When reNFT was established in late 2020 not only was the concept of NFT rentals absent from the minds and discourse of even the most avant-garde advocates and progressive pioneers of the NFT space, but indeed NFTs themselves were still very much in their infancy; this was a time before Bored Ape Yacht Club, and the unfathomable tide of awareness, acceptance and adoption their launch brought in its wake.
While NFTs themselves had been in existence for quite some time, in late 2020 they still remained very much on the peripherals of the collective blockchain consciousness.
Since then, however, growth has been meteoric; the myriad use cases and utilities of NFTs have engaged the imaginations of entrepreneurs across both web3 and web2 to an unprecedented extent, with leaders of all industries throwing their metaphorical hats into the metaverse on a seemingly daily basis.
This has, naturally, corresponded to an exponential increase in NFT sales and trading volumes, with one particular use case leading the charge and dominating both the discourse and the data points; blockchain gaming.
This stands to reason; as of July, users of the popular casual mobile gaming app Candy Crush had cumulatively racked up over 73 billion hours of total playing time. That’s over 8 million years of cumulative time spent playing the game.
Through the incorporation of NFTs, and in particular the Play2Earn movement spawned by the likes of Axie Infinity, players are able to derive financial benefit from their gaming and monetize time that would otherwise have been spent in the pursuit of a purely leisurely endeavor. As pleasant as this may have been, if the opportunity exists to earn whilst engaging in a hobby, there comes to mind no reason or argument why this should not be pursued.
This rise in NFTs and blockchain gaming has brought with it the rise of the NFT rental market, and for good reason; NFTs can be expensive, with the cost of putting together an Axie team ranging from the low hundreds to the high thousands of dollars, depending on the quality of the NFTs. For many of Axie’s core users in the Philippines and South East Asia, this puts accessing the game and its financial benefits out of reach.
This is where the NFT rental market comes into play; if a user wants temporary access to a blockchain game, either to receive P2E rewards, claim an airdrop, or just trial the game out, through the NFT rental market they no longer need to produce the full amount of upfront capital required to purchase an NFT; they simply pay for as long as they’d like to use it. Similar benefits for NFT rentals can be seen across areas ranging from events to subscriptions, and even to car rentals.
However, before being able to benefit from the numerous solutions provided by the NFT rental market, prospective renters must first decide on which platform to use for this service; no mean feat, considering the slew of innovative projects and products which have entered the space since the start of the NFT bull run. For the end user, there are many factors to consider when making this decision, however arguably the most significant and consequential of these is whether the platform they’ll be using is on-chain or off-chain.
The On-Chain, Off-Chain Dilemma
The debate around the superiorities and deficiencies of on-chain platforms over off-chain, and vice versa, transcends the NFT rental market, and indeed is central to the discourse and discussion at the very heart of the web3 industry itself.
Events such as the Ronin hack and Polychain Exploit bring this issue turbulently into the spotlight whenever they occur, due to the security implications around the topic. More recently, the Tornado Cash situation has reignited the discussion from the prominent perspective of decentralized finance and on-chain privacy. To understand why this issue is so pertinent, it’s first necessary to dive into the terms “On-Chain” and “Off-Chain” in more detail and break down what the distinctions between the two are.
Breaking Down the Jargon
CNBC, when seeking to elucidate their readers around the distinctions between these two terms, employed a rather elegant analogy in a recent article:
“Think of a blockchain as a cloud storage facility, which is divided into two parts — private and public. On-chain transactions are like the public cloud — visible to all, whereas off-chain transactions are like the private cloud; the data is not publicly accessible.”
To put it simply, and as the analogy above demonstrates, “On-Chain” simply means stored or accessed via a public blockchain network, whereas “Off-Chain” is anything not on that public network (a private blockchain, or a centralized exchange, for example).
There are a great number of pertinent points of divergence between these two concepts, with both of them containing unique advantages and disadvantages that may encourage an individual or organization to employ the use of one or the other when using or developing a platform.
Fundamentally however, these points of divergence can be boiled down into three distinct categories; Security, Privacy, and Accessibility.
All of these points are of considerable relevance and importance for the NFT rental sector; both for individuals looking for a platform through which they can rent NFTs, and for projects looking to incorporate rental solutions into their protocols.
Security, Privacy, and Accessibility; A Triumvirate of Considerations
To understand the advantages and disadvantages of on-chain versus off-chain NFT rental platforms in regards to these factors, the discussion would best be viewed through the lens of blockchain gaming; not only because it has one of the clearest use cases for NFT rentals, but also because its inherent complexity and depth of functionality will allow for each composite part of the three factors being considered to be examined in the most detail and with the most insightfulness.
Security
Starting with security, the differences between on-chain platforms and off-chain become clear from the offset; the previously mentioned high profile on-chain hacks bring to light the security advantages of off-chain profiles (or, more accurately, the security deficiencies of on-chain platforms). Writing in Forbes in 2019, CTO of blockchain security firm 1Kosmos explained the rationale behind this, stating: “Since off-chain systems are not public internet-facing they’re more secure — it’s very similar to the security you would attain by installing a server or a piece of software within your intranet as opposed to the internet.”
This is a pivotal factor for consideration, both for blockchain gaming developers and end users; while robust measures, such as thorough security audits from leading firms, can be taken to ensure on-chain protocols are as secure as possible, there are inherent risks associated with building on public networks, so both developers and users may feel more comfortable opting for private networks instead.
Indeed, one viable and popular avenue to address this is a hybrid model, whereby certain aspects of a blockchain game — typically the game itself — are built off-chain, and other aspects — such as in-game NFT marketplaces — are built on-chain. Indeed, Game7’s 2022 Dev Report cites this as an increasingly popular avenue being pursued by developers, and an operable solution to the issue.
However, it still contains risks; in on-chain NFT marketplaces, typically the seller or lender locks their NFT in a smart contract, which a buyer or renter then unlocks by transferring funds or depositing collateral, at which point the smart contract issues them the NFT (n.b: this is the process behind collateralized lending; for the differences between this and collateral-free lending, please see here). With this, there is still a risk that when the NFT is in the smart contract, that smart contract is able to be exploited. This method, therefore, reduces risks, as it limits the number of areas in which a game is hosted on-chain, however it does not eliminate the risk altogether.
That being said though, having an off-chain marketplace does not fully eliminate risk either; in 2018, OpenSea CTO Alex Atallah explained that their marketplace was moving off-chain, partly to address security concerns. However, that didn’t prevent a number of high-profile hacks of the market-leading marketplace from occurring since then.
As such, it’s clear that the issue of security is a complex and multifaceted one, and while there are many things that protocols can do, and measures which can be taken, to bolster security, whenever any form of blockchain tech is involved there are inherent risks. However by employing hybrid models, and thinking strategically when deciding which aspect of their games to host on-chain, developers can reduce risks significantly; it’s important to note on this, that while hacks and exploits do occur, they are uncommon, being very much the exception and not the rule. This is why they make headlines so dramatically when they do occur.
Atallah’s 2018 article, moreover, centers around other issues when explaining OpenSea’s decision to move predominantly off-chain, which brings us to the next point of examination in this discussion; privacy.
Privacy
It’s important to note, before examining the privacy considerations within the on-chain, off-chain debate, that privacy does not exclusively connote anonymity; rather, it’s a broader discussion around decentralization itself.
As the Tornado Cash situation revealed, the privacy issue centers around the ability to transact without the oversight and approval of a centralized figure or organization. In this regard, there are clear benefits for on-chain protocols; these involve the use of a smart contract, which operates trustlessly and permissionlessly. A blockchain game, for example, would be able to program their marketplace to perform an ascribed function — i.e., allow sellers and lenders to deposit NFTs into a smart contract, and then allow buyers and renters to purchase or borrow these.
These are peer-to-peer transactions, with the smart contract acting as an automated escrow account, without needing the game developers themselves to approve purchases or rentals. More broadly, with general blockchain payments or transactions, it is the network itself (or, more specifically, the validators) that verifies and approves the transactions, with a given number of distributed signatures required in order for the transaction to be considered valid and to be processed.
The benefits of this for blockchain gaming are clear, and indeed it is the now famous reason why Vitalik created Ethereum in the first place; because Blizzard nerfed his World of Warcraft character in 2010.
Building games or components of games, on the blockchain, eliminates or reduces (depending on the scope of incorporation) the risks of this occurring to players.
However, complete privacy and decentralization are not without certain drawbacks; indeed, some traditional web2 gamers may not like the fact that their actions and activities are perfectly viewable and traceable on a public blockchain. Privacy in web3, therefore, is rather paradoxical; while you’re free to interact permissionlessly and with anonymity, your actions are perfectly trackable, and should you be using a doxxed wallet other users, individuals, and organizations will be able to see exactly what, when, and how you’ve been transacting.
This now brings us on to the final, and arguably most important, factor for consideration within the on-chain, off-chain discussion; accessibility.
Accessibility
Accessibility is a very broad topic, but can essentially be boiled down into two core and crucial components; speed and cost.
Ostensibly, off-chain platforms seem to have the edge in both of these departments; starting with the former, off-chain protocols are, by their very nature, faster than on-chain platforms. This is because platforms built on the public blockchain require network confirmations, often from many individuals — or validators — before they can go through. Whilst good for decentralization, this causes delays, and if too many transactions are occurring at the same time networks can become congested (this is a well-documented and much-lamented problem plaguing the Ethereum network, since the start of the bull run).
This is particularly pertinent for gaming protocols, which often requires many thousands, if not tens or even hundreds of thousands, of transactions per minute. While networks such as Avalanche, and their wholly innovative system of Subnets, go some way towards addressing this, off-chain platforms are inherently faster.
Consider Runescape’s grand exchange, for example, and how many millions of transactions were being processed through there even in its infancy in the early 2000s. Were these to be replicated on the blockchain, it would likely not be viable — or would take an immensely long time to process each one due to congestion.
The second core component of accessibility is cost, and again off-chain platforms do seem to have the advantage here, and for much the same reasons; whereas off-chain transactions are typically free, on-chain transactions require and necessitate a fee. This is to incentivize the individuals involved with processing transactions — the miners — to perform the often complex and time and energy-consuming equations that verification requires.
As such, again it would seem that incorporating blockchain elements into a gaming project should give a developer considerable pause for thought, due to the reasons outlined above. However, as has been touched upon throughout this examination, the answer lies in seeking to isolate the best bits of blockchain tech, and incorporate these into existing and proven web2 practices.
The Third Way; A Hybrid Model
It would seem, after diving into the whys and wherefores of on-chain versus off-chain platforms, that choosing which aspects of, for example, a blockchain game to host on the blockchain itself and which to host off-chain, is crucial for the success of a project.
Indeed, this is reflective of current thinking and perceived best practice; as Game7 observes, “there are only a select few developers building fully on-chain: Dark Forest, Conquest, Topology, DeFi Kingdoms, and Cometh… The majority of game devs have opted to keep most game mechanics and game activity off-chain while web3 asset (tokens, NFTs) transaction data is pushed on-chain. “
It is crucial, therefore, that when deciding the extent to which their projects should be brought on-chain, and which aspects and elements should be hosted on a public blockchain, developers find a solution and service provider which is able to execute on this seamlessly. Similarly for gamers, they should take note of how web3 elements have been incorporated into a game, and the extent to which on-chain functionalities feature within a project.
Whether projects seek to be fully on-chain, fully off-chain, or somewhere in the middle, reNFT is able to provide them with the infrastructure they need; with fully customizable and bespoke solutions, reNFT will be able to equip projects with the NFT rental functionalities they need to take their offering to the next level and provide gamers with the quality of service they deserve.
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reNFT is a multi-chain NFT rental protocol and platform that can be whitelabel integrated into any project to enable collateral-free in-house renting, lending and scholarship automation!
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