The Biggest NFT Rug Pulls of All Time

Rug pulls have made headlines since the 2021 NFT boom, with investors losing over $25 billion as of November 2022. These headlines have sparked fear among investors, who are now skeptical when it comes to new NFT projects.

The likelihood of a rug pull, or a scam in which a cryptocurrency or NFT team exits a project along with its investors’ funds with them, seems to be increasingly greater.

In this article, we’ll cover the seven biggest NFT rug pulls of all time ranked by the amount of money stolen from investors. 

Iconics- $140,000

Iconics was a Solana-based NFT project consisting of 8000 unique pieces of 3D artwork. It was created by an unknown 17-year-old 3D digital artist who promised unique 3D images to investors. Fourteen initial samples were showcased through the project’s Discord channel, which created the demand for more.

The project started with a pre-sale of 2000 items at 0.5 SOL; however, investors didn’t get what they paid for. Instead of 3D art, they received a random collection of emojis. After the sale, the project’s Discord went offline, and its official Twitter disappeared. 

Blockchain data showed that the scammer had around 1000 SOL at the time, which equaled around $140,000. Investors never got their money back. 

Mercenary- $750,000

Mercenary was a medieval Play-and-Earn game where players could recruit a team of mercenaries to fight for MGOLD. The game was promoted on sites like thebittimes.com and BSC news, where it was praised for its innovative mechanics and unique gameplay. 

Unfortunately, the game ended up being a rug pull. 

After building a loyal group of players, a new Twitter handle known as the Mercenary Golg Community claimed that the Twitter and Telegram groups had been hacked. Within 24 hours of this post, everything connected to the project was wiped entirely, with only a few Twitter promotions remaining. 

It’s estimated that the team stole around $760k of investors’ funds. 

Frosties NFT – $1,300,000

Frosties was the first big NFT rug pull of 2022, and one that shocked the NFT community. It started with a huge marketing campaign, advertising 8,888 cartoon ice cream NFTs. The project was one of the fastest to ever sell out, with the team making an estimated $1.3 million in the process. 

The team had promised investors unique staking features, a metaverse game, mint passes, and other long-term benefits. However, shortly after release, the Frosties social media channels, Discord servers, and website all disappeared. The project was completely shut down, and the project team disappeared. 

Fortunately, rumors have stated that the creators were caught and charged with one count of wire fraud. Although the investors didn’t get their money back, the devs were punished for their scam. 

Swipathefox – $1,500,000

Swipathefox was an NFT project created by NBA basketball player De’Aaron Fox, consisting of 6000 unique fox-themed NFTs. Fox promised investors exclusive NFT ownership perks, including giveaways, tickets, and exclusive chats with Fox himself. 

Unfortunately, the project never bore fruit, with Fox stating that he didn’t have the time to work on it during the middle of the NBA season. In an interview, Fox said that he would be working on the collection in the future. However, he had to focus on his NBA career at that time. 

As of November 2022, action has yet to be taken on the project, and investors have claimed they never got their money back. 

Though not entirely a “rug pull” in nature, this one is in the “TBD” category.

Baller Ape Club – $2,000,000

Baller Ape Club looked like a legit NFT project when it was first released. Inspired by Bored Ape Yacht Club (BAYC,) it had a complete development team, a dedicated community, and plenty of investors supporting the project. The collection consisted of 5,000 NFTs that sold for a price of 2 SOL each. 

After the public mint, the dev team rugged the project. They deleted all socials and stole around $2 million of investor funds. However, the US Department of Justice (DOJ) has since taken the project’s founder to court. 

Le Anh Traun, a Vietnamese national, has been charged with conspiracy to commit wire fraud and international money laundering. Traun could face up to 40 years in prison as a result. 

Evolved Apes – $2.7 million

Evolved Apes was an NFT collection of 10,000 apes that would battle one another to win rewards. To attract investors, the founder, known as “Evil Ape,” created competitions in which investors could win NFTs and other rewards. However, once the project sold out, Evil Ape disappeared and deleted all accounts associated with the project. 

In total, $2.7 million was stolen, including funds that should have gone to the development team, marketing department, and artists. None of the competition winners were ever awarded their prizes, and the teams were never paid for their work. 

Evil Ape was never found.

Bored Bunny- $21 million

Bored Bunny was one of the biggest NFT projects of 2022 and gained celebrity endorsements from French Montana, Jake Paul, and Floyd Mayweather. The 4,999 NFTs sold out in hours, minting for 0.4 ETH. 

However, very quickly, in-house sources suggested that the founder was simply looking to steal investors’ money. Before launch, a dev wallet bought celebrity NFTs for additional profits, and after the initial launch, a second collection known as Bored Bad Bunny NFTs went on sale. 

After the second collection sold out, the floor price dramatically dropped, and the dev team went missing, stealing $21 million in the process. 

If this wasn’t bad enough, the remaining team released a third collection known as Bored Mutant Bunny, consisting of 3,000 NFTs selling for 0.25ETH. By this time, investors had realized the project was a scam, and it failed to sell. 

Final Thoughts: Rugpulls and Mass NFT Adoption?

Rugpulls pose a threat to mass NFT adoption. With NFT scams consistently making headlines, many investors are forgetting the practical benefits of NFTs.

Without an adequate solution addressing the disparate set of NFT exchanges lacking authentication tools, we’ll unfortunately probably see more rug pulls occur– this is why it’s incredibly important to do your research and not YOLO into unverified projects.

However, the NFT market continues to grow despite rugpulls and the negative press surrounding rugpulls. We shouldn’t let the high-flying conquests of a few malicious bad actors blind us to the good work many NFT collections are doing– even if it’s just bringing a community of like-minded crypto-savvy people together.

Can You Copy an NFT Onto a Different Blockchain?

Things can get a bit complicated when simply “copying” an NFT from one blockchain to another.

As a refresher, a blockchain is a decentralized collection of financial accounts across a peer-to-peer network. It’s used to confirm transactions without needing a central governing body, allowing users to make transactions without a third party. 

NFTs (non-fungible tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated. They come in the form of NFT art, music, in-game collectibles, and much more. 

Although someone can duplicate an image of an NFT, the code confirms the actual ownership of an NFT. Think of NFTs like a piece of art in a museum. Although the art can be replicated, the museum holds the official ownership rights of the original piece. 

Currently, the NFT market is dominated by Ethereum, with 95% of NFTs being on the Ethereum blockchain. However, many collectors are fed up with high fees and slow transaction times on Ethereum. 

As a result, alternatives such as Solana and Polygon are now becoming popular alternatives for collectors, with investors using bridge technology to transfer their NFTs from one blockchain to another. 

This article will look at how NFT ownership works, how to transfer an NFT onto a different blockchain, and how to use the ​​Polygon Bridge to transfer your NFTs. 

How Does NFT Ownership Work?

When buying an NFT, you acquire a token on the blockchain. You might experience this NFT as a picture of a monkey or something, but in essence, you own a string of programming. This token is unique and represents a particular asset. For example, if you purchased an NFT on OpenSea, you’d own a code that shows you own that particular asset. 

Once you own an NFT, you can use it commercially, for example, printing the art on a shirt or using the design in a video. However, this doesn’t stop other users from saving your image, with saving an image becoming a meme since 2021. 

Not all NFTs give you copyright and intellectual property rights, so checking the details before buying is important. 

How Do NFT Transfers Work?

Originally an NFT would stay on the blockchain it was purchased on. However, a new technology known as a blockchain bridge lets you transfer an NFT from one blockchain to another. 

A blockchain bridge, also known simply as a bridge, is software that lets collectors move NFT across blockchains. These third-party programs actively monitor blockchains to ensure a smooth transaction. 

For example, one such platform, NFTrade lets you move NFTs from one blockchain to another, with six blockchain networks to choose from. 

To start, set up an account and connect your wallet. 

Click My NFTs and choose the NFT you want to move from one blockchain to another. 

On the top right corner of the NFT page, click the three dots and select the new wallet you want to send the NFT to. 

Click Transfer NFT and verify the transaction to complete. You can then disconnect your wallet from NFT trade, and the selected wallet will now own the NFT. 

Another way to transfer NFTs across blockchains is through the Polygon Bridge. 

What is the Polygon Bridge?

Polygon Bridge is a cross-chain bridge between Polygon (formally Matic) and Ethereum that lets users transfer NFTs from Ethereum to the Polygon blockchain. Users can transfer all ERC tokens through a dual consensus procedure using this two-way bridge. This procedure uses a Plasma bridge and Proof-of-Stake bridge to complete the transaction and remain decentralized. 

How Does The Polygon Bridge Work?

When using the Polygon Bridge, no new tokens are created. Instead, tokens leaving a particular network are locked and minted through another network. The new token is then created, and the old one is burned. 

Here’s how you can use the bridge:

  1. Connect your crypto wallet (such as MetaMask) to the Polygon Web Wallet
  1. Sign your wallet through the extension
  1. You’ll be taken to the Polygon Bridge interface. Here you can choose your token (supported tokens include MATIC, ETH, ERC20, ERC721, ERC1155, and several others.)
  1. You’ll be charged a fee for this process which will change based on Ethereum traffic.
  1. If you want to transfer your NFTs back to their old blockchain, click “Withdraw” and choose the tokens you want to return to their old blockchain. 
  1. Once the transaction has been validated, your NFTs will be available to claim in your crypto wallet. 

Alternatively, you can also use the Plasma Bridge to transfer Polygon NFTs and transfer them to ETH, ERC20, or ERC721 tokens. Here’s how:

  1. Open MetaMask and click “Switch to Polygon.”
  1. Your Polygon details will show the Polygon network’s details.
  1. From here, head to the Polygon Bridge, click “Withdraw,” and repeat the process above. 

Three transactions will need to be validated when completing a transfer on the Plasma Bridge. 

The first is to withdraw an NFT from your Polygon Wallet. 

The second starts a 7-day challenge period, where an individual can challenge the transaction (this is for additional security.)

The third is to confirm sending your NFT to the wallet. 

Overall this process is more secure; however not as fast as the normal Polygon Bridge. 

However, some NFT holders may be a bit unsettled by the fact that their original NFT token is “burned” in order to create a new one.

Why Would You Copy An NFT Onto A Different Blockchain?

Although Ethereum dominates the NFT market, it’s far from perfect. One of the biggest issues with Ethereum is the transaction fees. Fees are extremely high, starting at $50-100+ per transaction, which is significantly higher than any other blockchain. 

In addition to this, the fees themselves can fluctuate dramatically. One day you may pay $50 for a transaction; the next, you could be paying over $150. This frustrates NFT collectors trying to budget or profit from their investments. 

Alternative blockchains such as Solana and Polygon have significantly lower fees. For example, the average cost of Minting an NFT in Solana is just 0.00001 SOL ($0.01.) Consequently, Solana and Polygon NFTs are growing in popularity, as shown by the growth in sales. Solana NFT sales volume hit an all-time high in the week ending Sept. 12, hitting almost $50 million (1.5 million SOL.)

Final Thoughts: Is Changing Blockchain Worth The Hassle?

As blockchain technology advances, so will the number of ways you can move an NFT onto a different blockchain. Currently, platforms such as NFTrade and Polygon Bridge are great ways to change blockchain. However, they can appear a little complicated for new investors. 

So, is changing blockchain the best option for you?

This will depend entirely on your reason for buying an NFT.

Changing the blockchain may not be worth the hassle if you’ve purchased an NFT to hold it for the long term. Instead, holding your NFT in its current wallet would be better, and hoping the value increases. 

However, if you frequently trade NFTs, then changing blockchain could help save you some money on network fees. It would also help speed up your transactions, letting you make more daily transactions. 

Before making a decision, make sure you do your research to understand the transfer process and avoid unnecessary fees. 

The Solsea NFT Marketplace Explained (Read Before Using)

More blockchain platforms are coming into existence, continuously evolving the Web3 world. Of course, each claims to be the best of its kind. But, unlike some, Solana’s blockchain network has much to boast about—particularly its NFT marketplace, Solsea. 

Solana addresses common Web3 challenges, making the blockchain’s secondary marketplace all the more appealing. For example, Ethereum faces high gas fees due to the prices of gas fluctuating concerning network congestion. Contrastingly, Solana is arguably the fastest moving blockchain. It has the tech to roll out more than 20,000 transactions per second (TPS) at peak load, eliminating congestion issues entirely. 

Thus, purchasing Solana NFTs on its very own marketplace is the way forward for cheaper mints and purchases. 

But what other perks does Solsea have, and how can the secondary marketplace benefit you? 

What is Solsea? NFT and Secondary Marketplace Perks 

To better understand Solsea, grasping the concepts behind NFT marketplaces is vital. Like an art exhibition in the physical world, NFT marketplaces are galleries in the digital world. But instead, each marketplace is a hub for people to auction or buy their favourite digitized content. 

Thus, creators can make money directly from their work, and collectors can own a rare piece of content that they solely own.

Think of it like an art gallery that doubles as a 24/7/365 marketplace for art. 

The use cases of NFTs showcased on the marketplace are endless. Some include crypto domain name ownership, real estate, identification and documentation, and even real-world assets. You can find anything you want in a digital asset on such marketplaces at contrasting prices. Your most-loved celebrity may even own the NFT collection you have your eye on. 

But what makes Solsea unique compared to others?

In contrast to OpenSea, which accepts the cryptocurrencies Ethereum (ETH), Klatyn (KLAY), Polygon (MATIC), and Solana (SOL), Solsea only accepts SOL and a few FIAT currencies (USDC and USDT) for transactions. 

Minting costs also change depending on which marketplace you use. As you may have experienced firsthand, an ETH-based marketplace like OpenSea charges an arm and a leg to mint NFTs.

Solsea is hailed for its cheap experience, but again, the only NFTs available here are based on SOL. 

On top of fees during the minting process, OpenSea also takes a 2.5% profit once an NFT sells, whereas Solsea charges a 2% fee after each successful purchase. 

Other advantages of Solsea include: 

  • Airdrops for upcoming projects
  • Participants can schedule NFT drops ahead of time to avoid missing project launches
  • The first-ever NFT marketplace that enables curators to select and incorporate their licenses while minting NFTs
  • Ahead of the chain for embedding copyright-licenses into NFTs during the minting process
  • A straightforward and easy-to-use interface for uploading NFT collections 
  • Each fully verified and minted Solsea NFT highlights trait statistics and rarity ranks
  • Curators can list their NFTs for sale to the public or privately for more exclusive or more comprehensive purchases

Another plus is that Solsea handles creators’ royalties. When minting an NFT on Solsea, curators can set the percentage of royalties they want to receive (e.g., 10%). Therefore, each time an NFT sells on the secondary marketplace, you can receive a percentage of the royalties set by the current owner. 

How to Join Solsea 

If the above perks appeal to you, take a look through Solsea for yourself.

First, create a Solana wallet on Phantom–buying, storing, or trading NFTs on Solsea is impossible unless creating one. 

Upon following the straightforward guidelines shown on the site to create your wallet, you can deposit your Solana tokens. Make sure you have at least 0.2 worth of SOL in your account; otherwise your wallet will show as being invalid. 

Whether you want to be an NFT curator or to join the marketplace for buying and selling purposes, you must create a Solsea account using a valid email address and private password. 

Write down your login information and tuck it away out of reach of hackers.   

Solsea Minting Tips

Hurrah, you now know the basics for creating a Solsea account. Now it’s time to create your own personal NFT collection held on the Solana blockchain

Solsea can be a bit challenging for crypto novices and first-time curators; but don’t get overwhelmed by the buzzwords or confusing features. Here is some advice and potential hurdles you may face while minting your NFT collection: 

  • Be prepared to connect your Phantom wallet to your Solsea account due to being locked on for security purposes. Keep your login information within reach to save time
  • Describe your collection of NFTs as thoroughly as possible while using few words due to the description section having a tight word limit 
  • Be aware of no bulk option if wanting to create multiple NFTs in one collection. Mint each NFT individually if wishing to switch up the artwork
  • Patience while minting your NFT is necessary. The process takes a hot second, especially if your computer power and Wi-Fi signal isn’t the speediest
  • Be prepared to lose a little bit of SOL if uploads fail. But fear not, each transaction roughly costs around $0.075
  • Free up some time over the platform requiring 3 transactions—2 for minting (approve, wait, approve), and 1 for setting the price. Each transaction is nonsensical regarding Phantom’s approval system. You will also be unsure how much the transaction fee will be until the minting process is complete. Although, don’t let this put you off—minting charges are never too steep 
  • You cannot set the price during the minting process. Instead, once successfully minting your NFT, go to your Phantom wallet, click the second tab not in focus by default that shows your NFTs, then click the list button
  • The combination of the three transactions costs approximately $2 total per NFT. Reasonable prices compared to Ethereum, which typically charges around $70-$100 when minting for the first time 

As you can see, Solsea has a few kinks that need ironing out. However, now that you have the know-how to mint your very own collection and overcome potential issues, the process should be relatively straightforward. 

Buying and Trading Advice—Happy NFT Hunting

So, let’s figure out how to use the secondary marketplace wisely to get the most bang for your buck.

On the main page of the Solsea platform, you can see important information about the platform and featured collections. You can easily filter out projects to find a collection that best suits you. You can find it all when looking for music, art, photography, gaming, virtual, or utility NFTs. Other filters include price, rank, likes, views, categories, licenses, and rarity ranks.

With that said, once finding an NFT you desire, you can check out the history of the digital assets, including its sales history and price, before deciding whether or not it is a good investment or a reasonable sale. 

Once reviewing all information, click “Buy NFT” and confirm the transaction in your Phantom wallet. You will now own an NFT, which is viewable in your profile and the “Collections” section of your wallet. Although, it’s critical to note that Solsea is not 100% clear of imposter collections. It’s wise to join project community channels on Discord, Twitter, and Telegram to help notice suspicious activities. You can also voice concerns to other community members and project management on such sites.

How Much Does Minting an NFT Cost?

Bull or bear market, 2020 and 2021 will forever be cemented in NFT history.

Reports have shown that NFTs garnered the most profit ($17.7 billion) in the crypto space in 2021 – the market exploded by over 20,000 percent from the year prior. The total value of transactions jumped from $82.5 million to over $17 billion. 

However, the times are changing– namely, the technology behind NFT platforms and various mechanisms is improving significantly. 

Today, we’re going to explore NFT minting– how much does it cost to mint an NFT today, and how will this be different in years to come? Read along as we explore what “minting” an NFT is and more. 

What Does Minting an NFT Mean?

A common misconception about NFTs is that people often confuse minting NFTs with buying NFTs. There’s a fundamental difference. Minting an NFT means creating something completely new on the blockchain. 

It’s ‌converting a digital file into a digital asset that lives on the blockchain, whether that asset is digital art, music, or collectibles like sports and trading cards. However, it’s not like the blockchain is hosting the files for the NFT itself– that would cause the blockchain to become incredibly bloated and inefficient.

Remember, an NFT is just a token; this token represents the ownership of a specific digital asset. It’s not the screenshot of the Bored Ape Yacht Club that’s valuable; it’s the token. 

Minting an NFT means publishing your unique token on a blockchain to make it purchasable by other people. 

NFTs are minted on a blockchain. Ethereum’s blockchain is very popular for minting NFTs, including Solana, Cardano, Tezos, and more. 

You can buy NFTs on a marketplace like OpenSea– and sometimes, these platforms will also allow creators to mint their NFTs. 

However, many projects will first launch on a third-party site dedicated to the minting of the project; the fees you can expect to pay are usually only those for the network, which can be a princely sum themselves.

How Much Does OpenSea Charge for Minting NFTs?

OpenSea is the most popular NFT marketplace. Primarily for Ethereum-based NFTs, OpenSea announced the addition of Solana NFTs to their marketplace in Q1 2022. 

OpenSea requires users to pay two fees before minting their digital assets on the platform. These minting prices aren’t fixed: they can be higher or lower depending on the function you seek to perform. 

The first fee you’ll pay as a first-time creator is used to initialize your account. As of April 2022, this fee typically costs $70 to $300

The second fee used to grant access to your account costs $10 to $30. 

You can avoid high gas fees if you spot days when gas fees are lower using tools like Etherscan

Then, OpenSea charges 2.5% for first-time sales of your minted NFT– it’s a multi-billion dollar company for a reason. 

How Much Does Rarible Charge for Minting NFTs?

With ‌400,000 NFTs created and 1.6+ million users, Rarible is another of the most popular NFT marketplaces globally. 

Most users choose Rarible over other platforms because it is a multi-chain platform, has easy-to-use tools, a decentralized governance system that’s more advanced than what you’ll get on most platforms, and a flexible royalty management system that allows creators to set up to 50% royalty fee.

Minting on Rarible is straightforward compared to other NFT marketplaces. The platform itself doesn’t charge a minting fee. You have to pay the gas fee for minting on three different blockchains available in the marketplace (Ethereum, Tezos, and Flow).

After paying the gas fees required for minting, Rarible charges a 2.5% fee for every NFT buy and sell transaction.

What Are Gas Wars and How to Avoid Paying High Gas Fees when Minting

If you’re active in the NFT space, “gas wars” are something you may have sweaty nightmares about. Gas, or the computational power needed to verify transactions on a blockchain network, can often cost hundreds, if not thousands, of dollar-worth of Eth.

Since “minting” an NFT to the blockchain is a much more computationally-heavy process, the network charges more than typical transaction fees. 

A gas war is an auction to get front row seats in an upcoming block of transactions to be validated on the Ethereum blockchain. If there is a surge in the number of people waiting for their transactions to get validated, the price gets too high, which triggers a scuffle.

Almost like a bidding war, people pay more so they can get their transactions processed quicker, ‌driving the transaction costs up. Gas wars are the main cause of high transaction fees on the blockchain. They’re prevalent on the Ethereum network, ‌infamous for its performance and scalability setbacks.

To avoid paying high gas fees, ‌learn how to track gas fees. Etherscan’s Gas Now is a handy tool that can help you to minimize gas prices.

How to Mint an NFT for Free on the Blockchain

Popular marketplaces like OpenSea and Rarible allow you to mint NFTs for free on the platform.

Recently, Rarible announced that you could mint for free on the platform (yes, no gas fees). The downside is that your asset goes on the Rarible collection and not your collection. This means Rarible has more control of your digital asset, and also, the buyer pays for your minting fee.

You can also mint for free on OpenSea. The new collection manager launched in December 2020 introduced a lazy minting feature, allowing creators to list NFTs paying no gas fees until they make the first purchase. Since the NFT isn’t transferable on-chain until they purchase, creators can list without paying a dime.

However, this is not applicable for first-time listing. If this is your first time listing on OpenSea, you still have to pay the gas fees needed to initialize your account.

The Polygon network also allows creators to “mint NFTs for free at the speed of light.” All you have to do is connect your Polygon account, upload your digital art, select the Polygon network during the minting process, and you’re good to go.

Final Thoughts: What to Expect for NFT Minting in the Future

Although the NFT market went ballistic in 2021, the 2022 bear market has many reconsidering their sky-high purchases.JPEGs– if not at least the hundreds or thousands of dollars they spent on gas fees to simply purchase the art. 

In this article, we learned what NFT minting is, how to mint your project on popular marketplaces, and avoid paying very high gas fees. 

However, increasingly more creative and consumer-friendly innovations are being built to make the creation and selling of NFT art a much more profitable endeavor. 

Layer-1 vs. Layer-2 Blockchains: What You Must Know

Bitcoin did the heavy lifting of creating a peer-to-peer decentralized and tokenized financial network. One person can send another person halfway around the world $1,000,000 in BTC for a paltry $20, sometimes even as low as a dollar and change. 

The problem is that microtransactions, such as sending a friend $4 for a cup of coffee, cost the same. 

Similarly, Ethereum created an entire galaxy of possibilities for DeFi, NFTs, and other decentralized applications. However, the breadth of its value has also been one of its detractions– as network gas fees skyrocket in times of extremely high traffic, making using the network ludicrously expensive for users and developers alike. 

CryptoKitties, an early sensational NFT game, nearly ground Ethereum’s network activity to a halt in 2018 due to the throng of transactions. Even today, gas fees can be hundreds or thousands of dollars to mint a new Ethereum-based NFT. 

However, problems are usually followed by problem solvers. Hundreds of developers have dedicated their professional lives of late to either building decentralized apps to help scale projects like Bitcoin or Ethereum or creating more scalable networks from the ground up. 

Layer-1: The underlying blockchain architecture. For example, Bitcoin and Ethereum.

Layer-2: A network that sits on top of Layer-1, which facilities network activity. For example, the Lightning Network and Raiden Network.

The following Layer-1 vs. Layer-2 blockchain guide explores both approaches and how they contrast. 

Layer-1 vs. Layer-2 Blockchains: The Basics

Layer-1 updates usually involve consensus protocol changes or sharding

As you may know, Bitcoin and Ethereum use a gawky but effective consensus protocol called Proof-of-Work (PoW). It’s good at what it does because it works. However, as network activity grows, its limitations become unbearable for many. 

PoW requires miners to solve cryptographically-difficult equations via computational power– hence Bitcoin mining facilities that are just warehouses with specifically designed computers running 24/7/365

At times, transactions can take way too long for convenience’s sake and become very expensive. Bitcoin can manage about seven transactions per second, whereas Ethereum can do 15-20. 

Proof-of-Stake (PoS) is a relatively newer protocol; rather than computation power, it relies on people (validators) staking a certain quantity of holdings to validate transactions.

Changing consensus algorithms can be a divisive ordeal, and switching from PoW to PoS on a network as large as that of Bitcoin or Ethereum would require achieving agreement among the majority of participants, which can be extremely difficult. 

Sharding is another Layer-1 scaling strategy. Sharding breaks transaction sets into smaller chunks called shards, which the network can process at a much faster rate. Think of cutting a PBJ sandwich into small pieces (shards) versus eating it bite by bite. Each small piece you eat is a finalized transaction, whereas the latter approach would require the whole sandwich to be eaten before the transactions are final. 

Attempting to implement scalability measures on a Layer-1 blockchain would require a full or partial network update, which is a slow and contentious process; if things go sideways, the entire network could face enormous damages. 

Many projects have been launched to provide users the scalability that the more legacy cryptocurrency projects have struggled to do. 

For example, chains like Solana, Cosmos, and Cardano (yet to launch anything) have emerged in attempts to unseat Ethereum as the most popular blockchain network for dApps, primarily targeting its scalability issues and low-hanging fruit. 

The user experience tends to be much faster and cheaper on the newer Layer-1s– transactions on Osmosis, a decentralized exchange built on Cosmos, cost around a penny. In contrast, the Ethereum DEX UniSwap can cost dozens or hundreds of dollars. 

However, the opportunity to scale the world’s most popular Layer-1s instead of launch new ones from the ground up is an admirable and lucrative challenge accepted by many. 

They do so through Layer-2 blockchain innovation

Layer-2: Attempts at Scalability

Layer-2s are essentially sandboxes for creativity with minimal or zero disruption to the underlying network.

There are two types of Layer-2 blockchains: state channels and nested blockchains.

A state channel allows for two participants who would otherwise interact on the blockchain to interact off the blockchain, limiting the congestion of the network. 

Imagine Bitcoin’s or Ethereum’s blockchain as a 10-lane superhighway with bumper-to-bumper traffic. A state channel would be the back-road approach you could take to avoid driving into a slow, expensive network and get to your end destination at a fraction of the time and cost. 

Here’s how state channels work: 

  1. A blockchain segment is sealed off through a smart contract or multi-signature means, where all participants agree on the conditions. Lightning Network and Raiden Network used Hashed Timelock Contracts (HTLCs) for their state channels. 
  2. The transaction participants can then directly interact without needing to submit their request to the miners on the Layer-1. 
  3. When all the transaction sets on the state channel are complete, the final state is added to the blockchain. 

So, while a transaction is technically not “final” until added to the blockchain, state channel projects like Bitcoin’s Lightning Network and Ethereum’s Raiden Network effectively carry out the role of policing and verifying transactions. 

The idea is that these “batched” transaction blocks can effectively internally settle; when they do, the entire batch is added to the blockchain. As such, Lightning Network enables fast microtransactions (low fees, fast settlement), and Raiden does the same thing for Ethereum’s broader functionality. 

However, state channels have some limitations. 

Nested blockchains aim to increase scalability exponentially, whereas state channels are more linear. 

Ethereum is a popular breeding ground for decentralized apps to solve scalability issues. OmiseGO, for example, is experimenting with a nested blockchain scaling solution called Plasma. 

In Plasma, multiple levels of specific-use blockchains sit on top of the leading blockchains in parent-child connections. The parent chain then dedicates specific work to child chains, such as a social network or decentralized exchange.

The root chain still calls all the shots and sets the ground rules, but nested blockchains relieve some load. 

Final Thoughts: What You Should Know About Blockchain Scalability

While the differences between Layer-1 and Layer-2 solutions might seem exclusively technical, it’s worth considering that by collecting NFTs, holding tokens, and using dApps, you’re the direct stakeholder in the whole ordeal. 

While Ethereum enjoys a considerable first-mover advantage for NFTs (and DeFi), boasting multi-billion-dollar dApps like OpenSea, competitors are gaining on its tail. 

As an NFT investor or creator, being aware of broader industry trends like scalability is an excellent way to keep your ear to the ground, whether that be for the purpose of finding the next BAYC (on another chain) or creating the next homerun NFT brand for a diehard layer-1 alternative.