Compressed NFTs
Pathing the way for scalability & unlocking new distribution channels within the NFT ecosystem.
In the ever-evolving landscape of on-chain culture, NFTs have led the segment as a cornerstone of digital ownership, scarcity, and monetisation of IP. However, as the NFT market expanded, scalability and cost-efficiency issues became apparent, particularly on Ethereum’s network with high gas prices.
The surge in popularity of NFTs highlighted the need for enhanced scalability and interoperability. Enter compressed NFTs [cNFTs], a new alternative solution pioneered on the Solana blockchain, offering a path to address these challenges.
This piece delves into the inception, impact, and future prospects of compressed NFTs [cNFTs], marking a new paradigm in the scalability and accessibility of NFTs for creators, collectors, and consumers alike.
The Historical Context of NFT Scalability
The journey of NFTs to their current state has been a testament to crypto’s impact on digital ownership and art. Originating on Ethereum, the early NFT projects like CryptoKitties not only showcased blockchain’s potential for creating unique digital assets but also exposed its limitations.
Ethereum’s scalability issues became evident as the popularity of NFTs surged, leading to network congestion and prohibitive transaction fees, particularly during market peaks. For instance, during the 2017 CryptoKitties craze, the Ethereum network experienced unprecedented congestion, significantly increasing gas prices and transaction times on the chain.
The CryptoKitties craze highlighted the need for scalable solutions capable of supporting the growing demand for NFTs without compromising on cost or efficiency. The scalability challenge prompted the exploration of using alternative networks like Polygon, Solana, and various L2s on Ethereum, which promised higher transaction throughput and lower costs, setting the stage for innovations like compressed NFTs [cNFTs].
In response to scalability challenges, Solana emerged as a potential game-changer for the NFT ecosystem. With its innovative Proof of History [PoH] consensus algorithm combined with Proof of Stake [PoS], Solana offers a high-throughput, low-latency platform that significantly reduces transaction costs and speeds compared with Ethereum.
This different technical approach made Solana an attractive alternative for NFT projects seeking scalability and efficiency. One example of Solana’s impact is the launch of Degenerate Ape Academy in August 2021, which saw a rapid sell-out of 10,000 NFTs in just 8 minutes, showcasing Solana’s capacity to handle high-volume transactions seamlessly.
Solana’s entry into the NFT space has not only provided a different solution to Ethereum’s congestion and high fees but also expanded the possibilities for NFT innovation, paving the way for the development of compressed NFTs. These cNFTs further capitalise on Solana’s strengths, offering a scalable and cost-effective approach to NFT creation and management, and represent a significant milestone in the evolution of the NFT marketplace.
Understanding Compressed NFTs
Compressed NFTs [cNFTs] leverage advanced data compression techniques to address scalability and efficiency within the blockchain.
State compression reduces the blockchain storage space required for each NFT by compacting its data, allowing for a more efficient use of resources. Compressed NFTs utilise state compression to efficiently store their data in a Merkle tree, contrasting with traditional NFTs that store information directly on-chain.
Traditional NFTs store their data directly on the blockchain, where it is both visible and accessible. However, with cNFTs, an external service is required to store your data.
The key innovation here is that the data is no longer stored on-chain; instead, it’s kept off-chain.
The blockchain merely holds a checksum of all the NFT information, which isn’t usable by itself and does not allow you to access the underlying information merely by examining the checksum.
To clarify, using a Merkle tree doesn’t mean you are actually storing data. Although a Merkle tree can compress data, it doesn’t allow for retrieval. You can verify the presence of data in a Merkle tree if you already possess it, but without the data itself, you cannot retrieve it from the tree alone.
Essentially, you need to have the data on hand to use the Merkle tree to confirm that the data is included in the tree. Think of it as a checksum for an arbitrary amount of data.
This approach ensures that while the detailed account data resides off-chain in RPC provider-managed data stores, the integrity and quality of the NFTs remain intact. Importantly, compressed NFTs can be seamlessly converted back to their full-quality, uncompressed Metaplex NFT counterparts, guaranteeing that the original quality and detail of the assets are preserved throughout the process.
It’s important to note that not all Solana RPC providers supply the necessary data, and Solana nodes are not obligated to provide this information either.
As long as Bubblegum is operational, the NFTs will continue to exist. However, if Bubblegum were to discontinue operations, the fate of the NFT data would remain uncertain since it is not stored on the blockchain.
Presently, only four RPC Solana providers have implemented the “Metaplex DAS API.” Should these providers cease to offer this information, the NFTs would effectively become inoperative.
This changes the minting economics on Solana by utilising state compression technology, slashing minting costs by about 24,000 times. This significant reduction in costs associated with minting makes the mass creation of NFTs extraordinarily cost-effective.
For example, whereas traditionally minting one million NFTs might cost around $250,000, with compressed NFTs, the cost drops dramatically to between $110 and $500, depending on Solana’s market price.
These changes to the set norm make cNFTs a cornerstone for scalable, cost-effective digital asset management.
Popular marketplaces on Solana such as Magic Eden and Tensor have implemented cNFTs.
Expanding Markets through New Distribution Models
Compressed NFTs have the potential to alter the existing distribution of NFTs, significantly lowering the barriers to entry for creators and consumers alike. By minimising the costs associated with NFT creation and transaction fees, cNFTs enable a plethora of innovative distribution models previously unfeasible due to economic constraints.
Examples include tokenised access to exclusive content, dynamic pricing models for digital art, and large-scale airdrops to engage and expand communities.
These new models leverage the inherent cost efficiencies of cNFTs to not only broaden the market’s potential size but also to introduce digital assets to a wider, more diverse audience beyond the crypto-native community.
The impact of these changes echoes the transformation seen in consumer behaviours with the advent of disruptive services like Uber and Airbnb, where cost reduction opened up new markets and usage scenarios.
The Future Prospects of Compressed NFTs
The future of compressed NFTs [cNFTs] holds immense potential to transform the digital asset landscape. As cNFT technology matures, we can anticipate broader adoption across various sectors, including gaming, art, and digital identity, further integrating NFTs into everyday digital interactions.
While Compressed NFTs [cNFTs] have promise, the future also presents challenges, the main issues with compressed NFTs often revolve around compatibility, complexity in decompression, and potential limitations in interoperability with platforms not specifically designed to support them. Addressing these issues will be crucial for maximising the benefits of cNFTs and fully realising their potential to make digital ownership more inclusive and accessible for all.
Compressed cNFTs [cNFTs] are an interesting development addressing scalability and efficiency challenges on the blockchain. By employing state compression and Merkle trees, cNFTs drastically reduce the blockchain storage space and ensure data integrity through secure, verifiable means. This brings a unique shift towards more efficient resource use and significant reductions in transaction times and costs, paving the way for a new possibility of scalable, cost-effective NFT creation and transfer.
