Could Flow Become the Biggest Blockchain for NFTs?
NFTs are huge, but it's unclear whether Ethereum's infrastructure can keep up with demand. Here's why NFTs might have a brighter future on the Flow blockchain.
Updated Jun 1, 2022
Many companies on MoneyMade advertise with us. Opinions are our own, but compensation and in-depth research determine where and how companies may appear.
Non-fungible tokens (NFTs) exploded in popularity over the past year, with some of the biggest projects like Bored Ape Yacht Club hitting the market. The Ethereum blockchain is the top network for NFT marketplaces and collections, but the blockchain's limitations were clear when CryptoKitties—one of the first NFT collections to exist—was created in 2017. The network traffic generated by CryptoKitties caused so much congestion on the Ethereum network that transaction fees went up and network upgrades had to be rapidly implemented.
Today, Ethereum still suffers from high transaction costs and limitations to the number and size of applications the blockchain can handle—as we saw when the BAYC metaverse land sale caused chaos on Ethereum.
...Flow was able to quickly forge partnerships with big companies and appeal to a broader consumer base.
Rather than be complacent about the scaling difficulties of Ethereum, the creators of CryptoKitties decided to create a solution by developing their own blockchain. That project became the Flow blockchain, and here's everything you need to know about it.
What is Flow?
What is Flow?
Flow is a smart contract blockchain created by Dapper Labs for minting NFTs and hosting NFT marketplaces. Flow uses an open-source proof of stake consensus mechanism called HotStuff and the network is secured using a multinode architecture. This means that rather than just having validators process transactions, make computations, and store the decentralized ledger, these responsibilities are divided among five different types of nodes each with a different role.
FLOW is the native coin and utility token of the Flow blockchain, and it's used for paying transaction fees, staking, and buying storage space for hosting decentralized applications (dApps). There's a total supply of approximately 1.37 billion FLOW with about 1.04 billion currently in circulation. FLOW crypto also plays a role in the governance of the Flow blockchain by way of voting on members of a representative council.
The representative council is tasked with proposing and implementing ecosystem decisions, protocol parameters, and network upgrades. All decisions regarding the Flow blockchain are made publicly by the council, but FLOW stakeholders can vote to replace council members or veto specific decisions made by their representatives.
How does Flow work?
How does Flow work?
Despite the inflation of FLOW as more coins are minted to incentivize validators, Dapper Labs deliberately capped the inflation rate and made it so that less FLOW will be created as the Flow blockchain gains more users and the network fees increase. Since the Flow blockchain is young, FLOW inflation is higher to incentivize staking and increase adoption, but if transaction fees exceed the amount needed to distribute to validators, then this surplus will be held in escrow and be used to offset future inflation.
The Flow blockchain consists of five node types, the first of which is collection nodes. These nodes are tasked with managing the Flow transaction pool and proposing those transactions to consensus nodes. Collector nodes are the first step in processing Flow transactions and they help enhance the network's connectivity and optimize data availability for dApps. To set up one of these nodes you'll need to stake 250,000 FLOW.
Next, consensus nodes are responsible for forming and proposing transaction blocks and voting on blocks to finalize onto the blockchain. Consensus nodes also check that each new transaction was reviewed and signed by enough collection nodes as a way of keeping them accountable.
There are only 100 consensus nodes, these nodes are not very resource-demanding, which means lower participation requirements make them more accessible to set up and operate. However, each consensus node must be approved by Dapper Labs and requires staking at least 500,000 FLOW.
One thing that makes dApps on Flow more scalable and less expensive is by delegating all of the network's computations to execution nodes. These resource-intensive nodes process transactions and compute all the data contained in transaction blocks. While these nodes are the fewest in number, they do most of the heavy lifting when it comes to making Flow a highly performative and cohesive environment.
Execution nodes are crucial to Flow because they both handle all of the blockchain's computations and store the entire history of the decentralized ledger. This means that execution nodes have substantial technical requirements to keep the blockchain running smoothly and efficiently. On top of the hardware requirements, you'll need to stake at least 1.25 million FLOW to set up an execution node.
One flaw of execution nodes is that they suffer from low Byzantine tolerance, which is a fancy way of saying that they're less secure than other Flow node types. In addition to a slashing mechanism that punishes nodes that undermine Flow's security, verification nodes also make up for this security vulnerability by checking the computations of execution nodes to ensure that everything is computed correctly and honestly. The staking requirement for verification nodes is just 135,000 FLOW.
Finally, access nodes are the first nodes to handle transactions within the Flow ecosystem. Access nodes are responsible for routing transactions to collection nodes as well as facilitating queries (or mini snapshots) of the blockchain state. There is no staking requirement for setting up access nodes and they're evaluated by a reputation system. This means access nodes are the most accessible to operate, but they're also the least rewarding.
How soon is now?
Is crypto a part of our future?
Projects on Flow
Projects on Flow
Flow has seen a high level of mainstream adoption that arguably trumps some major Ethereum-based projects. Along with well-known sports NFT projects like NBA Top Shot, the Flow blockchain is the top destination for sports-related NFTs. Currently, the NBA, NFL, and UFC all have dedicated NFT marketplaces—complete with fiat onramps—on the Flow blockchain.
One of the perks of being developer-friendly is that Flow quickly forged partnerships with big companies and appealed to a broader consumer base. Marketplaces like NBA Top Shot are easy to use and don't require a Web3 wallet, making them super accessible even for people who don't have any experience with crypto or NFTs.
NBA Top Shot
Granted that the Flow blockchain mainnet is still in beta testing, many things are missing from the ecosystem and there are issues to address. Firstly, while Flow was able to onboard users by appealing to sports fans and collectors of athletic memorabilia, the network has limited appeal to the core crypto audience.
The shortcomings of Flow can be mainly attributed to the inability to withdraw NFTs from marketplaces to an external wallet, the lack of a dedicated browser wallet, and the fact that Flow staking is extremely convoluted and inaccessible to most users. It doesn't help that Flow's very centralized structure is less conducive for large NFT marketplaces like Opensea to form.
Limitations of Flow
Limitations of Flow
Flow has also formed partnerships with Prime Trust to create the FUSD stablecoin—which could make Flow more attractive to DeFi investors and developers—and with Anchorage Digital to provide staking support for the Flow token. That said, it appears the platform developers are more focused on growing through brand marketing rather than technical innovation. While these partnerships, and those with major brands and corporations, are generally positive developments, they do prove that Dapper Labs is not particularly inclined toward decentralizing Flow.