Do you really own your NFT? Understanding the tech – and the risks behind ownership
Opinion Non-fungible tokens (NFTs) are on the rise. The blockchain powered digital collectibles have managed to get worldwide attention, despite a general lack of comprehension of how they actually work. A few months ago, NFTs were still specialist items. Now they are being auctioned at premier auction houses such as Christie’s and Sotheby’s, with some artwork being acquired for millions – notably Beeple’s $69 million collage. While the NFT market is currently booming, some risks and security concerns need to be addressed.
The key concept behind NFTs is ownership, which relies on their decentralised nature. In other words, ideally an NFT can’t be controlled or tampered by any authority once added on the blockchain.
However, it turns out that many NFT projects are not decentralised after all.
Many NFT projects are using centralised storage methods. This goes against the very principles of NFTs, as they become vulnerable to manipulation.
When acquiring an NFT, you purchase the ownership of the ‘token’ on the blockchain, with the assurance that the ‘token’ is compliant to some measure of standards. Unfortunately, with centralised storage methods like Amazon Web Services or Google Cloud, you lose this assurance.
Ideally, this ‘token’ — comprising unique media assets such as an image, GIF, video, audio, or tweet, and the metadata or properties associated with that media — would be stored either on IPFS (an alternative technology to HTTP focused on speed and security) or on the blockchain itself. However, some project teams would rather use alternative storage methods that are putting the NFTs at risk.
For example, CryptoKitties – one of the very first NFT projects – have the “genes” of every CryptoKitty stored in an unverified, closed source contract on Etherscan, and Axie Infinity have their $1.5 million equivalent of digital land and the metadata associated with it, stored on a centralised server.
This could pose serious risks for the “owners” of these digital artworks, as those in control of the centralised server will have free rein to change the media image or video at their discretion.
To the “owner”, the expensive artwork that was purchased could suddenly be reduced to little more than a silly image of a carpet worth next to nothing. Also, if the NFT’s properties are located on a centralised network, and the organisation that owns the server goes bankrupt, or does an ‘exit scam’, the NFT would become a broken link.
There’s undeniably some complications when storing these assets on the blockchain, one of them is the limits of blockchain in terms of the size of the data that can be stored on it. For the NFT creators, centralised storage is indeed a much cheaper alternative. For the collector however, centralised storage can become a very expensive mistake.
Project teams should always do the following when creating NFTs— hash every image and store the media and metadata on the blockchain and/or IPFS (when the data is too heavy). These two steps would give collectors some form of ownership and visibility on the properties and the provenance of the digital collectibles they are acquiring.
People who are considering the acquisition of an NFT should always verify if the properties of the NFT are on the blockchain, IPFS or if they are stored on centralized servers. The location of these properties ultimately makes the difference between a digital artwork lasting for generations and a broken link… with no NFT to be found.
NFTs have had phenomenal growth over the past few months. The question of the tech behind NFTs will be closely linked with the quality of how they are built and stored. Regardless, thanks to this new market and technology, artists now have an innovative new way to engage with their fans as well as to monetise their creative output. We are all looking forward to how creative and tech minds will be shaping the future of non-fungible tokens.
Editor’s note: Take a look at The Block’s weekly NFT roundup – the most recent entry can be found here.
Main picture: The Associated Press’ first NFT artwork, in collaboration with Everipedia and digital artist Marko Stanojevic. Picture credit: PRNewsfoto/Everipedia
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