In this issue
- Otherdeeds: Weakest link
- Algorand: Straight line to goal
- Bitcoin in China? ‘The Mooch’ says yes
From the Editor’s Desk
Bitcoin became a teenager a few months ago, and as Forkast has consistently pointed out, the world’s original cryptocurrency — and with it the rest of the digital asset industry — is well on the way to adulthood.
Every so often, however, something crops up to remind us that the sector’s not there yet. This past weekend’s Otherdeeds non-fungible token (NFT) sale by Yuga Labs was one of those reminders.
The immense popularity of the company’s virtual land deed NFTs led to all but an outage of the Ethereum network, on which it offered the assets, pushing gas fees up to eye-watering levels for all the network’s users and even voiding transactions upon which fees remained payable.
The fiasco points not only to the limited success of last year’s Ethereum London hard fork upgrade when it comes to delivering consistently lower gas fees but also the divisive effect of Ethereum’s shortcomings on the crypto community.
Far from delivering on the democratizing ethos of decentralization, the volatility of gas fees on Ethereum network transactions has demonstrated their potential to widen the gap between those with sufficiently deep pockets to pay big fees for big gains and users with more modest resources who can easily find themselves priced out of using the network. Many of those have flocked to other, lower-cost networks such as Solana and Polygon, although the former experienced outage problems of its own during the weekend.
What have we learned from all this?
The digital asset industry, despite the immense strides it has made toward maturity over the past year or so, remains very much a work in progress, and scalability — its Holy Grail — remains elusive. And, as the weekend’s events have shown, if the industry seeks to remain relevant to ordinary users, it still has some growing up to do.
Until the next time,
Founder and Editor-in-Chief
1. Monkey wrench in Ethereum
By the numbers: Otherdeeds — over 5,000% increase in Google search volume.
Bored Ape Yacht Club creator Yuga Labs’ Otherside metaverse debuted at the weekend, with a public land sale of Otherdeeds non-fungible tokens (NFTs), but the project’s popularity severely impaired the performance of the Ethereum network, causing gas fees to spike to thousands of dollars per transaction.
- Otherdeeds had topped US$700 million in secondary sales at press time, with almost 13,000 buyers and 23,300 transactions, according to NFT industry data aggregator CryptoSlam.
- Concerns over Ethereum’s gas fees had been easing before the Otherdeeds frenzy as challenger blockchains offloaded decentralized finance (DeFi) and NFT transactions to other networks and Ethereum’s London hard fork replaced its auction fee structure with one built on base fees to cut the cost of transactions.
- The base fee model introduced a burn mechanism that eliminates ETH used for transactions from the overall supply of the token.
- On the day the Otherdeeds land sale took place, more than 71,717 ETH (US$20.4 million) was burned.
- Yuga Labs has since apologized for clogging up the Ethereum network and proposed launching its own blockchain.
- ApeCoin, Otherside’s native crypto, reached an all-time high of US$26.70 in the run-up to the metaverse debut, but it has since plummeted to US$14.83 at press time.
- The past several days have been torrid for smart contract blockchains, with Solana, a network that many in the crypto community had migrated to amid high Ethereum gas fees even before the Otherside debacle, losing consensus due to a large-scale spam bot attack that took advantage of its lower transaction fees.
Forkast.Insights | What does it mean?
Yuga Labs, the company behind the Bored Ape Yacht Club NFT collection, has found out the hard way that most of crypto’s infrastructure is just not built for mass adoption — at least not yet.
Ethereum’s glacial pace toward the much-anticipated — and, frankly, sorely needed — proof-of-stake protocol is still years away, leaving projects like Yuga Labs forced to go at it alone in order to prevent further hiccups of the kind we witnessed at the weekend.
The issue highlights a fundamental problem at the heart of the Web 3.0 community and what Ethereum co-founder Vitalik Buterin named “the blockchain trilemma.” According to this characterization of the three-faceted problem, all blockchains are forced to make tradeoffs between decentralization, scalability and security. In order to be good at one or two of these, any network tends to perform poorly when it comes to the third. In Ethereum’s case, the weakness is scalability. For other projects, such as Solana, the performance deficit is related to security.
Projects such as Yuga Labs thus face a conundrum: Wait until someone finds a way to address the trilemma, or build a more centralized, Web 2.0-like equivalent.
The difference between the internet as we know it and the internet that blockchain promises may require a stop-gap solution — a “Web 2.5,” if ambitious projects such as Yuga Labs are to keep growing at breakneck speeds.
2. Algorand nets FIFA deal
By the numbers: Algorand — over 5,000% increase in Google search volume.
Algorand has become the official blockchain partner of the 2022 FIFA World Cup in Qatar and the first new U.S.-based sponsor of the global soccer tournament in 11 years.
- The pure proof-of-stake blockchain, founded by Turing Award-winning computer scientist Silvio Micali, will provide a digital strategy and assist in developing an official blockchain-supported wallet for the world football governing body.
- The Algorand-FIFA deal also extends to the 2023 Women’s World Cup, to be hosted jointly by Australia and New Zealand.
- The FIFA World Cup is one of the world’s most-watched events, with more than one billion people tuning in to the last tournament’s finals in 2018.
- Singapore-based cryptocurrency exchange Crypto.com was named an official sponsor of the event in March.
- A convergence of blockchain and crypto with the sports industry has accelerated over the past year, involving leagues around the world, including the U.S. National Basketball Association and the Ultimate Fighting Championships, an American mixed martial arts event.
- The National Football League in the U.S. allows teams to pursue crypto and blockchain sponsorship but has banned the promotion of cryptocurrencies and fan tokens.
Forkast.Insights | What does it mean?
Despite the gloom afflicting the global economy — and with it crypto markets — blockchain projects have not stopped spending big on sports sponsorships.
Just before Algorand inked its deal with FIFA, crypto exchange FTX announced that it was partnering with the Mercedes-AMG Petronas racing team for the Miami Grand Prix. It’s a trend that’s intensified since February’s Super Bowl, which saw big crypto names buy up ad time during the American football sporting extravaganza.
Also in February, blockchain company Tezos announced that it had struck a deal to sponsor training gear for Manchester United Football Club, and in March, NEAR, a layer-1 protocol, inked a partnership deal with SailGP, a high-profile sailing event founded by Oracle co-founder Larry Ellison.
Sports leagues and organizations have gained a reputation — and occasional notoriety — for their business acumen. After all, the infrastructure, logistics and other essentials required to stage big sporting events don’t come cheap. They clearly smell the money sloshing around the digital asset industry and, for their part, companies in the digital asset sector see the immense marketing potential that sports organizations and spectacles make available to them.
Sports and crypto are a marriage arguably made in heaven — or hell, depending on one’s perspective on the role of money in these endeavors.
3. Will China come around to crypto?
China will eventually “come around” to Bitcoin, according to SkyBridge Capital founder and former White House communications director Anthony Scaramucci, adding that it’s not a financial phenomenon such a major economy should miss out on.
- Scaramucci, whose rollercoaster ride as a member of the administration of then-U.S. President Donald Trump lasted 11 days and who was nicknamed “The Mooch,” sat down with Forkast Editor-in-Chief Angie Lau at the Crypto Bahamas conference for an interview for Word on the Block, Forkast’s weekly catch-up with the digital asset industry’s leading lights.
- “We had a horse and a carriage, then we had a horseless carriage, made the migration over, and then we had to build roads and bridges and tunnel systems to carry those horseless carriages,” Scaramucci said, referring to the evolution of the financial system. “So this is the same sort of thing. You’re in traditional finance right now. We have these protocols and procedures that can allow you to do things differently. You’ll start to see that transition. You’ll start to see the regulators catch up to it.”
- China banned cryptocurrency mining and transactions in September 2021, but the country still accounts for 10% of the world’s Bitcoin transactions, according to the country’s central bank.
- Scaramucci predicts countries will eventually give in to pressure to ease stringent regulations and lift bans on crypto.
- “Remember this about Uber? No regulator wanted Uber. But you know who wanted Uber? The people. People wanted Uber,” he said. “We have 73 million people in the United States that own a piece of a cryptocurrency. Good luck [resisting it], because that’s like a decentralized lobbying organization. You want to upset those people?”
- Find out more by tuning in to Forkast’s Word on the Block interview with Scaramucci coming this Friday, May 6.
Forkast.Insights | What does it mean?
Scaramucci’s comments come as China has shown no sign of loosening its chokehold on crypto, as Chinese authorities appear to stand ready to clamp down on what they regard as speculative activity.
China has engaged in a years-long crusade against the crypto industry, including crypto mining, warning state entities to stay away from it and hunting down clandestine mining operations by tracking IP addresses and monitoring electricity usage.
These efforts, coupled with measures to ban crypto transactions, are part of what the authorities characterize as a fight against the speculative nature of cryptocurrencies and “criminal activities including money laundering, illegal fundraising, fraud and pyramid schemes.”
From a demand perspective, Scaramucci’s suggestion that China will eventually loosen on crypto may seem like a reasonable bet — if the country wants to develop blockchain technology, then it cannot ignore the underlying assets, namely cryptocurrencies. However, China is actively developing its own blockchain infrastructure — the Blockchain-based Service Network, which has helped more than 300 platforms issue non-fungible tokens. So China’s potential for remaining siloed and separate from the rest of the crypto universe remains considerable.