of the wave of interest in cryptocurrencies and the technology that surrounds it. He has a portfolio of bitcoin, Ethereum and other digital coins himself, and has invested in many companies in the space.

Check out: Meet the middle-aged millennial: Homeowner, debt-burdened and turning 40

Don’t miss: