Why Smart Contracts?

Ever thought about buying or selling a house without paying the middle-people?

In one of the many innovative use cases, a smart contract can be used to automate the sale of a house. The contract could be programmed to release the funds to the seller once the buyer has transferred the purchase price and the title has been transferred to the buyer.

Smart contracts have the potential to revolutionize the way we interact with the world around us. They can help to reduce costs, improve efficiency, and increase transparency. Smart contracts can also be used to create new and innovative products and services.

What Are Smart Contracts?

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They are stored on a blockchain, ensure transparency and immutability. Smart contracts eliminate the need for intermediaries, such as lawyers or notaries, as they automatically execute actions when predetermined conditions are met.

Smart Contracts are Building Blocks of Web3

Smart contracts are one of the key building blocks of Web3, the next generation of the internet built on blockchain technology. Web3 is a decentralized web where users have more control over their data and privacy. Smart contracts are used to power a wide range of Web3 applications, including decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse.

How Smart Contracts Work?

Smart contracts are written in programming languages such as Solidity and Vyper. Once deployed on a blockchain, smart contracts cannot be changed or deleted. When a condition in a smart contract is met, the contract is automatically executed.

Different components of a smart contract and how they interact with each other:

• The contract code: This is the code that defines the terms of the contract.

• The state: This is the data that is stored on the blockchain and that is used to execute the contract.

• The functions: These are the actions that the contract can perform.

• The events: These are the notifications that the contract emits when it performs an action.

Current Ecosystem

• Number of active smart contracts on Ethereum has grown from 1 Million in 2019 to over 10 Million in 2023.

• Total value locked in DeFi protocols has grown from $1 Billion in 2019 to over $37 Billion in 2023 (as-of Oct 20, 2023)

• NFT market grew from $100 million in 2019 to over $40 Billion in 2023

  • Sources: DappRadar               DefiLlama               NonFungible

Top Use Cases

1. Decentralized Finance (DeFi): Smart contracts are the backbone of DeFi, allowing for decentralized exchanges, lending platforms, stablecoins, and yield farming. Examples include Aave, Compound, and MakerDAO.

2. Non-fungible Tokens (NFTs): These unique digital tokens represent ownership of a specific item or piece of content. NFTs have become popular for digital art, collectibles, and even real estate.

3. Decentralized Autonomous Organizations (DAOs): DAOs are organizations run through rules encoded as smart contracts. They allow for decentralized governance and decision-making.

4. Identity Verification: Systems like uPort or Civic use smart contracts to provide self-sovereign identities, allowing users to control their personal data and how it's shared.

5. Supply Chain and Provenance: Brands like De Beers use smart contracts to trace the origin of diamonds, ensuring they are ethically sourced. Similar concepts are applied in food safety, luxury goods, and more.

6. Real Estate and Asset Tokenization: Property sales, rentals, and fractional ownership can be automated and secured using smart contracts.

Top-20 Smart Contracts

Here is a list of the top 20 smart contracts by total transaction volume in USD and total value locked (TVL) in USD in 2023, broken down by blockchain.

Sources:               DappRadar                DefiLlama

Please note that this list is based on publicly available data and may not be completely accurate. Additionally, some smart contracts, such as Axie Infinity and OpenSea, do not have a TVL, as they are not DeFi protocols. We included both Ethereum and Binance smart chain.

Conclusion

As the blockchain ecosystem evolves and matures, the applications of smart contracts are expected to expand dramatically, touching almost every industry. However, it's essential to be aware that the widespread adoption of smart contracts will also depend on resolving existing scalability, interoperability, and regulatory challenges.

What is Web3?

Web3 is the next evolution of the internet. While Web1.0 was about static content and Web2.0 was about interactive content, Web3 is about decentralized and trustless transactions. It's powered by blockchain technology, which allows for peer-to-peer transactions without the need for intermediaries.  It is a decentralized web where users have more control over their data and privacy. Web3 applications (dApps) are not controlled by any single entity, but rather by the users themselves.

What is a Crypto Wallet?

A crypto wallet is a digital wallet that stores your cryptocurrencies and tokens. It is similar to a traditional bank account, but instead of fiat currency, it stores digital assets. Crypto wallets use cryptography to secure your funds and prevent unauthorized access.

It contains a pair of cryptographic keys: a public key, which is used to receive funds, and a private key, which is used to sign transactions and access your funds.

How to get started with Web3 and Crypto Wallet

To get started with Web3, you will need to create a crypto wallet. There are many different crypto wallets available, both software and hardware wallets. Some of the most popular crypto wallets include:

• MetaMask  (a browser extension)

• Coinbase Wallet (a mobile wallet)

• Trust Wallet (a mobile wallet)

• Ledger Nano (a hardware wallet)

• Trezor ( a hardware wallet)

Once you have created a crypto wallet, you will need to fund it with cryptocurrency. You can do this by purchasing cryptocurrency from a cryptocurrency exchange or by receiving cryptocurrency from someone else.

Once you have funded your crypto wallet, you can start interacting with Web3 applications. To do this, you will need to connect your wallet to the dApp you want to use. This can usually be done by clicking on a "Connect Wallet" button on the dApp's website.

Key Advantages:

• Decentralization: No central authority controls your funds. This makes it more secure and resistant to censorship.

• Transparency: All transactions are recorded on a public ledger.

• Security: Cryptographic principles ensure the security of transactions.

• Privacy: Web3 and crypto wallets give users more control over their data and privacy.

• Global and Fast: Transactions can be sent and received globally in minutes.

• Financial inclusion: Web3 and crypto wallets can be used by anyone, regardless of their location or financial status.

Key Risks:

• Loss of Private Key: If you lose your private key, you lose access to your funds. Period!

• Phishing Attacks: Scammers might trick you into giving away your private key.

• Volatility: Cryptocurrency prices can be highly volatile.

• Regulatory Uncertainty: The legal status and treatment of cryptocurrencies can change.

Regulatory Compliance:

Regulatory compliance varies by country. Here are some general points:

• Know Your Customer (KYC): Many exchanges require users to verify their identity before trading.

• Anti-Money Laundering (AML): Regulations to prevent illegal activities.

• Taxation: In many countries, cryptocurrency gains are taxable

• Securities Laws: Some tokens might be classified as securities and are subject to specific regulations.

It's essential to be aware of and comply with the regulations in your jurisdiction.

Conclusion

Web3 and crypto wallets offer a number of advantages over traditional financial systems. However, it is important to be aware of the risks involved before using Web3 or a crypto wallet. It is also important to do your research and choose a reputable crypto wallet provider.

Disclosure

If you still guessing, my three assistants were GPT-4 from OpenAI, Bard from Google and Firefly from Adobe!

Summary

After a brutal cryptocurrency summer, let us take a look at where NFTs stand now. CryptoSlam shows 188,300 buyers spent $110 M on NFTs over the past 7 days. This meant, NFT sales down a bit (- 1.8%) compared to last week. Two of the most noticeable trends were the emergence of Ethereum Naming Service (ENS) as the leader based on highest 7-Day Trading volume on OpenSea and the emergence of Solana based NFTs and Marketplaces like MagicEden.

Leaders

• Solana NFT marketplace doubled (+116%)

• Otherdeeds rocketed (+81%)

• NBA TopShot made it to the Top-10 with +40%

• Flow sales up by +25%

• Crypto fan token sales up 0.5%, with $2B in sales

• ENS made it to the TOP of the OpenSea on a 7-Day Trading Volume ($3.6M +113%)

Laggards

• BAYC sales tanked (-42%)

• CryptoPunks was down by -26%

• Moonbirds was down by -66% and dropped out of TOP-10

• Ethereum and Polygon sales are down -22% and -19%, respectively

Highest-selling NFT projects:

• y00ts mint t00b: $7.5M (new drop)

• Otherdeed: $6.4M (+81%)

• Sorare: $6.1M (+9%)

• Bored Ape Yacht Club: $6M (- 42%)

• Ethereum Name Service: $3.6M (+113%)

Key Trends: and rise of Solana

• Crypto Domain Names ENS is top on OpenSea, in terms of 7-day trading vol, beating BAYC, CloneX, and Moonbirds.

  • To date, over 2.2 M ENS names have been created amongst 546K unique users.

  • Last 7 days, ENS had 2,565 ETH ($4 M) trading volume on OpenSea. ENS was followed by:

    • BAYC’s 1,934 ETH ($3 M)

    • Otherdeed 1,767 ETH ($2.8 M)

    • CLONE X’s 1,353 ETH ($2.1 M)

    Rather than use long hex strings (i.e. “0x0CCfA1c…”)  for addresses Web3 DNS providers enable users with human-readable names e.g. “abc.eth” or “xyz.crypto”

    DNS providers have integrated with leading wallets, exchanges and dApps including Metamask, Rainbow, Brave, Opera, Trust, 1inch, Moonpay etc.

• Rise of Solana Solana-based NFT marketplaces e.g. Magic Eden and Metaplex reached $115 M on Sept. 6. Magic Eden, a Solana-based NFT marketplace has increased its market share of the overall NFT market to 36.6% as of Sept. 7 within a week.

  Lower costs to mint and trade has been the biggest drivers. Note: Magic Eden charges no fee to mint but only 2% in trading fees.

 “y00ts mint t00b” collection had $9.6 million in secondary sales in September.

Source: Block Research

Weekly Trading Volume by Chain for last 3 Months from CryptoSlam.

Detailed Analytics

• According to DappRadar, here are the Top-10 NFT Collections for the last 30 days (Aug 11 - Sep 10, 2022) by Trading Volume. This provides overall standing.

• According to analytics site Lunar Crash, ENS is 3rd in Market Cap and fourth in Social Dominance and mentions. This adds Social engagement of the NFTs.

• ENS Dashboard is a tracker by developer Nick Johnson, shows that over last days (Aug 10- Sep 10, 2022) there were 392K registrations and 38K Renewals.

Some hot purchases:

• July 2022, “000.eth” was bought at 300 Ether (ETH), which was worth around $320,000 at the time of sale

• “Samsung.eth” and “Starbucks.eth” were sold for 60 ETH (~$90K)

• Some anonymous buyer placed a bid of $1 M for the ENS Domain “Amazon.eth”

Price Action

ENS has outperformed ETH over the past 3 months by more than 40%.

ENS - Price Action available HERE

The token is down -81% from ATH (all time high) and +108% from ATL (All time Low)

Conclusion

Few weeks back I wrote about Rental NFTs and the NFT usage evolution from vanity to utility. There are distinct signs of that migration. The first signal is, in spite of BAYC tanking (imho a Profile Picture vanity use case), the OtherDeeds (presents a potential utility use case with land) has surged. But a much more compelling use case is The Web3 Domain name. A surge in trading volume of Web3 domain names (something which many, many users can use and also at a much more affordable price) is a strong indication of an up and coming migration to real life and practical NFT utilities.

A key building block to this migration has to be lower cost of minting and trading. The rise of the Solana based NFT ecosystem is a key testimony towards that. The cheaper it gets, more utility demand will follow and vice versa!

Sources:  Forbes ,  CryptoSlam.io,  CoinGecko,   BoardRoom, Cointelegraph, DappRadar

In this post, I will be discussing a lesser known capability with NFTs - the ability to rent NFTs using EIP-4907, a new standard. This standard and capability has the potential to drive up a whole new economy within GameFi and beyond.

Opportunity

• Gamefi is currently estimated at $21B+ and overall gaming industry is at $178B+.

• As Blockchain games evolve, NFTs will be a huge part of this for reasons like true ownership, provenance and interoperability.

Pain

• According to OpenSea, as of Aug 21, 2022, Floor Price of a BAYC NFT is 70 ETH ($114450) or a Decentraland LAND 1.55 ETH ($2535) . This is clearly out of the reach of regular person or a young gamer!

• How do we get to a much cheaper solution like being able to “Rent and use an NFT”. My contention is, as we migrate from Vanity usage (e.g. I own this ultra-expensive Profile Picture and nobody else does) to Utility usage (can I rent a Tuxedo to attend this party over the weekend?) the need for NFT Rental is a must-have and not nice-to-have.

• The current mechanism of renting NFTs is based on trust (there is no built-in mechanism), expensive (requires multiple transactions with Smart Contracts), and cumbersome to implement.

Enter ERC-4907

• On June 28, the rentable NFT standard "EIP-4907" submitted by the NFT rental marketplace Double Protocol , passed the final review by the Ethereum development team

• It became the 30th ERC standard with the status of "Final".

Stated in simple terms:

• NFTs are allowed to have additional role (user)

• User role is automatically revoked after a defined time (expiration)

• Renter (user) can use the NFT but cannot transfer it

• Expiration sunsets rental period automatically and eliminates a second on-chain transaction thereby making the process much less expensive

• Baking it into the standards simplifies third-party integration process. Checkout some implementations in the reference section

Evaluating a Real-Life Implementation

We decided to test-drive the current implementation from Double.

Double rental Marketplace

It seems we can rent domains from ENS or land from Decentraland.

Decentraland Rentals

NewtonsAppleTree

We decided to dive into Decentraland and try renting the plot Newton’s AppleTree

Rental Price of Land Parcel

It seems I can rent it for 0.0015. Much more affordable than having to own it!

Decentraland Rental Purchase

We decided to rent this for a duration of 2 days.

Metamask Purchase Details

The transaction was submitted and had to go through my MetaMask.

The rent was $4.91 but the gas fees was $9.82. Ouch!!!

Purchase Fee Details

The transaction finished and I was able to see it in my wallet.

Metamask ImportRental

Also tried to import it in my Metamask Wallet.

Decentraland MarketPlace LandDetails

Also had this urge to view this is Decentraland MarketPlace

We could find it in the marketplace by looking up the land coordinates and turning off the not for sale filter.

Decentraland Metaverse Rendition

Being a proud renter, I had this urge to go to the land parcel and take a selfie in front of it.

Road Ahead

First things first

• As we go through the mechanics, it should be stated that the process was somewhat involved and only early adopters would have the patience or expertise to wade though this. It requires significant usability simplification!

• The bigger unknown is what are the common use cases with this rented land? What will happen to any build-out, decorations etc. that we do to the rental land? Will those automatically disappear and taken away from the renter? What is the “cleanup” process?

• Talking about Cleaning up - The rentals did not disappear from my MetaMask wallet after the rental period of two days was over!

• We need to explore other rental artifacts like ENS or Warena!

Longer term

Play-To-Earn (P2E) in blockchain games will be another use case which can reduce the barrier to entry for most players.

As NFT use cases become more mainstream a need for a standards based, risk-free and inexpensive renting will become critical. Many web3 subscription business models will emerge based on a safe renting mode. Think beyond GameFi and real-life like subscriptions!

In simpler terms, NFT rentals will pave the way for NFTs to emerge as day-to-day utility from the fringe that it is today.

References

Market Estimates

• GameFI and Gaming Market Estimates

Companies

• Double Protocol

• IQSpace

Standards

• EIP-4907

• ERC-4907 - A blog from IQSpace

• Announcement from Double Protocol

• Ethereum token standards and composability

  If you are like me and swimming in all these ERC standards, this Twitter post chain might help:

  https://twitter.com/SalomonCrypto/status/1553982842232717313/photo/1

Implementations

• Reference Implementation

• TestSuite

• Code Level Introduction of ERC-4907

How do we evaluate Blockchains based on Profits?

Basic definition: Profits = Income - Expense

For Blockchains:

• Income can be modeled as fees brought in per day / month / quarter

• Expense can be modeled as issuance per day / month / quarter

Blockchains earn revenue from transaction fees while their costs are what they pay for security via issuance. On the other hand they issue tokens to incentivize validators to keep the blocks secure.

Definition for Blockchain : Net Profit = Transaction fees (in $) - Issuance (in $)

How many Blocks are produced? Bitcoin produces blocks every 10 minutes with 1 MB of transactions.  Ethereum produces blocks every 15 seconds with 80 KB of transactions which is 4 MB every 10 mins.

How do we measure value?
Money movers provides this excellent tracker showing that Ethereum settles $20B per day and Bitcoin settles $13B per day.

How do we track fees?

Cryptofees.info can come to the rescue. Check out their site below. 7-Day average for Ethereum is $24B while Bitcoin is only $623M

How do we track Issuance?

MoneyPrinter.info tracks this. Ethereum is paying $46M per day and Bitcoin at $40M

Summary

Ethereum is raking in nearly $13M in transaction fees every day. However it is distributing $36M in ETH per day in issuance to miners. As such, Ethereum is currently operating at a -64% loss.

Bitcoin is still operating at a -98% loss. The network is far from operating at breakeven. Building a profitable blockchain business is not easy!

Profit margins for each blockchain is captured below:

Conclusion

As a smart contract platform, Ethereum has created a set of ecosystems - from DeFi to NFTs, there are whole set of applications developed which will enable revenue to scale. Bitcoin on the other hand has only one use case - moving money. Ethereum can transmit money, exchange tokens, help take out a loan, collecting digital items and many other use cases.

So in the longer run Ethereum will emerge as one of the most profitable blockchain.

Attribution:

This is a much smaller and hopefully simpler version of the original article from Bankless linked below:

https://newsletter.banklesshq.com/p/the-first-profitable-blockchain?token=eyJ1c2VyX2lkIjo2NjIxMzkyMCwicG9zdF9pZCI6NTEzMzYyMTIsIl8iOiJpRkxkcyIsImlhdCI6MTY0OTI4MjAxNCwiZXhwIjoxNjQ5Mjg1NjE0LCJpc3MiOiJwdWItMTYwMTUiLCJzdWIiOiJwb3N0LXJlYWN0aW9uIn0.26JgG84GX6-13myInNbDA6CsQ2jc3v_into9ooSsGas&s=r