Otherdeeds NFT sale puts Ethereum scalability in glaring spotlight

From the Editor’s Desk

Dear Reader,

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,

Angie Lau,
Founder and Editor-in-Chief
Forkast

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. 

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.

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.