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NFTs Reach New Highs With OpenSea Burning Millions Worth of ETH
By now you have probably heard about non-fungible tokens (NFTs). NFTs are often associated with digital art, but they are much more than that. This article covers the impressive resurgence of the NFT market, their possible future usability and how it is likely to continue to affect Ethereum’s ecosystem following the London hard fork.
After much anticipation, Ethereum’s London hard fork upgrade took place on Aug. 5. Along with it five different improvement proposals were implemented, EIP-1559 being the most awaited. This has the potential to fundamentally transform the way ETH is valued.
While many claimed NFTs were “dead” following their breakout in the first quarter of 2021, recent on-chain action proves they are alive and better than ever. As we’ll get into, NFT prices have rocketed past previous highs and their share of the total amount of blockchain activity has increased significantly marking as well important milestones for NFT platform aggregator OpenSea.
The significance of NFTs on Ethereum is evident on gas costs, recording significant gas price rises in correlation with major NFT drops.
The NFT space has quickly become dominated by drops, where a collection of verifiably-scarce digital pieces are tokenized and sold on the blockchain. These drops can range from acclaimed artists’ artwork to machine-generated patterns to, of course, cats and penguins.
Most recently, we’ve seen several drops take over Ethereum gas fees. CyberKongz VX, which consists of monkey theme art works, last Sunday led average hourly gas prices all the way up to 414 Gwei, burning more than 1,200 Eth in 5 hours. This brought the project all the way to first place on the leaderboard in terms of addresses with more burned fees.
A major player benefiting from the increased appetite for NFTs has been OpenSea. The NFT marketplace aggregator, which recently raised a $100 million series B valuing the project at 1.5 billion, broke all-time high volumes in July and consecutively is already at its highest monthly volume half way into August, more than tripling the total volume reached for the entire month of July.
This indicator clearly depicts the large extent of the market rise the NFT space has experienced. From July 2020 to the end of July 2021, the protocol has managed to increase its volume by an astonishing 30,000%. The growth of the protocol is also clear on the Ethereum ecosystem, being one of the main burners since the implementation.
Alex Atallah, Co-founder and CTO of OpenSea manifested the company's success through his twitter account, letting the community know that the protocol passed for the first time $1 billion in volume for the month of August overcoming respected e-commerce company Etsy.
Atallah also hinted at one of the protocol’s goals: to surpass eBay on sales volume. EBay’s volume aggregate for Q2 2021 totaled $22.11 billion in comparison to OpenSea ,which processed approximately $382 million.
Despite the fact that it still looks like a shy number in comparison with giant e-commerce eBay, it's important to keep into account that OpenSea numbers have shown impressive growth during the months of July and August, surpassing the aggregate of all previous months.
In this same aspect, eBay’s platform currently offers a wide variety of products with broad usability features, and it's impressive that the nascent NFT’s industry has already reached such impressive numbers with limited usability products. This developing industry is projected to offer a diverse range of digital products and services, indirectly competing with physical ones offered by eBay or Amazon.
The increased speculation in NFTs has on multiple occasions led to prohibitively high fees for Ethereum users. This is likely to still be the case, as EIP-1559 was not meant to decrease fees (this was a somewhat common misconception).
While users will still have to wait for broader layer 2 adoption for lower fees, at least now holders are aligned with demand for network usage. This is the case as the majority of fees paid in transactions are now burned, effectively reducing the net amount of ETH inflation by simply buying NFTs. Currently 1.7 million ETH are speculated to be burned this year with the integration of EIP-1559, bringing the net inflation down to 3.1%.
As previously mentioned, the increase in gas fees on Ethereum was closely related to NFTs in general. The Indicator shows the total amount paid in fees to use the blockchain on a given day. During the last month it recorded an increase of nearly 140%, with a high of 7.65k ETH on Aug. 10 when VOX NFTs dropped. A clear correlation is also visible between the dates of expected NFTs releases, visible on the first indicator of this article, and the aggregate total fees.
Through ultrasound.money's burn leaderboard, we can see that two of the four highest burning addresses are related to NFTs — which again shows clear evidence of the importance of NFTs in the Ethereum network.
The NFT market is proving doubters and naysayers wrong. While there are still many people that might not fully understand them, NFTs have brought to prominence the rise of digital art, collectibles and enable novel business models such as Axie's play-to-earn or Stoner Cats TV pass.
NFTs have a high potential to create demand for more people to enter the crypto space through these diverse use-cases. The developing industry gives prominent conditions for antique traditional industries to evolve in the space. Following EIP-1559, supply-side economics also favor Ethereum holders as ETH is burnt every time an NFT is bought. Ultimately, this reinforces Ether's monetary "soundness" and is a major step as Ethereum continues to grow.
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