Gasless NFT Transactions: It’s Possible on CoinBase But at What Cost?
CoinBase, the largest cryptocurrency exchange platform operating in the United States, made international news last month when it announced plans for an NFT marketplace.
“Today we’re announcing Coinbase NFT, a peer-to-peer marketplace that will make minting, purchasing, showcasing, and discovering NFTs easier than ever,” the press release read. “Just as Coinbase helped millions of people access Bitcoin for the first time in an easy and trusted way -- we want to do the same for NFTs.”
Less than 24 hours ago, Coinbase’s Vice President of Products Sanchan Saxena shared a sneak peak of the company’s NFT product on Twitter.
Recently, we announced Coinbase NFT marketplace (https://t.co/IP1PZyw47K). And today, we wanted to share a sneak peak of the product and get your feedback.— Sanchan S Saxena (@sanchans) November 4, 2021
Here's a video of the onboarding flow for any user to connect and create their profile 👇 pic.twitter.com/tRr9phFwta
The preview is less than two minutes, but there is a lot to unpack. Perhaps most interestingly, Coinbase NFT revealed the option to sign in with a self-custody wallet, like Metamask, or log-in with Coinbase credentials and custody the NFT with Coinbase itself.
Custody in the NFT space means the same as it does with children. Whoever has custody of the NFT has possession and ultimate control over what happens to it, where it is sent, etc. You might own the NFT (or be the mother or father of a child), but if you don't have custody, you don't have the authority to make decisions about that NFT. You'd have to request that the person with custody grant you your request.
This is an absolute game changer in the industry for better or worse. Let’s take a look at two benefits and one concern of using Coinbase NFT in its current iteration.
Benefit 1: Gasless NFT Transactions
Gas fees are crippling the NFT marketplace right now. It currently costs somewhere between $150 and $250 USD to transact on the Ethereum network per transaction.
If you wanted to purchase a few cheap NFT projects at floor prices, you’d have to add an additional $150 to $250 USD to each NFT purchase, even if bought in bulk. If the NFT itself costs $50 to $100 USD, almost no one is going to pay a 300% premium on top.
Ethereum is said to be working on creating more efficient transactions. And we’ve seen the rise of multiple Layer 2 (L2) platforms as potential solutions to the gas problem. But what if you could buy, sell, and trade NFTs on Ethereum’s Layer 1 (L1) network without any gas fees?
Enter Coinbase NFT’s custody solution.
If Coinbase NFT custodies a large portion of the NFTs bought, sold, and traded on its platform, it could create a gasless marketplace. But how?
Remember those pesky centralized banks that cryptocurrency is trying to put out of business? Coinbase NFT could operate in a similar way.
When you send or receive money within the same, unified banking system, transactions can be completed almost instantly. If I send $100 USD from my Chase bank account to my brother’s Chase bank account, Chase simply updates its ledger with the new information and no actual transactions need to occur. All the money is still within the Chase ecosystem.
However, if I send $100 USD from my Chase bank to a foreign bank outside of the Chase banking network, the USD has to be converted into another currency, the banks have to interact, and both the sender and receiver have to wait multiple days for clearance.
Cryptocurrency solves this issue with trustless, peer-to-peer transactions, but those transactions rely on incentivizing miners to confirm or deny the trustworthiness of each transaction. This is a simplistic rendering of how blockchains work.
Coinbase NFT wants to be the centralized bank of the NFT space. If it custodies an NFT and both the buyer and seller are operating within the Coinbase NFT ecosystem (i.e. not using a self-custody wallet for the transaction), Coinbase NFT can simply update its ledger and avoid gas fees.
Now you can sweep the floor for a couple hundred dollars instead of a couple thousand dollars. Thanks, Coinbase.
Benefit 2: Safety and Security for Newcomers
As the centralized bank of the NFT space, Coinbase NFT could offer all users a level of safety and security not presently found on other platforms like OpenSea.
Coinbase NFT would act as a filter for scams and assumedly take responsibility for hacks on its platform.
Let’s be honest -- buying, selling, and trading NFTs through self-custody wallets like MetaMask is scary. Millions of dollars have been lost this year in hacks and scams. And the only real solution is to call out the hacker or scammer and hope the cryptocurrency or NFT is returned or take the loss on the chin.
With Coinbase NFT, users can simply sign up with an email address and a password. They’ll have access to Coinbase support. And most importantly, they’ll never have to interact with self-custody wallets and sign for transactions on their browser.
For many people, this is exactly what the NFT marketplace is missing. And even seasoned cryptocurrency and NFT veterans will likely admit that it makes sense to protect new, naive users from the treacherous waters of the OpenSea.
But at what cost?
Concern: Centralization All Over Again
The concern is undoubtedly clear to anyone who entered the cryptocurrency space to stick it to the man: Coinbase would become THE centralized authority for NFTs.
By asking Coinbase for gasless transactions, safety, and security, users are granting it power. They’re allowing Coinbase to possess their NFTs, and giving up a certain amount of freedom.
I won’t spend too much time harping on about the importance of decentralized marketplaces. For some, it just doesn’t matter. For others, it’s the only thing that matters.
Fortunately, Coinbase is offering its users the choice to use self-custody wallets.
Do the benefits outweigh the concerns? You decide.