The NFT craze has been the most exciting new crypto trend since the Bitcoin spike in 2017. The fact that most NFT sales are transacted via the ERC-20 standard, i.e. via smart contracts on the Ethereum network, is undoubtedly at least partially responsible for the recent surge in Ethereum prices over the last few months.
In this article, we will look at the reasons why NFTs (non-fungible tokens) may very well be one of the main factors driving up the value of Ethereum. Read on to find out more!
Ethereum – The Engine Underlying the NFT Revolution
Let’s first go back to basics. Ethereum, which most people still think of as a digital currency, such as Bitcoin, Dash, Dogecoin and others, was in fact designed to be much more than just a competitor to Bitcoin and other altcoins. Although “Ether” (abbreviated as ETH on crypto markets) can certainly be used as a form of payment, there is a lot more under the hood than most people are aware of.
The Ethereum blockchain was designed and built to transact and track unique digital tokens with so-called ERC-20 codes. These codes can be used to track every transaction that has ever taken place on the Ethereum network, meaning that the authenticity and ownership history of every single NFT can never be lost (as long as the Internet exists that is).
When an NFT is created, the unique ERC-20 code that is automatically generated for it at the same time, thus also serves as a “digital signature” or “certificate” that can be used to prove that the NFT is authentic.
Despite Ethereum currently still being priced about 5 times lower than Bitcoin (at the time of this writing), the ERC-20 architecture of the Ethereum network therefore gives it the unique advantage of also being able to function as a platform for the exchange of any form of digital asset, whilst at the same time offering a solution for:
- Authenticity verification
- Storage of digital assets
- Complete decentralization
- A platform for developers to create their own “dApps” (decentralized apps)
Other Factors That May Be Influencing the Rise of Ethereum
The coming of Ethereum 2.0
The upcoming Ethereum 2.0 update is possibly the single most anticipated upcoming update in the crypto space.
The main reason for the excitement associated with the update is that the new Ethereum 2.0 is designed to work on the PoS (Proof-of-Stake) model, i.e. not the PoW (Proof-of-Work) one which it currently uses.
Why is this important? Well, it means that:
Ethereum’s “gas” fees will be drastically reduced
Let’s face it, Ethereum’s gas fees are pretty exorbitant right now. In fact, transaction fees for buying NFTs on the ERC-20 network are often much higher than the NFTs themselves!
Being able to buy and sell NFTs for a tiny fraction of the fees, which go to Ethereum miners right now, means that both creators (especially lesser-known digital artists, musicians, etc.) in the NFT space will be able to sell their work much easier than is the case right now.
Environmental impact concerns will no longer be an issue
One of the main concerns about — and arguments against — the popularization of NFTs is the huge amounts of energy that are required to first create them, and then transact with them. This is because the current version of Ethereum is still a Proof-of-Work system, meaning that the processing power required to verify transactions on the network has to come from crypto miners who require fees as compensation to do this.
However, according to Vitalik Buterin, the co-founder of the Ethereum ecosystem, Ethereum 2.0 will require “99% less energy” to process! This should appease even the most ardent environmentalists.
There will likely be more variety and specialisation among new NFT marketplaces
It is almost certain that greater accessibility to NFTs, thanks to the reduced fees of Ethereum 2.0, will also encourage the emergence of an even greater second wave of new NFT marketplaces and crypto startups as well as more innovative use cases for Ethereum smart contracts.
While some may argue that the current cost of transacting on the Ethereum network prevents oversaturation and flooding of NFT markets with an excessive amount of uncurated, low-quality crypto assets and collectibles, greater ease of access to the NFT world will undoubtedly encourage more competition and therefore both a greater variety of NFT genres as well as more specialisation of individual marketplaces.
Greater Acceptance of Ethereum as the Go-To Solution for all Forms of Smart Contracts
With Ethereum’s market value edging higher and higher as more and more people join the network, there is much speculation that Ethereum could very well become the next “digital gold” and eventually even supersede Bitcoin, which is currently still the largest cryptocurrency.
Although there are already competitors, such as Solana, on the horizon, there is currently little doubt concerning Ethereum’s dominance when it comes to smart contracts.
Whether Ethereum becomes the king of the DeFi (decentralized finance) world or not remains to be seen, but it is certainly the current leader when it comes to smart contracts, of which NFTs are an example.
Frequently Asked Questions
Is Ethereum 2.0 a New Cryptocurrency?
No. Ethereum 2.0 will be merged with Ethereum in its current form. It will not change the amount of ETH you have. Think of Ethereum 2.0 as an upgrade to the existing Ethereum system.
How Can I Make an NFT?
Making an NFT is much easier than most people think. Here is our dedicated article on how to make your very own NFT.
What Is the Best NFT Marketplace to Buy NFTs?
There are already a number of NFT marketplaces. Some NFT platforms, such as Nifty Gateway and Rarible, only list curated work by well-known artists, whereas others specialize in certain genres of art, such as video art or music. However, if you are a newcomer to the NFT space, you may want to consider starting out on a platform that is open to all genres of digital art, such as OpenSea or Mintable. Please feel free to read our detailed comparison of the Best NFT Marketplaces out there right now.
Where Can I Get Ethereum?
There are a number of exchanges, such as Binance and Kraken, that sell Ethereum. To find out more about which one is best for you, please feel free to read our dedicated comparison of our recommended exchanges.