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NFTs: Can they scale?

In following episode of the Koinos Group podcast, I interview one of my co-founders and Koinos blockchain architect, Michael Vandeberg, about the “dirty secret” about NFTs (non-fungible tokens).

NFT Catch-22

In our conversation Michael explains the Catch-22 that is inherent to NFT adoption on existing blockchain platforms like Ethereum. NFTs are the use case that everybody seems to think will have the largest impact on everyday people, but what they don’t seem to realize is that using NFT smart contracts is already one of the most expensive use cases (if not the most expensive) on Ethereum, and it will only make using Ethereum even more expensive.

The consequence of this fact is that if everyone started using NFTs on Ethereum, the cost to use Ethereum would skyrocket, causing everyone to stop using Ethereum, which is basically the definition of “not scalable.”

To understand why this is, you must first understand that saving state is one of the most expensive operations on Ethereum which is why it is such a high gas VM instruction. If you want to save something to state, that’s going to cost you more gas than almost anything else you’re going to want to do on Ethereum.

Creating v. Updating State

One way you can see this in action is by transferring a token from one of your existing addresses to a new address. Now transfer that token back to the original address. Notice how the second transaction is way less than the first? Well, that will also be the case for every subsequent transfer because you’re no longer creating new state, you’re just updating state. You’re not increasing the size of the Ethereum database.

As another example, Koinos will begin with 100 million fungible tokens (KOIN). The number of bytes that uses (the size of the database) will be proportional to the number of addresses. On the other hand, if we create 100 million NFTs, that’s going to use the same number of bytes if one person owns all 100 million, or if everyone owns just one.

Impact on Gas Price

What this all means is that it’s going to be more expensive for YOU, the user, to use an NFT contract than it is to use an ERC20 contract, even if gas prices stay the same. However, if the idea is that NFTs will be a mass adopted feature, this will increase the number of people trying to get their transactions included within the limited space of blocks. Remember, Ethereum still can only process about 30 transactions per second. More demand for limited space means that you’ll have to pay even higher gas fees for your transactions.

So if NFTs are the future, and there’s an infinite number of use cases for NFTs, and we’re just waiting for an NFT app to be the big app on Ethereum, not only is it going to be one of the most expensive apps for you to run … it’s also going to increase the gas cost!” — Michael Vandeberg.

I think we can all agree that the gas fees are too damn high (at least everyone not profiting from those high fees) and we’re only expecting those to increase whether NFTs really are the killer app or not.

That means that even if everyone started using Ethereum for NFTs, they would obviously stop using it once the fees exploded, totally defeating the purpose of even having a great feature. That is the definition of “not scalable.”

Essentially the system as a whole is disincentivizing mass adoption. And so we need to come up with solutions that scale in such a way that doesn’t disincentivize mass adoption. — Michael Vandeberg

At Koinos Group we are building Koinos from the ground up to solve problems like these and deliver a decentralized platform that developers will love using to build applications that people love using. To learn more about Koinos, go to koinos.io.



The blockchain with no fees and no barriers to entry

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Andrew Levine

CEO of Koinos Group, inventors of Koinos, developers of Koinos Pro