The team has paused minting, and will have to use a manual workaround to prevent further exploits.
Legendary NFT developers Larva Labs were the victims of an exploit this morning, as an attacker found a way to mint a rare NFT worth over $700,000 from the “Meebits” collection.
The attacker, 0xNietzsche, teased the exploit on Twitter this morning, saying he anticipated making “$300,000 per hour” throughout the duration of the attack. He has since deleted the Tweets, saying that they came off as “douchey.”
Definitely sent out some regrettable tweets in the last few hours. After coming down & processing it all they do sound VERY douchey.
His attack essentially centered on “rerolling” his Meebit mints until the contract gave him one he wanted. The Meebits contract includes a zipped Interplanetary File System file, one which reveals the characteristics of each Meebit’s ID. The IDs of the remaining Meebits are public knowledge, but until knowledge of the IPFS leak spread, their characteristics were not. As a result, 0xNietzsche simply needed to make a list of desirable IDs, and design a contract that minted Meebits over and over, but cancelled the transaction if he didn’t get a favorable ID.
An Etherscan address shows 345 total transactions, hundreds of which are failed “rolls” to obtain desirable Meebits. The only successful roll appears to be for Meebit 16647, a “visitor” or alien. 16647 was bought by the collector-whale Pranksy for 200 ETH. Per Opensea, the next lowest-price Visitor Meebit is listed for 300 ETH.
In a pinned post in their Discord, Larva Labs announced that they have since shut down the marketplace.
“We have temporarily paused community minting and trading in the Meebits contract. The contract is safe, all Meebits are safe, and trading is working just fine,” the announcement reads in part.
While the Meebits minting period was scheduled to conclude on Monday, some CryptoPunk and Authglyphs owners (each of whom are entitled to a Meebit on a one-to-one basis) may not have redeemed theirs yet. As a result, the Larva Labs team plans to “provide a form where you can use your wallet to sign a message that proves ownership of your punks/glyphs, and we’ll mint the Meebits for you using the ‘devMint’ function,” allowing users to continue to mint through the weekend while preventing others from utilizing the exploit.
By 0xNietzsche’s own estimations, his exploit could have been far more successful. Per posts in the Discord, given the length of the attack before the market shutdown he felt he “should’ve gotten two meebs in that time.” He also noted that his contract cost “~$20k an hour in gas fees” and that he had to purchase punks with unredeemed Meebits in order for the exploit to work, meaning his total haul was reduced due to associated costs:
In a now-deleted Tweet, he said he raked in “50 ETH and 5 floor punks” from the exploit.
An anonymous source told Cointelegraph that other NFT collectors were aware of the attack vector, but did not choose to exploit it as they felt it would be “unethical.” Tweets from yesterday indicate that others were indeed aware of the IPFS leak and had identified the rarest remaining Meebit, 10761, a “dissected,” which was among 0xNietzsche’s targets.
One more Dissected Meebit is “missing”, out there to be minted still.
The community is currently publicly debating what this will mean for prices across the Meebits and wider Larva Labs space. Many believe that the exploit could, paradoxically, increase floor prices for the projects due to “narrative.”
Historical significance can play a major role in the price of NFTs. Earlier this year, digital archeologists uncovered “Mooncats,” thought by many to be the second-ever NFT project, leading to a temporary buying frenzy. 0xNietzsche himself is a Mooncats enthusiast.
With professionals stepping into the NFT space, the market is set to mature, making digital art a part of traditional collectibles.
Art has been serving as the ultimate source of inspiration to many people throughout all of history. In the era of cryptocurrencies and the digitized world, trends change faster than ever. For years, numerous artists have tried stepping into rapidly advancing playgrounds and grabbing their slice of pie, but now their time has truly come.
The NFT fever has quickly taken over the industry, turning digital artists and popular meme creators into rich celebrities. It’s hard to estimate when this euphoria will run out of steam, but before the hype train stops, we’ll surely see more market records and thrilling experiments in this area.
The market cap of nonfungible tokens, or NFTs, shows fast-moving developments, growing nearly tenfold between 2018 and 2020. The path from niche forums to the oldest auction houses was incredibly fast. Christie’s has recognized the trend in advance, launching one successful NFT sale after another. Different artworks and collectibles have born six-digit price tags — and more. The latest groundbreaking world record led to over $69 million being paid for a JPEG file by the artist Mike Winkelmann, also known as Beeple. Could this have been predicted a few decades ago?
The globally recognized auction house has plans to put nine rare CryptoPunks NTFs up for auction for an upcoming sale on May 11. “For the first time, 5,184 pixels’ worth of a revolutionary NFT project will go up for auction at a traditional auction house,” the auction house exclaimed. The estimated total sale price is between $7 million and $9 million, but it may well turn out to be much higher, since one of these tokens already sold for $7.5 million in March.
CryptoPunks is a prime example of the current boom in the NFT market. The project was initiated by Matt Hall and John Watkinson, founders of New York-based software company Larva Labs, when they created 10,000 images of people in 24×24 pixels. It’s hard to believe that the project’s founders distributed these NFTs to members of the crypto community just for free. Half a year later, the cost has surged to several thousand dollars, and today, these collectibles are already being sold for millions. What causes people to buy unconventional pixel digital art for the price of a garage full of luxury cars? The hype is caused by the role of cryptocurrencies rising globally and the fact that these limited editions still represent some of the first collectibles on the crypto market.
Tatiana Stiskina, an art historian and art adviser, explained the motives:
“I have decided to buy a CryptoPunk even before Christie’s announced their sale May 11. So my husband and I bought it on the day when Christie’s announced the sale. CryptoPunks is an even deeper symbol not only of cryptoart, but of the tech industry, as they are generated using an algorithm. It is the algorithms that are worshiped by the people who gave us everything related to Hi-tech and DeFi.”
Unraveling the story behind NFT’s popularity
What makes NFT items so desirable and special? Blockchain is the groundbreaking technology that changes almost everything it touches. The record of ownership can’t be faked, and NFTs can’t be copied and pasted. Empowered by distributed ledger technology, such tokens are nonreplicable and cannot be substituted, having only a single owner at a time. Due to their interchangeable features and fungibility, despite being called “nonfungible,” NFTs are liquid and can be purchased or sold on Ethereum-based markets.
CryptoPunks are some of the first NFTs, launched back in 2017 on the Ethereum blockchain. These tokens use the ERC-721 protocol standard, which means they are unique and cannot be replaced by another, hence their nonfungible nature.
Why are some tokens worth pennies while some increase in value to tens of thousands of dollars, and others yet are worth millions? The price is valued based on rarity analyses of specific attributes that the crypto art and community respect. However, although CryptoPunks have been pioneering the space, there are other examples that can eclipse their success. Like every additional, highly lucrative opportunity, this field has become overcrowded with the sharks that want to capitalize on the moment by defrauding consumers and collectors. When you keep in mind that the total value of NFT transactions quadrupled to $250 million last year, this trend doesn’t surprise anyone.
There are no estimates on how long the anchor of NFTs will continue to appeal to wealthy investors. Some suggest that the bubble will burst faster than the initial coin offering fever ended. Right now, perhaps a fresh outlook combined with decent taste can make a difference and change things. A new ship must arrive at the NFT’s blockchain harbor that could promise such changes.
Last week, the crypto community went crazy about a new NFT collectible project — The Bored Ape Yacht Club, a collection of 10,000 Bored Ape NFTs living on the Ethereum blockchain — of unique digital collectibles, which sold out on the primary market. This is an exciting project that is trying to include gamification and community elements, and it will be interesting to see what comes next.
Ksoids project — which debuted on April 22 as an NFT project — skyrocketed to the first position in the charts on OpenSea just after a few days. Over 900 of the total 1,000 sold out, so some are still available to buy at auction. Ksoids are algorithmically unique creatures, whose breath of fresh air and creativity in its finest did not go unnoticed by digital art enthusiasts, collectors, fans and investors, declaring it to be a true indie project. Ksoids are the first generative art of 3D characters that not only create a world of their own but also help protect ours. 20% of each sale will be donated to the Orangutan Outreach, a nonprofit organization dedicated to protecting orangutans in their native habitat.
The latest NFT collection from Larva Labs was the talk of the crypto community in the last few days — the public sale being over within hours. The Meebits, 20,000 unique 3D voxel characters, are created by a custom generative algorithm registered on the Ethereum blockchain. According to data from Dune Analytics, Larva Labs made a staggering $72,976,613 from the public sale.
In a highly speculative market, every new record becomes less impressive than the previous one. There will always be people willing to pay astonishing amounts of money for experimental ideas just for curiosity or to stand out of the crowd.
Some high-profile investors regard NFTs as a way to diversify their crypto portfolios and create new kinds of elite clubs, and most of the new market participants hope that digital art will cost a fortune sometime in the future. The only obvious thing is for the market to further mature and progress, and for professionals to step in and set benchmark quality examples.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Alexandra Luzan is a Ph.D. student researching the connection between new technologies and art at Ca’ Foscari University in Venice. For about a decade, Alexandra has been organizing tech conferences and other events in Europe dedicated to blockchain technology and artificial intelligence. She is equally interested in the relationship between blockchain tech and art.
Declaring BTC a store of value — e.g., gold 2.0 — but not a medium of exchange, defies logic. It must first have a use case.
In an August 2020 paper “Is bitcoin money?” Peter Hazlett and William Luther wrote that there exists only “a small corner of the internet where transactions are routinely conducted with Bitcoin serving as the medium of exchange.” But that corner may be growing into a room, or even a house now.
“Demand for Bitcoin has certainly grown over the last year,” co-author Luther, assistant professor of economics at Florida Atlantic University, told Cointelegraph in a recent conversation. “As new users find themselves with Bitcoin, and existing users find themselves with more Bitcoin, it’s only natural that more people will consider using it to make payments.”
Others see a recent rise in crypto payment options. “Definitely,” Joanna Wasick, a partner at law firm BakerHostetler, told Cointelegraph, adding: “More people are owning cryptocurrencies, and more companies are accepting them — sometimes even at an incentive over fiat. There’s also an influx of exchanges and payment platforms facilitating these kinds of transactions. I don’t think that happens without a demand.”
This past week, eBay was reported to be exploring crypto payment options, including NFT auctions, while PayPal was said to be discussing the development of its own stablecoin. Elsewhere, Switzerland’s Canton of Zug began recently accepting tax payments in Bitcoin (BTC) and Ether (ETH).
“There have certainly been some major announcements from mainstream financial services companies in the past several months that point to the momentum of viewing crypto as a payment option,” Kristin Smith, executive director at the Blockchain Association, told Cointelegraph, citing Visa, PayPal — and from the crypto world — BlockFi.
Still too volatile?
Not all believe that Bitcoin is viable as a medium of exchange, though. Aswath Damodaran, professor of finance at New York University’s Stern School of Business, told Cointelegraph: “I don’t see it, and the reasons are simple: It is an incredibly inefficient currency, with transaction costs overwhelming the benefits.”
These inefficiencies are likely to multiply, too, as BTC moves closer to its 21-million limit. “It is also far too volatile for people to trust it,” he added — though he doesn’t rule out other cryptocurrencies as potential payments options.
St. Louis Federal Reserve president James Bullard noted that in the 19th century –– before the American Civil War –– it was common for private United States banks to issue their own notes, a practice analogous to today’s cryptocurrencies, in his view. “They were all trading around [i.e., the banknotes], and they traded at different discounts to each other, and people did not like it at all.” People want a uniform currency like the U.S. dollar, said Bullard.
Because Bitcoin has yet to find widespread use as a means of exchange, growing numbers have suggested that its proper role might really be as an alternate store of value, like gold. But Luther, for one, doesn’t think this makes much sense, telling Cointelegraph:
“I don’t understand those who say Bitcoin is better suited as a store of value than as a medium of exchange. An asset can only function as a store of value if it is expected to have a positive price in the future. And it will only have a positive price in the future if it has some use in the future.”
To say that Bitcoin can be a store of value today, and possibly a medium of exchange one day — though maybe not — could be putting the cart before the horse. In Luther’s view: “Bitcoin is expected to function as a medium of exchange in the future — that its price fluctuates today as people expect it to be more or less useful as a medium of exchange in the future.” Moreover, he believes that “conditional on its usefulness as a medium of exchange in the future, it might serve as a store of value as well.”
Meanwhile, Bitcoin remains the most used crypto payment platform, according to BitPay, which processes some $1 billion annually in crypto payments. In March, Bitcoin accounted for 72% of BitPay’s crypto payments (by number), far ahead of Bitcoin Cash (BCH) (14%) and ETH (10%), which ranked second and third, respectively.
BTC may be good enough
There are indeed valid reasons why crypto partisans continue to use BTC for transactions — even while other crypto platforms may be faster with lower fees. “I don’t like spending my Bitcoin, but I know that as soon as I say those words ‘just send me your Bitcoin address’ the transfer will get done quickly and cheaply,” said Quantum Economics founder Mati Greenspan in a recent newsletter, further adding:
“I know for a fact that my analyst will be happy to receive Bitcoin, and that I have a Bitcoin stash that I can feasibly use to pay with. However, if I tell him, ‘Hey, let me send you some XLM,’ the response probably won’t be enthusiastic because it would probably require him to spend time and energy researching wallets and exchanges.”
Bitcoin today occupies a somewhat unusual role as a “niche medium of exchange,” according to the Cato Institute’s Lawrence White in a blog post. “It is better than other media for making some payments that, even if for legitimate purposes, might be censored if routed through payment systems controlled by national governments and central banks.” A grassroots human rights organization in Belarus, for instance, has used the BTC network to transfer money to striking workers — in a way that the government cannot stop.
Others expect that BTC will achieve mainstream acceptance as a payments option. Bill Zielke, chief marketing officer of BitPay, told Cointelegraph that “crypto is already a significant payment method, as more than a billion in volume occurs annually.” Firms such as Newegg and Apmex, both top 100 merchants, already “see a meaningful percentage of their sales in Bitcoin and other cryptocurrencies.”
A need for greater stability
However, more still needs to happen before Bitcoin and/or other cryptocurrencies achieve widespread adoption as payments options. “Most importantly, cryptocurrency needs to become more stable and stop being a speculative vehicle,” said Wasick, adding: “If I think the value of my Bitcoin is going to go up, I’m not going to use it to buy a car. I’m going to sit on it so I can realize more gains.”
Damodaran agreed, as individuals who think about using Bitcoin to purchase items worry that their BTC will be worth 30% more in a day or two. Sellers — e.g., merchants — “don’t want to receive it since they are worried about the exact opposite.” Damodaran added: “For a good crypto to make it, it has to get governments to buy in, some version of a trusted authority to reduce transaction costs and [become] less of a speculative game.”
“The two biggest obstacles, in my view, are the volatility of its purchasing power and the relatively small number of transactions it can handle,” Luther told Cointelegraph while going on to add: “Second-layer solutions have gone a long way toward eliminating the second problem — and will no doubt go further. Of course, that means most on-chain Bitcoin transactions would merely be for settlement.”
“There are regulatory issues that we believe would encourage broader adoption, such as adopting a de minimis exemption for cryptocurrency transactions,” added Smith. For example, cryptocurrency transactions of less than $200 might be exempt from taxation.
“The regulatory regime needs to change or at least become clearer to people,” said Wasick, in addition to raising a question: “How many people using crypto for payments know exactly what the tax implications are of their payment transactions?”
Do people want a uniform currency?
But what about Bullard’s contention that people aren’t keen to deal with all these private forms of money. What they really want is a uniform currency, like the U.S. dollar.
“Bullard has a point — people generally want a uniform currency,” answered Wasick, but Bullard overlooks some key aspects of cryptocurrencies, she added. They are “decentralized and deflationary — or, at least, non-inflationary — by design.” Fiat, by comparison, created and managed by governments, “is by design inflationary. […] Dollars lose value over time.”
Bullard, in Luther’s view, also glosses over some important historical details. Most pre-Civil War banknotes were not discounted, he said — “they typically traded at par.” Only when they circulated far away from the issuing bank were they discounted. Banknotes issued in Chicago, for example, might trade at a discount in New York — but only because it was costly to redeem them. Luther further explained:
“Banknote collectors had to bundle them up and ship them back to the issuing bank in order to redeem them for gold. Then, they had to haul that gold back home. And, of course, they risked theft both ways.”
Banks would have liked to provide closer redemption options, but regulatory restrictions on branch banking didn’t allow it. According to Luther: “Far from demonstrating an uncompromising desire for a uniform redeemable currency, as Bullard claims, the historical evidence suggests that many redeemable currencies might prevail, even under a poor regulatory regime that makes them perform far worse than they otherwise would.”
If BTC can’t make it, could stablecoins prevail?
Still, the volatility problem with crypto persists, which is why some believe the solution for crypto as a payment mechanism starts with stablecoins. “We do see use of stablecoins growing,” answered Zielke, adding: “Accepting or paying with stablecoins opens up new possibilities for global businesses that require the stability of the dollar but the security, speed and efficiency of blockchain payments.”
“I like the idea of stablecoins,” said Luther. But as is the case with traditional cryptocurrencies, they still need some improvements. “For one, they tend to be stable relative to the dollar, which by definition means they will never be managed better than the dollar.” A second concern is “they typically require one to trust the issuer to manage the supply appropriately — a risky proposition,” said Luther.
Damodaran was skeptical about the utility of stablecoins, which he described as “solutions in search of problems,” further adding: “Of all the problems in the world, not having a currency that works is not in the top 100 in much of the world.”
But it is a problem in some locales, which is why Smith, for one, believes that crypto as a payment option may first catch on widely “in other, non-U.S. jurisdictions,” especially countries that “do not have the same access to payment systems that make internal transactions simple.”
Meanwhile, White listed some other current BTC use cases, including “fundraising by activists in Nigeria, Hong Kong and Russia, savings expatriation by people fleeing Venezuela, remittances into Iran, and peer-to-peer transfers within China among people seeking to avoid state financial surveillance.” He concluded: “Such uses — together with forecasts of wider future use — are enough to sustain Bitcoin’s positive market value.”
Will innovative advances in competing altcoins’ blockchains be enough to overtake Bitcoin’s success?
When the famous Satoshi Nakamoto first designed his masterpiece, few could possibly have imagined the almost $63,500 peak that sent investors into a frenzy. Even these days, the first-ever cryptocurrency’s price feels hard to believe at times and investors might be pinching themselves every now and then. Taking a seat alongside Bitcoin (BTC) on the roller coaster, altcoins like Litecoin (LTC), Ether (ETH) and Bitcoin Cash (BCH) joined the ride — and, more recently, DeFi giants Polkadot and Cardano.
But for the long haul, looking into the crystal ball, it’s difficult to see the future of a coin shrouded in uncertainty. Ray Dalio raised fair points in his critique of Bitcoin, arguing that uncertainties regarding how governments will react to digital assets supplanting fiat currency in utilization are causes for potential concern down the road. He further argued that the Bitcoin blockchain will soon be outdated, and without any central governance to adapt it to emerging blockchain technology, a superior coin could overtake it.
And that nails home the point: Bitcoin’s underlying blockchain protocols are very limiting in terms of enabling broader financial applications. It would be unfathomable to operate a massive DeFi ecosystem on top of the Bitcoin blockchain given Bitcoin’s proof-of-work transaction consensus algorithm.
Despite its limitations, it’s difficult to predict whether innovative advances in competing coins’ blockchains will be enough to overtake Bitcoin’s success. It all hinges on the utility factor: Will crypto stay a store of value, or will it become a viable alternative for exchanging value?
Emerging blockchain technologies and DeFi’s success
Since the dawn of Bitcoin just over a decade ago, the blockchain industry has given rise to hundreds of different projects, with each one aiming to forge a new coin into stardom. Many succeeded in the long term. Ether, the second closest coin in value to Bitcoin, continued hitting new all-time highs throughout April, validating not just the coin’s potential as a store of value asset but also Ethereum’s potential as a blockchain network.
Similar to Ethereum, a number of projects aimed to emulate the titan that Vitalik Buterin and his associates built, such as Cardano, EOS and, most recently, the hot and popular Polkadot. Each project tries to build off the limitations of the other to varying degrees of success. Hype has been the majority of what’s been delivered to users, as only time will reveal the true validity of these projects.
Regardless of the blockchain projects and their creative names, they’ve spurred on an ecosystem of collaborative development. Together, they’ve created decentralized apps, or DApps, that can bring the unbanked out of the doldrums of impoverishment, opportunity to the financially excluded and new investment avenues to the already-savvy.
The flourishing of coins and DApps serves up plenty of optimism to many outsiders looking in, offering hope that there is real potential to foster a booming decentralized finance ecosystem — or at least a hybrid of it combined with centralized markets. But it’s all thanks to belief in Bitcoin’s value, which is the fixation point of many investors.
Bitcoin’s store of value is what’s really on the mind
What drove the inquisitiveness of investors, developers and crypto enthusiasts alike was the appeal of Bitcoin as a store of value. Against fiat currencies, Bitcoin is deflationary; so, during periods like the COVID-19 pandemic, Bitcoin’s appeal turned white-hot.
While discussions about Ethereum, Polkadot and other blockchain platforms caught the attention of the DeFi world, many outsiders remained numb to them and fixated on the coin prices. And that’s why Bitcoin’s appeal stays as a store of value, for the most part.
Many ordinary retail investors and institutional investors don’t have a firm grasp on crypto’s inner workings. According to a Cardify survey, only 16.9% of crypto investors “fully understand” it, while just over 33% of them have limited or “zero knowledge.” Over 40% of crypto investors are newbies who are riding the hype wave. It’s arguable that the entry barriers to the DeFi world are quite high and literacy is rather hard to attain, but that’s a story for another time.
Moreover, institutional investors remain wary of the volatility issues facing Bitcoin and other cryptocurrencies, with ongoing predictions of an imminent bubble — another signal that underlying blockchain technologies are less of a priority. And this is precisely why other coins will not overtake Bitcoin. So long as the mainstream fixation remains pinned to coin value and not underlying blockchain value, Bitcoin will stand atop the cryptocurrency podium. Whether investors can become more literate in the inner workings of the DeFi world will determine how much value investors will find in the underlying technologies of new and emerging coins.
For now, Bitcoin is the king of the hill and will likely stay that way for a long time as the price continues to climb and mainstream investors hop on board.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Ariel Shapira is a father, entrepreneur, speaker, cyclist, and serves as founder and CEO of Social-Wisdom, a consulting agency working with Israeli startups and helping them to establish connections with international markets.