Non-fungible tokens (NFTs) are a $2.3 billion market, according to CoinMarketCap, with $50 million in daily sales. While Ethereum is the best-known blockchain for housing these tokens, slow transactions and high costs have spawned new competitors. And at the same time, NFT bridges have dramatically lowered switching costs.
In this article, you'll learn what blockchains support NFTs, how to transfer between them, and important considerations for creators.
What Are NFTs?
Non-fungible tokens (NFTs) are unique digital assets representing ownership or proof of authenticity. Unlike cryptocurrencies, NFTs are not interchangeable; each is distinct and has a unique value. The value can represent digital art, collectibles, and other virtual goods, enabling creators to monetize their work and buyers to verify ownership.
Most NFTs contain a few elements:
- Identifier – The unique identifier, or token ID, is an alphanumeric string that makes the NFT unique.
- Metadata – The metadata might include information like the creator's name, a description of the asset, or a link to the actual content (e.g., an image hosted on IPFS).
- Signature – The cryptographic signature is a tamper-proof seal, verifying the NFT's provenance.
Most NFTs trade on the Ethereum blockchain using the ERC-721 or ERC-1155 token standards to ensure compatibility. These standards define the rules for creating and managing the tokens, including how they're minted, transferred, and burned. However, other blockchains like Binance Smart Chain and Flow have introduced their own token standards.
What Blockchains Support NFTs?
Non-fungible tokens require smart contracts, but not every blockchain supports them. While Ethereum invented the smart contract, several competitors have arisen over time. And these days, developers and creators have many options when choosing where to build and host their NFT projects to optimize costs and attract an audience.
Ethereum is the most popular blockchain for NFTs. As the second largest blockchain after Bitcoin, it's a well-established presence in the crypto ecosystem with a massive user base. Many of the most popular NFT collections trade on Ethereum's blockchain using the ERC-721 or ERC-1155 token standards for interoperability.
Binance Smart Chain
Binance is the largest crypto exchange by volume, according to CoinMarketCap, with more than $10 billion traded on an average day. Leveraging its massive scale, the Binance Smart Chain (BSC) enhances the Binance Chain with smart contract capabilities (including EVM compatibility) using its proprietary BEP-721 token standard.
Flow is a relatively new blockchain launched in 2020 by Dapper Labs, a Canadian startup famous for the CryptoKitties NFT project. Unlike Ethereum or BSC, the proof-of-stake blockchain was built from the ground up to support NFTs and large-scale crypto games. Many popular projects, like NBA Top Shot, already use the blockchain.
Ethereum co-founder Charles Hoskinson built Cardano as a decentralized proof-of-stake blockchain for highly-scalable Dapps. Currently, the blockchain can handle over 250 transactions per second, while its Layer 2 scaling technology, Hydra, could support upwards of two million transactions per second with 2,000 staking pools.
Solana leverages a hybrid proof-of-history and proof-of-stake mechanism to expand processing power without nodes. Like Flow and Cardano, Solana offers much better performance than Ethereum with significantly lower costs. Currently, it costs just $0.00012 to mint an NFT using the blockchain's state-of-the-art compression techniques.
Fantom is a fast, high-throughput open-source smart contract platform for digital assets and dApps. The Ethereum-compatible platform has become known as the “artist’s blockchain,” supporting PaintSwap, NFTKEY, Artion, Opera House, ZooCoin, and other NFT platforms on the blockchain.
Polygon is one of the most popular Ethereum-compatible blockchain platforms. Using a proof-of-stake consensus mechanism, the platform was among the first blockchains enabling better throughput and lower costs than Ethereum.
Zilliqa is an up-and-coming platform for minting, selling, and exchanging NFTs. Using its ZRC-6 standard, the platform supports royalty payments, batch minting, remote state read, and other features to deliver a superior experience for creators and builders.
Tezos is a proof-of-stake blockchain designed to power the Web3 revolution. Unlike competing PoS blockchains, Tezos requires significantly less energy and cost to operate and offers institutional grade security. In addition, the platform was built with mechanisms to ensure active community governance and participation.
Choosing a Blockchain
Most NFT developers and creators have a favorite blockchain, but it's not always the best choice from a cost or audience standpoint. While the potential user base is the most obvious concern, transaction speed, transaction costs, smart contract capabilities, security, and other factors could have an enormous impact on success.
Transaction speed can have a significant impact on the NFT world, especially in virtual games or other "transactional" NFTs. In addition, throughput is an important consideration if you have large payloads hosted on the blockchain. For example, putting images on the blockchain rather than third-party storage can increase transaction times.
Transaction costs are another critical factor when evaluating blockchains. While conventional blockchains involve heavy gas fees, many newer options (including Ethereum 2.0) have a proof-of-stake mechanism and other innovations to reduce transaction costs. In addition to minting, consider the cost of transfers and other activities.
Blockchains offer different implementations of smart contracts. For example, some blockchains have a proprietary language to create smart contracts, while others use standardized languages. The gas fees associated with running smart contracts may also vary from blockchain to blockchain, influencing the project's cost.
Smart contracts are at the center of many high-profile security breaches, especially in the decentralized finance (DeFi) space. While NFTs are more prone to social engineering attacks, that doesn't mean future attackers won't target NFTs on the blockchain level. Therefore, security should be a critical consideration when choosing between blockchain options.
Many creators use third-party tools and platforms to mint and sell NFTs. As a result, they may be limited to blockchains that support those tools and platforms. Some platforms may even have their own underlying blockchain, locking creators into an ecosystem on a fundamental level. Those dynamics could have a big impact on future success.
Transferring NFTs Cross-Chain
Blockchains could become less relevant with the rise in cross-chain NFT transfers. At the same time, the rise in NFTs for digital identity has made cross-chain transfers a necessity. Moreover, the full potential of Web3 and metaverse technologies relies on efficient asset transfer across blockchains to create a seamless experience.
For example, the Wormhole NFT Bridge was one of the first projects paving the way for these capabilities. By wrapping the original NFT asset, the bidirectional bridge enables users to send assets between Ethereum and Solana. But of course, the Wormhole Bridge experienced a hack in February 2022, leading to less confidence in these platforms.
The Bottom Line
Non-fungible tokens have become a multi-billion dollar market for creators and developers. While Ethereum paved the way for NFTs, scalability issues have led to a growing number of competitors offering faster transaction speeds and lower costs. As a result, NFT creators and developers should carefully consider their options.
In addition to choosing a blockchain, NFT creators and developers must also remember that their actions typically create taxable events. Fortunately, ZenLedger can help aggregate transactions across wallets and exchanges, compute your capital gain or loss, and generate the tax forms you need.