The Upside to Crashing an Entire Blockchain

Love them or loathe them, NFTs have been making a name for themselves ever since they rose to public (or at least crypto-enthusiast) awareness at the tail end of 2017 with ‘Cryptokitties’, where the popularity of the blockchain-based game led to the Ethereum network slowing to a crawl as it took up a huge proportion of the network’s traffic and sent transaction costs skyrocketing. Whilst other NFTs have proved popular, an impact of the scale that Cryptokitties had on the ecosystem hadn’t been seen again…until a couple of weeks ago.

Non-Fungible Tokens (NFTs) are a type of cryptographic token which have a specific uniqueness in their code or function compared to others of their kind. This uniqueness means that NFTs cannot be split or evenly changed for other non-fungible tokens of the same type. There are  a number of advantages which NFTs hold over traditional crypto-tokens or fungible tokens. One key benefit is that NFTs are able to show specific ownership of or access to any entity they are attached to, allowing them to be used to register something unique in the real or digital world (ownership of artwork or property, or access to limited events for example) with all the associated benefits of immutability, transparency and control flexibility that blockchain-based solutions typically offer. In addition to this, NFTs offer customisable tokens in a way that fungible tokens can’t - such as being able to append additional data to the token or see its history, both valuable options in many industries and applications. These properties also lead to NFT-based systems being able to offer secure, efficient trading and proof-of-ownership options which can function across platforms, services and markets.   

Whilst there are many uses for NFTs (and also many use cases for which other solutions are better suited), one of the areas that has shown interest in employing unique tokens to solve existing issues is the property market, where being able to prove ownership of land and buildings, and to transfer that ownership safely, securely and provably, is vital. A venture linked to this idea was the root of the problem that almost ‘crashed’ the Ethereum network recently, when Yuga Labs’ sale of virtual land for its upcoming game led to a frenzy of activity that saw transaction fees shooting up to more than 5 Ether (approx US$13500 at the time) in the worst cases - more than the cost of the virtual land itself, and of course making transaction costs prohibitive for almost everyone else on the Ethereum network at the time. This also led to some users’ transaction attempts failing as they didn’t have enough resources available to cover the purchase cost in addition to the transaction costs, though the company has said it will refund those who this has impacted.  

Despite the negative aspects of this particular event, just like the Cryptokitties phenomenon it will undoubtedly lead to further research and development into how to improve the scalability and efficiency of the network, or even change how such sales are carried out to avoid the bad press and financial impact that clogging up the Ethereum network has engendered. Furthermore, there is another silver lining to this cloud in the details of the event and aspects of its running that didn’t cause issues: even though the scale of the NFT sale so overwhelmed the network and entailed such a rush of buying, the ability of the system to validate and authenticate potential customers didn’t experience any problems; in other words, the KYC system in place coped with the huge influx of demand without issue. 

This is a noteworthy and welcome piece of news as compliance measures have historically been a sticking point for some companies in the crypto and blockchain ecosystems, with a lack of regulation until recent years and some solutions experiencing problems in scaling up to cope with demand until even recently. The fact that this wasn’t an issue in the Yuga Labs’ sale is particularly exciting for Blockpass as Yuga Labs, which is in the investment portfolio of Animoca Brands (Blockpass’ largest customer), had Blockpass providing KYC and AML checking for the NFT  sale! It is promising for the blockchain community as a whole to see that in this instance KYC and AML were not an issue, proving the efficacy of Blockpass’ solutions and showing that significant parts of the event - safety and security and regulatory compliance - were held to high standards without problems. Should Yuga Labs, as it has indicated, migrate its interests to other blockchains to ensure further events progress without a hitch, Blockpass will be ready and willing to follow and provide essential regulatory support. 

The Blockpass platform is fully automated and hosted in the cloud, with no integration or setup fee. Businesses can sign up to the KYC Connect® console in a matter of minutes, test out the service, and start conducting identity documents verification, KYC and AML checks. Sign up for FREE at console.blockpass.org.

By Matthew Warner