August 2021 – CoinGraph IQ

VISA has announced the purchase of a CryptoPunk NFT (Non-Fungible Token) worth approximately $165,000 (~50 ETH this August 18, 2021). Perhaps the most unlikely thing you would expect VISA (the financial credit company) to invest in. VISA is apparently bullish on NFTs, or could this just be another signal to show they are “in the know” or “part of the gang”? CryptoPunk NFTs are original digital artwork made by Larva Labs. These are unique collectible characters that have verified ownership on the Ethereum blockchain. They are not physical objects at all, but purely digital. They look just like icons or emojis, not at all like the works of art you would see in a gallery.

This shows that VISA is getting in on the DeFi (Decentralized Finance) market with NFTs. According to their recent tweet:

“Over the last 60 years, Visa has built a collection of historic commerce artefacts—from early paper credit cards to the zip-zap machine. Today, as we enter a new era of NFT-commerce, Visa welcomes CryptoPunk #7610 to our collection”

NFTs like CryptoPunks, despite looking like mediocre art, hold plenty of value. A typical CryptoPunk can bid over $20,000 while the more in demand will bid in the millions of dollars. That shows that there is a big market for these collectibles and the buyers have plenty of money to spend. This is not your basic retail market where items cost a few dollars. This is a big money market, and it has attracted VISA’s attention.

What makes CryptoPunks desirable as a collectible is their uniqueness. A CryptoPunk character (i.e. Punks) is algorithmically generated by computer, not manually created by a human artist. There are also different types like Apes, Zombies and Aliens. Each CryptoPunk character has their own set of attributes and their metadata are recorded on the Ethereum blockchain. That also includes the proof of ownership to the holder of the NFT.

It seems like VISA will hold this NFT for the collection purposes. It will hold the CryptoPunk for historical records, perhaps to document a time when NFTs first emerged. This will surely be valuable in the future, whether NFT continue to become successful or not. Just owning a piece of history is valuable in itself, so VISA is going to look back on this as having a memento to that timeline. Overall the NFT market continues to grow. According to Forbes, the NFT market grew 1,785% In 2021. It is now the fastest growing sector in DeFi that is also gaining pop culture adoption and VISA is jumping on board.

Moving forward, it looks like VISA is also on the horizon ready to enter new partnerships and projects related to NFTs. As a payment processor, VISA can help bridge the traditional finance market with the DeFi space. That opens a world of opportunities for buyers, sellers and developers.

The Ethereum network has activated the London Hard Fork successfully (12:34 UTC, Block# 12,965,000, 8/5/2021). In the first two days, $30 Million of ETH (Ether) were burned. That amount of ETH burned, removes approximately 3,000+ ETH from circulation. This is part of the EIP 1559 specification in which a certain portion of the transaction fee is burned per transaction. The hard fork also makes transaction fees on the Ethereum blockchain more predictable. This creates lower gas fees that can bring the costs of transactions down since there is now a base fee.

The introduction of a base fee addresses the volatility in transactions. This is regarding the cost of gas prices during times of network congestion. When the network is at its busiest, the cost of gas can suddenly increase which is why recent transaction costs on the Ethereum network has been high. With a base fee, this can prevent gas prices from suddenly shooting up to levels where it makes more sense to send large transactions than lower ones.

Since Ethereum uses an inflationary currency model, the burning introduces a deflationary system for the first time. This puts a check on the amount of ETH in circulation, which can affect prices to the upside. This has become controversial since it affects miner rewards, but the Ethereum network is moving away from mining (Proof-of-Work) consensus. A protocol difficulty bomb is part of the design for Ethereum 2.0 (ETH2.0) that will make mining more difficult, encouraging validators to move towards staking (Proof-of-Stake) consensus. The London Hard Fork will delay this at the moment to allow time for transition.

In a nutshell the London Hard Fork has enabled the following features:

Establish a base fee for transactions
Provide more transparency and predictability to transaction fees
Make ETH a more deflationary asset with a burning mechanism

Here are other EIPs activated during the London Hard Fork:

EIP 3554 delays the “difficulty bomb”.

EIP 3529 reduces gas refunds. Gas tokens (e.g. Chi) will become obsolete.

EIP 3198 allows users to return the base fee opcode.

EIP 3541 enables future upgrades to the Ethereum Virtual Machine (EVM)

Overall this introduces steps that will bring Ethereum closer to a minerless future. This gives time for miners to transition to staking, but once the difficulty bomb is activated it begins the “Ice Age” for mining. The new structure for transaction fees is also a positive development in light of the skyrocketing costs to run a transaction on the Ethereum blockchain. It doesn’t exactly lower gas prices, but makes it more manageable with a base fee. At least users will not have to deal with sudden increases when all they want to do is transfer ETH to another wallet or swap tokens. ETH will also be headed towards a more deflationary asset as well, with the burning of portions of its transaction fees. All of this creates positive market signals that drives further utility on the Ethereum blockchain.

(Photo Credit by Chris Schippers)