How might the Ethereum merger affect NFTs?
The merger will not reduce gas fees or improve transaction speeds on Ethereum, but NFT projects can benefit from energy savings and deflationary pressures.
The merger will affect all Ethereum projects
Just over seven years after it launched in 2015 as a Proof of Work (PoW) network, Ethereum made the switch to Proof of Stake (PoS) on 15 September The merger will affect all Ethereum projects, incl Non-fungible tokens (NFTs).
After the merger, Ethereum NFTs will undergo two noticeable changes. Firstly, users will see a dramatic reduction in energy consumption. Second, the value of Ethereum can increase when the token becomes deflationary.
The NFT Club has estimated that the energy required to add an NFT to a blockchain is equivalent to adding approx. 83 kg of CO2 to the atmosphere.
Whether that calculation is accurate or not, Ethereum’s PoS mechanism will cut the chain’s energy consumption and carbon dioxide emissions by more than 99.9%. The Merge upgrade will also simplify the process of minting and developing Ethereum NFTs and projects.
Future upgrades to Ethereum will also reduce the maintenance costs of NFT projects, reduce gas fees and encourage wider use of NFTs. The ease of minting and maintaining NFTs could predict a rapid rise for Ethereum.
The world’s largest NFT marketplace OpenSea has confirmed that it will only support PoS NFTs after the Ethereum merger, according to a announcement.
Impact of the Merger on NFT Supply
One purpose of The Merge is to transform Ethereum from an inflationary token to a deflationary token, meaning that its total supply will decrease over time. Before the merger, Ethereum was more prone to inflation than Bitcoin, because unlike Bitcoin, Ethereum has no theoretical cap on total supply.
A deflationary Ethereum can by extension affect the NFT market: An increase in the value of Ethereum can serve to raise the price of NFTs built on Ethereum.
Christine Kima lead researcher at Galaxy Digital said in a interview with Bloomberg that reducing the Ethereum token supply would increase Ethereum’s investment as it could hold its value against inflation. In the long term, these changes will probably have a positive effect on NFT’s price and sustainability.
Potential NFT security concerns?
Adam McBrideNFTnow and rye radio host, warned that the Ethereum merger could pose a security issue for NFT holders – assuming at least one Ethereum PoW fork remains.
The Ethereum Merger Could Put Your NFTs AT RISK🚨
Here’s a 🧵 thread that explains why and gives you a simple solution to keep your NFTs safe.
1/8 pic.twitter.com/x6v8eJVwup— AdamMcBride.eth 🔎 NFT Archaeologist (@adamamcbride) 11 August 2022
With two forks of Ethereum existing, users’ NFTs will have two versions, one on the older PoW scheme and one on the new PoS fork.
A user trying to monetize the fork by selling their PoW NFT could be exposed to a “replay attack”, where a transaction on one fork can be replayed on another.
McBride gives the hypothetical example of a CryptoPunk holder selling PoW NFT for 5 ETHW, and then (with a “replay attack”) someone selling PoS NFT for 5 ETH.
McBride said, “Ouch.”
After The Merge, BlockSec was the first analytics service to flag a suspected replay attack which resulted in a leverage of 200 ETHW tokens on the Omni Bridge. However, the EthereumPoW team denied that this was an exploit of the PoW chain, but rather the result of a flaw in the contract of the bridge itself.
Had tried every way to contact Omni Bridge yesterday.
Bridges must verify the actual chain ID of the messages across chains.
Again, this is not a chain-level transaction replay, it is a call data replay due to the failure of the specific contract. pic.twitter.com/NZDn61cslJ
— EthereumPoW (ETHW) Official #ETHW #ETHPoW (@EthereumPoW) 18 September 2022
Impact on “Ethereum Killers”
As a result of the new shift, it will be interesting to see what happens in the future in the battle between Solana, Polygon and Ethereum for NFT dominance.
However, since Ethereum gas fees will not be immediately reduced by The Merge, the other chains will retain that advantage. As it stands, Solana may have more potential for NFTs than Ethereum, thanks to the high speed and low cost of Solana transactions.
In addition, BNB chain continues to show high performance and low fees, while developing its still nascent NFT ecosystem.
“The sentiment towards PoS chains like BNB Chain and Solana already indicates that some users prefer to collect NFTs on a greener chain. Whether this will really have a significant impact is questionable,” said Luke Rare, Growth Lead at Rareboard. BSC News. “Growth for NFTs will come from new use cases, better tools and platforms with improved user experience and onboarding processes.”
Ethereum’s merger will likely go down in history as one of the most significant crypto upgrades ever (or at least so far). Some initial security threats, such as a replay attack, may manifest, but they are expected to be resolved soon. Most market experts expect The Merge to positively impact the NFT market.
We’ll be back next week with more interesting discussion on NFTs. Until then, stay tuned: Buh-bye!
