How L2 networks are changing the NFT world

In recent years, NFTs have exploded onto the blockchain scene, evolving from a relatively unknown technology to one that has been plastered across the front pages of seemingly every crypto publication. Alongside the increase in both understanding and trading of NFTs, the global market has continued to rise, predicted to reach an incredible $122.43 billion by 2028.

With the expansion of NFTs beyond just digital art, also integrating into Play2Earn blockchain game projects and metaverse creations, this digital medium is poised for a dazzling future. While progress has been impressive in the world of NFTs, their increased popularity also comes with a rather hefty downside – rising gas fees when processing transactions.

The vast majority of NFTs are minted on Ethereum, with their ERC-721 as the industry standard for creating new non-fungible digital assets. Although Ethereum’s infrastructure provides a comprehensive ecosystem where users can create, distribute and trade their purchased NFTs, the blockchain network itself has a notoriously low threshold for transactions per second, leading to high gas fees.

While this was often understood as part of the territory when coined on Ethereum, the introduction of L2 networks promises to solve this problem. With this development, the longevity and sustainable growth of NFTs can be much more certain.

In this article, we will explore the current state of the NFT market, and touch on Ethereum’s gas fees and the role they play in NFT expansion. We will then turn to L2 networks and discuss exactly how the introduction of these technologies is set to change the industry for the better.

Why does Ethereum have high gas fees?

As a blockchain ecosystem, Ethereum has a number of advantages that have made it the most popular chain for development. In fact, of the 4,073 active dApps currently, over 3,000 of them are developed on Ethereum, and the range of tools and developers that this system offers is perfect for building.

Alongside creating applications, Ethereum has made a name for itself through its powerful range of tokens, each of which offers a distinct feature that lends itself to blockchain development. With the rigor of the Ethereum ecosystem, it’s no wonder it has become so popular.

However, this popularity has also led to one of Ethereum’s weaknesses, its slow TPS rate, starting to affect the system. At around 15 transactions per second, Ethereum simply cannot keep up with its own popularity. When someone attempts to process a transaction, it joins a queue of other transactions, waiting until it is at the front of the queue before being processed to the next block.

To skip these queues and ensure an instant transaction, users must pay a gas fee – a one-time payment that pushes their transaction data right to the front of the queue. Due to the astonishing popularity of Ethereum, the queue is usually very long, with the gas fee required to push a transaction through averaging around $18.

While $18 may already seem like a high price to pay for simply processing a transaction, this is nothing against the May 1 high of $196.64. Although currently a more stable lower number, the range of gas fees that users have to pay shows the instability of Ethereum as a whole, with its own popularity as one of its central weaknesses.

How do gas taxes affect the world of NFTs?

When a digital artist wants to create an NFT, they must go through the process of embossing their artwork. What this means is that you take your digital file and transform it into a digital asset, store the data on the blockchain and mint (print or create) it on an ETH-721 token. Once you are on the blockchain, you can sell your digital asset through smart contracts.

The process of creating an NFT requires you to process a transaction on Ethereum, and needs your transaction to go through to create the digital asset. Of course, as with any transaction, this means that a user must pay the gas fee to get the transaction through.

When a digital artist wants to turn their digital artwork into NFTs, they have to pay a gas fee on each individual piece they want to sell. Unless the artist has a significant following and other buyers waiting to purchase their work, the $18 gas tax can be a major barrier to entry.

Quite simply, if an NFT vendor cannot sell their piece for more than $18, then they have lost money. Even if they were able to sell for around $30, their margin is significantly dented by the gas tax. With this in mind, the barrier to entry in the NFT world is higher than it should be, with only artists who can afford to make an initial investment able to list their digital assets on marketplaces.

How do artists sell their NFTs?

The first step when artists want to sell their art online is to sign up for a non-custodial online wallet. Digital wallets like Ambire allow users to add and collect funds to their accounts and act as a highly accessible place for all crypto movements. Ambire has recently become a favorite in the NFT scene due to its announcement that it will allow users to pre-pay gas charges to reduce costs in a scheme known as Gas Tank.

Once a user has set up their digital wallet, they can turn to any major NFT marketplace to start listing, buying and selling their art. As the world’s largest DeFi exchange, Binance NFT is typically the marketplace artists go to when they want to distribute and exchange art. Besides having a huge customer base that helps new artists gain exposure, they also have a list of exclusive partnerships and celebrities actively engaging with the platform.

For example, Binance NFT recently released an exclusive collection with Franck Muller, a Swiss luxury watchmaker, which distributes NFTs of their watches on the platform. Another recent headline has been Mike Tyson’s involvement in the Binance NFT space, releasing a Mystery Box NFT that users have flocked to.

With the huge financial and community support behind Binance NFT, many artists will start their journey on this platform, mint their NFTs and sell them to the public through the user-friendly website.

Beyond generalist marketplaces, some digital artists are turning to more specific places to sell themed art. For example, NFT artists interested in popular sports can go to a marketplace like Maincard, which focuses on NFTs and other digital assets that revolve around major sports matches.

Using specific media like this puts digital artists in touch with an audience that actively seeks out their content. As the world of NFTs continues to grow, we are likely to see many more of these specialized digital platforms emerge to support niche exploration.

How is L2 Network set to shake up the world of NFTs?

Over the past few months, Ethereum, as well as other major blockchain ecosystems, have released news surrounding various updates they are making, or planning, to their networks. One of the main points that comprise Ethereum’s new 2.0 system is the inclusion of Layer 2 systems. Layer 2s are extensive extensions to L1, offering a range of additional features while being integrated into the core ecosystem.

Unlike sidechains, L2 ecosystems use the same blockchain as their partners, ensuring high security assurance as well as a simple bridge between them. For example, the Boba Network integrates directly into Ethereum and aims to increase the total number of transactions that they can process per second. By giving Ethereum the tools and speed it needs to scale its operations, the Ethereum network can effectively reduce gas fees.

By integrating L2 ecosystems that focus on scalability into L1 systems, this action allows NFT creators to push their transactions through for a fraction of the total cost. With this in mind, both sellers and buyers of NFTs get immediate access to cheaper prices.

Once the L2 is integrated, Ethereum users will have a small gas fee to pay when the L2 is minted, making the margin of sale significantly greater in their favor. Similarly, when users want to buy an NFT on a marketplace, they also have to pay a gas fee to register the transaction of them buying the asset.

For those buying NFTs, the increased scalability that L2s bring to Ethereum will further increase availability. Instead of having to pay huge fees every time they want to buy a particular NFT, they will only have to pay a small gas fee.

The benefits for both buyer and seller in the NFT world will help create a much more financially accessible space. While many like to focus on the most expensive NFT sales, with Christie’s auction house bringing in over $150 million in NFT sales in 2021, the reality is that most NFTs go for around $30.

With margins suddenly widened by gas taxes of just a few cents, both buyers and sellers will greatly benefit from this technological advance.

Final thoughts

Although NFTs have had a fairly upward trajectory in recent years, the introduction of L2 networks will further facilitate growth in this field. As L2 networks provide a stronger foundation for leading blockchains such as Ethereum, the scalability problem of blockchain will be effectively solved, increasing TPS and reducing gas fees.

For NFT creators who must process transactions to then sell their digital assets, the reduction in these fees will lower the financial barrier to entry, allowing more people to get involved in NFTs. That’s not to mention the easier buying conditions, with buyers having to pay less when they want to transfer an asset to the digital wallet.

With the arrival and massive integration of L2 networks into the NFT world, we are likely to see a resurgence in their popularity, with NFTs set to shake up the blockchain world over the next few years.