News hardware NFT: owners of Bored Ape (BAYC) and other cryptopunks take a lot of risk after Ethereum merger, here’s why
In addition to ETH miners, the Ethereum union update is expected to affect NFT holders as well. The evolution of the second largest cryptocurrency could have a major impact on non-fungible token collections such as Bored Ape Yacht Club (BAYC) or Cryptopunks.
The Ethereum Union update
Since 2015, the Ethereum community has been waiting patiently for the update that will move the network from the second largest cryptocurrency to proof-of-stake (PoS). For some months we have known that this update, often postponed, should arrive next September. This innovation should disrupt the uses of Ethereum.
Ethereum, like other cryptocurrencies, uses a proof-of-work system to secure its network. More commonly known as proof-of-work (PoW), this consensus uses computing power (graphics cards, ASICs, etc.) to secure the network. By participating in the proper functioning of the network, participants who have used their machines are rewarded in ether.
This validation method, considered polluting, will be replaced by proof of stake or proof-of-stake in English (PoS). The alternative changes the mechanics based on computational strength to another, based on the active use of its treasury. It therefore allows the owners of the asset in question (in this case Ethereum) to use their capital, instead of the graphics card, in the validation of the blocks.
NFTs are largely on Ethereum
Ethereum smart contracts are the origin of the “CryptoArt” universe with NFTs. The cryptocurrency and its network, in fact, are at the origin of the NFT phenomenon we know today with the arrival of a first collection called CryptoPunks in 2017. Each of the tokens built on Ethereum has a unique value and therefore cannot be replaced by a another token, unlike a cryptocurrency.
In addition to the changes that this implies for Ethereum miners, this famous update could affect the entire NFT sector. When The Merge happens, NFT owners will also have to adapt to how cryptocurrency works.
Forks: Ethereum clones
While the majority of the members of the Ethereum ecosystem look forward to these changes, for the sake of efficiency, speed and sustainability, others are more attached to the PoW version of Ethereum.
In this context, the cryptocurrency will see an explosion of its “hard forks” to satisfy the majority of users.
A fork, which literally means “branch”, occurs when there is a divergence of common rules within a blockchain (network of a cryptocurrency). In concrete terms, this event results in a division of a part of the network when users disagree with the current version. In short, this separation allows fork users to enjoy a similar network before any updates appear. For example, some prefer the World of Warcraft classic to its current version. There are already several Ethereum hard forks such as ETHPoW or Ethereum Classic.
Copies of NFTs across multiple blockchains
With the arrival of Ethereum’s new PoS update, NFTs are likely to exist on both chains. In its upgrade process, Ethereum is expected to replicate its tokens on its new network. Therefore, the original NFTs should exist on the initial PoW chain and on the new PoS.
In this perspective, the largest studios behind the collections have already taken the lead. Yuga Labs, owner of Bored Ape Yacht Club or Cryptopunks has made it clear that it will only consider NFTs from Ethereum’s new PoS chain.
The Ethereum network is preparing for merger in mid-September. In line with the broader Ethereum community, in the event of a valid PoW fork, Yuga intends to recognize only NFTs on the ETH PoS chain as subject to the relevant NFT license and eligible for the utility offered by Yuga
– Yuga Labs (@yugalabs) August 17, 2022
This change will surely ask digital license owners which NFT has the most value: the one on the initial blockchain or the one on the new version?
Beyond the questions about the “authenticity” of the new NFT, this update could have real consequences for uninformed token holders.
A defect that can cost you dearly
Adam McBride, an NFT “archaeologist” explained the possible risks to NFT owners following the merger.
In a Twitter thread, McBride specifically highlighted the possibility of a “repeat attack”. Replay Attack is a phenomenon in which an action is repeated simultaneously on both chains.
Let’s imagine: you sell your NFT Bored Ape registered on the initial PoW chain for a paltry amount since it has value only on the new Ethereum PoS chain. In itself the idea seems interesting as some will want to get these tokens considered “original”, so why benefit one last time from the advantages of your token by recovering some aether.
Only, once sold, the second owner could do the same transaction again, and this time on the new version of Ethereum. In this case, if you had sold your Bored Ape for 1st on the old chain, it could start at the same price on the PoS chiane, while it is worth 70 times more.
The problem is something called a “reproduction attack”. This is when a transaction takes place on one blockchain and can be repeated on another.
For example, after the merger, you sell your CryptoPunk on the PoW chain for 5 ETH (or ETHPoW as people call it) hoping to cash out …
– adammcbride.og 🔎 Archaeologist NFT (@adamamcbride) 11 August 2022
Although the theory is true, in practice this is unlikely to happen. To do this, most NFT platforms would have to have integrated Ethereum PoW forks, but this is not in the projects of market leaders like Opensea.
The upcoming changes to NFTs following The Merge update involve thinking about non-fungible tokens and their new uses on Ethereum 2.0. Big differences since NFTs are one of the engines of Ethereum, largely contributing to the income of network participants. In addition to these questions, this update has more than positive points for NFTs, namely greater ease and speed during transactions.
What is an NFT?
An NFT is short for Non Fungible Token or non-fungible token in French. NFTs are cryptographic tokens issued on a blockchain.
Leveraging this technology to the genesis of cryptocurrencies, NFTs register inviolable properties in this virtual ledger. Consequently, NFTs are true claims of digital ownership.
Is an NFT necessarily an image?
A distinction must be made between an NFT and the object associated with it. The non-fungible token, in fact, is above all a virtual ownership certificate and not the digital file as such. An NFT is usually associated with a photo or video, but it can also take the form of text, music, or any other digital or physical format.
What is an NFT for?
NFTs are generally used to enforce property rights online. Therefore, the owner of a token of a virtual work can collect royalties, guarantee respect for the intellectual property of its digital object, etc.
This feature has in particular allowed NFT to shine in art by creating value and rarity in digital images available on the web. Furthermore, beyond the art, this technology offers multiple uses in different sectors such as in video games, in the traceability of a product, etc.
How is the value of an NFT defined?
These tokens are not fungible, i.e. they have a unique value unlike cryptocurrencies, which are fungible (1 bitcoin = 1 bitcoin).
The price of an NFT is therefore arbitrarily set by the token owner. This price is usually in cryptocurrency, most often in Ether (ETH).
How to buy and sell NFTs?
NFTs are typically bought or resold on trading platforms such as Opensea or Foundation.
What is an NFT mint?
The “Mint” or strike in French, is the initial process of selling a token. To permanently join the blockchain ledger, these new tokens must be new. With this action, the user gets to complete a transaction with his fees to see his token appear in first person on the blockchain.
What is an NFT airdrop?
An airdrop refers to the free distribution of an NFT to a crypto wallet address.
How to store an NFT?
To store an NFT, you need to have a crypto wallet / wallet. The most popular are Metamask or Trusted portfolio.