Non-fungible tokens, also known as NFTs, are digital records on blockchains such as Solana and Ethereum that certify ownership of digital and phsyical assets. NFTs can be traded and sold like most other assets with just a few clicks. Over the past two years, NFTs have exploded in popularity with several art collections such as Crypto Punks commanding prices of several million dollars. NFT marketplaces such as OpenSea transact tens of millions of dollars each day and attract buyers and sellers from around the globe.
NFTs are digital tokens minted and recorded on the blockchain. The tokens are publicly visible to the entire world, so they serve as proof of ownership and provenance for assets. NFTs function very similar to a title for a house or car – the bearer of the title uses the title to prove ownership of the asset. NFTs are essentially digital titles for a wide spectrum of assets.
The earliest forms of NFTs focused on digital artwork. More recently, NFTs have gravitated to augmented reality, music and real estate. Earlier this month a commercial real estate firm listed a $27 million NFT on OpenSea. The seller noted that interest in the listing was very strong, and he fielded calls from potential buyers from across the world. Since then, other NFT listings have popped up to capitalize on the marketing buzz.
Solana Network Delivers Improved NFT Economics
Ethereum served as the first major blockchain to host NFT records with its smart contracts. During 2020 and 2021, the Ethereum network experienced extreme congestion driven by a rapid influx of users, leading to high transaction gas fees that reached several hundred dollars per transaction.
High transaction fees caused many users to became priced out of the market. They were unable to buy or sell NFTs and cryptocurrencies, so they sought alternatives. OpenSea began offering secondary options to list on an Ethereum Layer 2 blockchain called Polygon, which is capable of handling higher level of transactions at a cheaper price. Polygon usage grew rapidly, and its market cap peaked over $30 billion in late 2021.
At the same time, the Solana blockchain network grew in popularity quickly because it boasted high transaction throughput and transactions that cost less than one cent. Solana’s native currency, SOL, rose from $2 to over $250 in 2021 as cryptocurrency users migrated to the network. Solana’s network is built for higher throughput and faster confirmations.
OpenSea announced in April 2022 that it intended to integrate Solana NFT support on its platform. OpenSea is looking to expand into the Solana NFT ecosystem and capitalize on the rapid success of Solana NFT marketplace of Magic Eden.
Since its launch in late 2021, Magic Eden has experienced rapid popularity and growth. The Solana-only NFT marketplace saw its daily transaction volume surpass industry leader OpenSea in May 2022 for the first time ever. Much of the growth is related to the movement of NFT artists and buyers to cheaper blockchain alternatives such as Solana and Polygon.
Solana NFT Gaming Is Growing
Solana’s fast block processing of less than one second and cheap network fees make it well suited for gaming applications. Over the past year hundreds of new blockchain gaming apps have been built on the Solana ecosystem.
Gaming NFTs are integrated into games with the purpose of incentivizing gamers to play and own a stake in their gaming activity. Game assets such as the characters, their outfits, weapons, land, etc can be bought and sold for real money. Blockchain gaming, also known as GameFi, alters the traditional gaming model of pay to play online.
Rather than earning virtual points in a game that have zero value in real life, blockchain gamers earn tokens and NFTs with real value. Players can trade their tokens and gaming NFTs for other cryptocurrencies and assets with value.
Solana is focused on developing its gaming infrastructure. Earlier this month, Solana Ventures and Solana Foundation announced a $100 million investment in South Korean web3 startups focused on gaming, GameFi, NFTs and DeFi in South Korea. The fund is backed by capital from the Solana community treasury in addition to the venture arm’s pool of capital, according to Austin Federa, head of communications at Solana Labs.
“A big portion of Korea’s gaming industry is moving into web3,” Lee said. “We want to be flexible; there’s a wide range of project sizes, team sizes, so some of [our investments] will be venture-sized checks.”