Off-Chain vs On-Chain SmartNFT
The SmartNFT Protocol (SNP) provides a cost-effective, flexible solution for managing NFTs off-chain with easy on-chain migration, simplifying use for businesses and users.
Before we delve into why a SmartNFT might be off-chain, let's explore the current workings of NFTs.
Terminology
Smart Contract: Self-executing code on a blockchain that enforces rules and agreements automatically.
NFT: Non-Fungible Token; a unique digital asset verified through blockchain technology.
On-chain: Data or transactions recorded directly on the blockchain.
Off-chain: Data or transactions managed outside the blockchain.
ERC-721: A standard for unique, non-fungible tokens on the Ethereum blockchain.
IPFS: A decentralized file storage system for secure and distributed storage.
Gas Fees: Transaction costs paid to use the Ethereum blockchain.
Uses Cases
On-Chain Use Cases
Digital Art and Collectibles: Unique digital art pieces and rare collectibles that benefit from blockchain's transparency and immutability.
DeFi Applications: Financial instruments and products that require high security and trust.
Gaming Assets (Rare Items): Rare in-game items that need to be publicly verifiable and tradeable.
Off-Chain Use Cases
Coupons and Loyalty Points: Easily distributable rewards that benefit from low transaction costs without needing blockchain transparency.
Event Tickets: Concert and sports event tickets managed off-chain for simplicity and efficiency.
In-Game Assets (Common Items): Common in-game items that are frequently traded and do not need to be on a blockchain due to high volume and low value.
Hybrid Use Cases (Migration Off-Chain Later On)
In-Game Legendary Items: Items that start off-chain for easy management and can be migrated on-chain for trading.
Event Souvenirs: Event tickets that start off-chain for simplicity and cost efficiency, with the option to upgrade to on-chain collectibles.
Real Estate Tokens: Initially managed off-chain for cost efficiency, with the option to migrate on-chain for transparency and proof of ownership.
NFT 1.0 in a Nutshell
Artists and developers create an NFT collection, usually around a visual theme, such as Bored Apes, with multiple variations. These collections typically include 10,000 NFTs.
A smart contract is deployed on the chosen blockchain, often ERC-721 on Ethereum, and the visuals are stored in the cloud or IPFS.
The collection is sold via platforms like OpenSea, where buyers use their wallets, such as Metamask, to purchase NFTs with cryptocurrencies like ETH. Buyers also cover any blockchain fees (gas) and gain full control over their NFTs, which they can trade or sell on platforms like OpenSea.
The value of an NFT is determined by the owner or potential buyers in a free market.
The Problem with NFT 1.0
The complexity of NFTs makes them inaccessible to the general public. To encourage broader adoption, NFTs need to be plug-and-play.
Brands cannot expect customers to buy NFTs if they remain complex and costly to use. Even if brands cover transaction fees, users must still set up wallets, acquire cryptocurrencies, and understand blockchain addresses.
Testing this with non-crypto users showed it's impractical for mass adoption.
Let's Start Off-Chain
Given the complexity of on-chain NFTs, starting off-chain makes sense.
Off-chain doesn't mean storing NFTs in a regular database and distributing them through a virtual inventory like traditional video games. Instead, we seek an off-chain solution that can migrate on-chain when needed, ensuring interoperability. This is where the SmartNFT Protocol (SNP) comes in.
The SmartNFT Protocol (SNP)
Interoperability is key, similar to how email works across different providers using the SMTP protocol. To achieve this with NFTs, blockV developed the SmartNFT Protocol (SNP), which will be open-sourced.
When a SmartNFT is created, it exists off-chain within the SNP.
Fees
Creating an on-chain NFT involves deploying a smart contract, costing anywhere from a few dollars to hundreds, and minting each NFT with additional transaction fees.
With SNP, there's no need to deploy a smart contract, and each SmartNFT costs only 2 cents USD.
This consistent pricing allows businesses to budget effectively, unlike the fluctuating costs of blockchain transactions.
Additional Fees
While creating an NFT is just the first step, transaction fees for actions like transfers can be significant on blockchains like Ethereum.
With SNP, basic actions such as transferring a SmartNFT or using augmented reality are free. Advanced features may incur additional costs, but these are specific to certain use cases.
From Off-Chain to On-Chain
Most SmartNFTs will remain off-chain for ease of use and cost efficiency. However, creators can enable migration to on-chain, choosing the blockchain and covering initial gas fees to deploy the smart contract.
Users can then migrate their SmartNFTs on-chain, paying transaction fees themselves. Once on-chain, the NFT can be traded on tools like Metamask and OpenSea, retaining the option to return off-chain for SNP's advanced features.
My SmartNFTs Wallet shows most of my SmartNFTs are off-chain, while four of them (highlighted in green) are on-chain on Ethereum. All of this is in a unified interface!
Legal Considerations
Businesses often fear the legal implications of dealing with blockchain-based NFTs. SmartNFTs, by default off-chain within SNP, operate similarly to emails, reducing legal concerns.
When users migrate SmartNFTs on-chain, they assume the legal responsibilities, not the businesses.
What about $VEE?
You don’t know about $VEE? » $VEE Token in a Nutshell
Creating a SmartNFT with SNP costs 2 cents USD, with payments made in VEE. Businesses need price stability and budget control, transacting in fiat like USD rather than fungible tokens like VEE.
SNP users maintain balances in both USD and VEE. Actions incurring fees are deducted from the VEE balance, or USD is used to buy VEE in real-time if needed.
This system ensures price stability while using VEE for transactions.
Simplified Interaction with Multiple Blockchains
The SNP allows creators to deploy SmartNFTs across various blockchains by selecting an option, eliminating the need to understand each blockchain's specifics.
Fees are paid in VEE, simplifying the process and allowing creators to focus on content rather than technical details.
Thank you for reading this article,
Cheers,
Kumaly.