Bubble or Not: Measurements, Analyses, and Findings on the Ethereum ERC721 and ERC1155 Non-fungible Token Ecosystem

Abstract

The non-fungible token (NFT) is an emergent type of cryptocurrency that has garnered extensive attention since its inception. The uniqueness, indivisibility and humanistic value of NFTs are the key characteristics that distinguish them from traditional tokens. The market capitalization of NFT reached 21.5 billion USD in 2021, almost 200 times of all previous transactions. However, the subsequent rapid decline in NFT market fever in the second quarter of 2022 casts doubts on the ostensible boom in the NFT market. To date, there has been no comprehensive and systematic study of the NFT trade market or of the NFT bubble and hype phenomenon. To fill this gap, we conduct an in-depth investigation of the whole Ethereum ERC721 and ERC1155 NFT ecosystem via graph analysis and apply several metrics to measure the characteristics of NFTs. By collecting data from the whole blockchain, we construct three graphs, namely NFT create graph, NFT transfer graph, and NFT hold graph, to characterize the NFT traders, analyze the characteristics of NFTs, and discover many observations and insights. Moreover, we propose new indicators to quantify the activeness and value of NFT and propose an algorithm that combines indicators and graph analyses to find bubble NFTs. Real-world cases demonstrate that our indicators and approach can be used to discern bubble NFTs effectively.

Application of Graph Theory for Blockchain Technologies

“…NFT manipulation mapping: Utilizing graph theory to analyze the patterns and transactions of NFTs on blockchain networks sheds light on wash trading activities, where individuals artificially inflate the value of NFTs through self-directed trades [61]. By examining the graph's edges and nodes representing transactions and participants, respectively, we can identify cyclical trading patterns that indicate possible manipulation [62]. This analysis not only enhances the transparency and integrity of the NFT market but also assists in the development of regulatory and monitoring tools to combat fraudulent activities [63].…”

Exemplary Ethereum Development Strategies Regarding Security and Gas-Saving

“…The most prominent token standards are the ERC-721 and ERC-1155. They have often been mentioned in scientific publications [47][48][49][50][51][52][53][54]. Therefore, the preferred tokens for analysis were selected by popularity, as these tokens are the ones being used and detailed research of their costs was deemed helpful.…”