The NFT craze has put Ethereum—the blockchain-based computer network that backs it—on the map again, but the platform is already paying for its success.
The price of ether, the in-house currency on the network, crossed the $3,000 milestone for the first time Sunday and climbed as high as $3,340 Monday afternoon, driven by the explosion of NFTs, or nonfungible tokens, and another market called defi, short for decentralized finance. A year ago, it traded at just $210.
The gains in ether, the second-largest cryptocurrency by market value behind bitcoin, have accelerated even as bitcoin’s momentum has slowed. Ether gained more than 40% in April, while bitcoin fell about 2.4%.
Ethereum, launched in 2015 on the concepts behind bitcoin, is a platform for developers to build and operate apps, much like Android or iOS. Unlike those operating systems, which are owned by and controlled by
respectively, Ethereum is an open-source software project, which means no central party has control.
The rally in ether is tied to the recent burst of activity on the network. About seven million new Ethereum addresses—or accounts able to hold ether balances—were created in the first four months of 2021, bringing the total to more than 55 million, according to analytics firm IntoTheBlock. And the dollar value of transactions on the platform totaled $1.5 trillion in the first quarter, according to research firm Messari, more than the previous seven quarters combined.
Another stamp of approval: The European Investment Bank, a lender owned by European Union member states, issued $120 million worth of two-year bonds last week on the Ethereum network, a first for such a large-scale issuance.
“Right now, the value and the use case of Ethereum has been validated,” said
the head of revenue at crypto prime broker SFOX.
That success, however, has led to network congestion and rising transaction fees that have prompted competitors to enter the market, along with increasing worries about the environmental impact of cryptocurrencies.
For most of its existence, Ethereum held more promise than payoff. That changed over the past year thanks to NFTs and defi. NFTs are bitcoin-like tokens, with a twist: Only one at a time is created and they aren’t interchangeable, as currency tokens are. The NFT is connected to a digital work of art or other real-world item and sold as a unique digital property.
Since the launch of the National Basketball Association’s “Top Shot” collectibles six months ago, NFTs have become a cultural phenomenon. The band Kings of Leon sold NFTs tied to an album release.
auctioned an NFT of his first-ever tweet. The zenith? Digital artist Beeple sold an NFT artwork at Christie’s for a record $69 million.
The total value of NFT sales on the Ethereum network surged to $2 billion in the first quarter from $94 million in the fourth, according to data-tracking site NonFungible.
The defi market, meanwhile, comprises a broad array of financial services that allow crypto holders…