NFT technology has become a new word in the world of art, giving creative content and value creators a new way to make money.
However, in the development process, despite the many advantages of the NFT concept, it has also experienced certain difficulties related to trading and transferring these tokens on various marketplaces and platforms.
This problem has led to the creation of NFT bridging and NFT swapping mechanisms that provide a solution for the fast and reliable movement of tokens between different networks.
Key Takeaways
- NFT swapping is the process of buying low digital tokens and selling them at a higher price for profit.
- NFTs can offer higher margins than other collectables, making swapping a popular method.
- The process of NFT bridging transfers NFT entries between blockchains using a specialised application called NFT bridge.
What is NFT Swapping?
NFT swapping refers to buying an NFT at a lower price and selling it to another seller at a higher price to make a profit. Swapping is a popular method for various collectable items, but NFTs can offer significantly higher profit margins than other collectables.
NFT swapping has multiple benefits, including providing income to NFT traders and supporting NFT-based platforms like play-to-earn gaming and NFT marketplaces.
Cross-chain NFT swapping allows users to exchange their NFTs on separate, isolated chains. For example, individuals can trade their NFTs for collectables on a different blockchain NFT marketplace using an interoperable NFT marketplace built on any interoperable blockchain.
The NFT swapping process is complex and includes different types, which are summarised below.
1. Auction-Based Swaps
Decentralised exchanges (DEXs) have been gaining popularity among crypto enthusiasts, providing a secure and trustless way to trade cryptocurrencies. However, some DEXs also allow for swapping NFTs through auctions. This means buyers and sellers can bid for NFTs until a pre-determined price is reached.
Auction-based swapping is becoming increasingly popular for obtaining rare or highly sought-after NFTs. Some DEXs have integrated auction systems; others rely on third-party auction platforms to facilitate this trade. This allows users to bid on NFTs easily and transparently and complete transactions without intermediaries or centralised authorities.
2. Multi-Asset Swaps
Several NFTs can be exchanged for one or more NFTs in a multi-asset swap. This type of swap may be helpful for collectors who want to consolidate their collections or for those who want to trade a set of NFTs for a single, more valuable NFT. Multi-asset swaps can be executed using DEXs, which enable the simultaneous swapping of multiple assets.
3. Fractional Swaps
Fractional swaps allow dividing ownership of an NFT into fractions, enabling multiple users to possess a portion of the NFT. This can benefit individuals who wish to own a profitable NFT but need more financial capability to purchase it outright. The possibility of fractional swaps is made possible by using DEXs that support fractional ownership or fractionalisation platforms.
4. Wrapped NFT Swaps
Under certain circumstances, exchanging wrapped NFTs from one blockchain network for wrapped NFTs from a different blockchain network is possible. This can be a helpful option if collectors want to purchase NFTs unavailable on their preferred blockchain network.
Swapping wrapped NFTs can be done through specialised DEXs or wrapped NFT markets.
5. Direct Swap
Exchanging one NFT for another of equal value is a direct swap. A DEX facilitates direct swaps using an automated market maker (AMM) to establish the exchange rate between the two NFTs. Direct swaps are a simple method for exchanging NFTs of similar or equal worth.
The NFT bridging process will contribute to developing the Web3 space, positively influencing the establishment of metaverse platforms, modernising the DeFi sector and giving new life to NFT games.
What is NFT Bridging?
NFT bridging transfers NFT entries from one blockchain to another using a specialised application called NFT bridge. The process of bridging NFT includes essentially a smart contract with predefined conditions that must be met for the cross-chain transaction to occur.
Several popular NFT bridging applications are currently being used, including StacksBridge, Plasma NFT Bridge, Wormhole NFT Bridge, and XP Bridge. These applications are designed to facilitate the process of NFT bridging, making it easier and more accessible for users to transfer NFTs between different blockchains.
As with NFT swapping, several types of NFT bridging exist today.
1. Atomic Swaps
Interoperability between blockchain networks has become an emerging need for NFT traders. One solution to this problem is through direct, simultaneous exchange of NFTs across multiple blockchain networks called atomic swap NFT. To achieve this, smart contracts and customised protocols can be utilised to create a seamless and secure exchange process.
2. Token Wrapping
Token wrapping is a mechanism that facilitates the movement of NFTs between different blockchain networks. This is accomplished by encapsulating the original NFT in a compatible format that can be recognised by the destination network.
The wrapped token contains all the necessary information about the original NFT, which enables it to be accurately represented and exchanged on the new network. Through token wrapping, NFTs can be seamlessly transferred across blockchain ecosystems without losing their uniqueness or value.
3. Sidechain Bridging
NFTs can be moved between a sidechain and the main blockchain network through sidechain bridging. Sidechains are independent blockchain networks linked to the primary network and can be utilised for specific purposes.
This mechanism allows for the transfer of NFTs between different blockchain networks, enabling users to leverage the advantages of both networks.
4. Cross-Chain Bridging
When transferring NFTs from one blockchain network to another, the process requires the creation of a bridge between the two networks. To facilitate this, developers often rely on smart contracts and specialised protocols.
These tools help to ensure that the transfer of NFTs is secure, transparent, and efficient. By leveraging these technologies, it is possible to bridge the gap between different blockchain networks and enable the seamless exchange of digital assets.
NFT Swapping and NFT Bridging — Comparison Analysis
While both processes aim to move a single NFT between different blockchain networks and share technical aspects in common, their operation is fundamentally different in several respects, which are outlined below.
Security
Awareness of security risks regarding NFT swapping and NFT bridging is essential. Both processes can be vulnerable to fraud or hacking. However, bridging crypto NFT may carry higher risk due to the involvement of additional parties or platforms in the transfer process.
This could lead to security lapses or mistakes. Taking necessary precautions and making informed decisions when dealing with NFTs is vital to ensure secure transactions.
Speed of Transfer
When it comes to transferring NFTs, swapping them within the same blockchain network is generally faster than bridging them to another network.
This is because crypto bridging often requires additional procedures and processing time, such as creating a new NFT on the destination platform. As a result, the transfer time may be longer in such cases.
Transaction Fees
NFT swapping is a simple and less complex process that does not involve transferring NFTs across distinct blockchain networks. As a result, it is mainly associated with lower transaction fees than NFT bridging.
However, when it comes to NFT bridging, it may be necessary to utilise third-party services or platforms to facilitate the transfer of NFTs across different blockchain networks, which may result in higher transaction fees.
Interoperability
It’s important to note that NFTs can only be switched between other NFTs hosted on the same blockchain platform or network. However, the good news is that interoperability can be achieved across multiple blockchain networks through NFT bridging.
This widens the market for NFTs and provides more flexibility in terms of how they can be purchased, sold, and exchanged. With NFT bridging, the possibilities for NFTs become even more exciting and limitless.
Conclusion
NFT bridging and NFT swapping are crucial for collectors, investors, and producers to increase their NFTs’ value. They allow users to trade and bridge NFTs across various platforms, but there are interoperability issues and security threats to address.
Verifying each token’s uniqueness is crucial to avoid potential problems. These technologies will be essential as the NFT market develops, ensuring dependable and secure ways for users to interact with NFTs.
