How to choose a blockchain for your NFT
Find the right blockchain for your non-fungible token (NFT) and seize your chance to get on board with the billion-dollar worth phenomenon sweeping across the globe.
With the development of blockchain technology, the most widespread use case are cryptocurrencies. With cryptocurrencies, millions of people worldwide got the amazing investing opportunity.
However, there are new digital assets entering the scene; we are talking about the non-fungible token or NFT, of course. If you are not that familiar with NFTs, we advise you first to download our e-book "The ABC of NFTs" to learn the basics - this will help you understand this blog better.
With many different blockchains to choose from, we will look into some conditions that a good blockchain for NFTs should fulfill.
Transaction costs and speed
Micro-transactions, such as digital collectibles, in-game digital assets, card games, etc., are becoming more common. Naturally, most people wouldn't willingly pay expensive fees for these transactions, so fee minimization is critical for future usability and acceptance.
One of the solutions available for this issue is Layer 2 networks.
To clarify this, let’s mention Layer 1, which is the blockchain. Layer 2 is a secondary framework or protocol built on an existing blockchain to solve the issue of transaction speed and scaling strains.
There are already some NFT Layer 2 solutions on the market.
Immutable X, an NFT marketplace, provides Layer 2 solution for the Ethereum blockchain. With it, transactions are executed outside of Layer 1 and save on the gas fees, while the data and proof of transactions are still stored on Layer 1. With ZK-Rollups, they process thousands of off-chain trades while creating proof that the transactions are valid. Once created, those transactions are published on the chain where smart contracts verify them. The transaction is validated when the owners of the assets sign off on the transaction.
That way, each transaction is a peer-to-peer gas-free transaction with no complications connected to the Ethereum standards (ERC-20, ERC-721, etc.)
Small NFT transactions are also available, enabling small transactions worth a couple of dollars without fees being several times more valuable than a transaction.
Other blockchains can also offer lower transaction fees and faster transactions. The main drawback is that around 78% of all NFTs are hosted on the Ethereum blockchain.
For blockchains to scale, they will need to improve their development features, particularly in the context of NFTs. That means that the cost structure for NFTs on the blockchain is an important factor to consider.
Robust smart contracts
The resilience of smart contracts is a significant component of blockchain technology's overall security.
To ensure high-security standards, smart contracts must go through extensive testing to provide the highest level of reliability and efficiency. With a more developed blockchain, you can create more technologically advanced NFTs. With additional security features, NFTs have the potential to enter and upgrade the current documentation system that users around the world have in use. Since each NFT is unique and can be tracked on the blockchain, they can be tokenized and used for various business-sensitive data. Diverse information can be held on these decentralized blockchains.
With the rise of Web 3, domain name ownership will be a significant asset in the future. If the blockchain you use is a part of Web 3, you can purchase a domain of your choice, and it will stay in your ownership forever.
With blockchain's transparency, NFTs can increase security and reduce malversations in supply chain management. In addition, NFTs can secure the products' authentication process by confirming their quality and origin.
On the Ethereum network, NFTs are ideal for logistical tracking with their transparency and immutability and resolving any potential counterfeiting problem.
It is essential to think about blockchain security.
If the blockchain is not secure, your NFT is at risk, and if the blockchain loses the public's trust, NFTs can also lose their value.
By design, blockchains are inherently secure with their basic characteristics - a decentralized public ledger network that is connectable via nodes for data storage and processing.
Blockchain networks can be public or private, depending on the required privileges for membership.
Public networks are open, and they might allow any users to join while allowing them to maintain anonymity.
Private networks require some sort of confirmation to join and to get the privileges. They can also be a close circuit that allows only familiar organizations to join and participate (like consortium blockchains).
Platforms that use Proof-of-Work (PoW) consensus procedures are particularly vulnerable to assaults in which an attacker gains control of a significant portion of the network's processing resources. Such attacks often result in the loss of access, money, and data, as well as jeopardizing decentralization. As a result, blockchains with alternative, non-mining consensus processes, such as Proof-of-Stake (PoS), are recommended for NFTs.
That said, when you choose the blockchain for your NFTs, you should be confident that security breaches, hacks, and downtime are minimized.
NFTs are valued for several reasons, not limited to their rarity and distinctiveness. Hard forks are a risk that can endanger these features by duplicating NFTs and putting their integrity in jeopardy.
There are two main risks for an NFT in relation to hard forks.
If both chains continue without reaching an agreement on which is the official chain, NFT owners have two unique versions of the same NFT. With double ownership, there can be a debate over the absolute ownership of the NFT and its value.
If miners reach consensus abandon the original blockchain, and go on the new one created with a hard fork, NFTs left on the original blockchain branch become worthless.
While the NFT is still a new technology, it is growing rapidly. New blockchains with new and improved features are created almost daily. As always, the latest technology creates different risks, but there are more opportunities as well.
It is important to weigh all the pros and cons and stay up to date with the newest developments in the world of blockchains and NFTs.
When choosing blockchain for your NFTs, finding the balance between different elements — transaction costs and speed, blockchain security, and smart contract capabilities — is important. With one wrong decision, your NFT may never reach its full potential.
Your take on the subject
They say knowledge has power only if you pass it on - we hope our blog post gave you valuable insight.
To learn more about NFTs, download our e-book! Our team has ample experience with the blockchain, smart contracts, and NFTs - if you need help in this department, reach out to us.
We'd love to hear what you have to say!