Recently non-fungible tokens have been in the spotlight after the value of digital art NFTs skyrocketed at online auctions. NFTs are unique assets represented on a blockchain. Most cryptocurrency tokens are not NFTs. Instead, they are fungible, meaning tokens of the same currency are not unique from another. You can buy NFTs through many different marketplaces, but what are you actually buying? Digital art NFTs may not be what they seem.
When you buy an NFT digital artwork, you may expect that the actual artwork or video clip will be transferred to your wallet. This is not true. What you are likely to receive is “metadata” recorded on the blockchain. In plain English, you are buying a digital description of the artwork.
NFTs represent ownership rights, but the underlying assets are stored elsewhere
A digital art NFT token represents the artwork, but it is costly to store an image or video clip inside a token. Instead, what you will find a URL (a web link) inside the NFT token that points to a location on the internet. If you follow the address, you will generally find a file that contains data about the image, such as an image URL, description, and file name. When you click and follow the image URL, the actual image is likely stored on a third party company’s website. The NFT securely proves ownership of whatever image is at this location.. While this proof is stored safely on the blockchain, how secure is the actual image?
Data stored outside a blockchain do not benefit from blockchains’ security
Blockchains are widely considered a secure place to store data. NFT data stored on a blockchain, such as proof of ownership and transaction history, benefit from this security. Critical image data stored off the blockchain may not be so secure. What happens to your NFT if the website containing the artwork shuts down or the content is switched out? The reality of the situation is that NFT art owners are at the mercy of these companies. They do not physically control the artwork they have purchased or even the metadata. If the company wanted to, they could change the image or clip you bought. The company controls the data. If a company uses a private server to control its images and the company was to go out of business, your NFT will lose its value. While your NFT token continues to prove ownership, the asset you own can be lost, leaving you with a cryptographically secure but dead link.
To make an analogy, if you store the deed to your house in a bank, you can protect your proof of ownership, but this does not protect your home from events like fire, arson, or theft. Fortunately, there are other products like locks and insurances that can help you. Similarly, there are ways to protect your digital artworks.
There are ways to protect digital artworks represented by NFTs
One way to prevent loss from the company storing your images is by using an IPFS link. An IPFS link is an alternative to URLs that points to an asset in a decentralized storage system. In a decentralised storage system, an asset can exist in multiple locations inside the system instead of a single server reducing the likelihood of loss from a server issue. This principle is similar to the decentralisation that makes public blockchains secure. If your file is on IPFS, then the NFT platform cannot swap out information, change the image or delete it entirely. The issue with IPFS is that unused files are often removed when the system runs out of space, and new files need to be uploaded. The System will drop files that have not been looked at in a period of time. When this happens, there is no guarantee that the file has been backed up on another IPFS server. Because of these issues, IPFS links are not an ideal solution; however, they are a significant improvement over URL links to private servers.
To protect your NFTs from disappearing, there are extra precautions you need to take. Paying for services like Pinata and similar services makes sure that files on IPFS servers never disappear. They do this by periodically requesting the file throughout the day. This ensures the file is never considered inactive and removed. If the IPFS file is stored by the company you bought your NFT from, there remains a risk. However, there is a good chance another IPFS server will have the file.
For NFTs to become widespread, decentralised, and secure, storage solutions are necessary.
If people start to lose their NFT assets, the NFT bubble will inevitably burst. This raises questions for NFTs and blockchain. For example, what is the intellectual property story? How do you handle fraud and dispute resolutions? What stops the same digital assets from being sold on multiple blockchains? Before NFTs become useful and widespread, the system needs to create trust for users that their assets are secure. Like the ICO bubble of 2018, when users bought into worthless cryptocurrency en masse, there is no regulatory framework to keep users and providers accountable. While there are risks and concerns to be addressed by the community, we believe NFTs can offer real value to creators and can even become an integral part of decentralised finance. We are excited to see NFTs mature as a technology.
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Digital Art isn’t the only place NFTs are making waves. checkout our other NFT posts to learn more.