Are you considering acquiring a Non-fungible token (NFT)? If so, you need to understand the tech risks and the steps to take to avoid them. NFTs are powered by blockchain technology, which can lead one to think that they are completely decentralised, and therefore safe. But this perception can be flawed, as a lot of NFTs on the market are currently vulnerable to damage and manipulation. After reading this blog post, you should hopefully be able to make a more informed decision when entering the world of NFTs!
The market of non-fungible tokens (NFTs) is booming. NFTs have taken the art world by storm, and many other industries are looking to invest in them. You now have luxury auction houses Christie’s and Sotheby’s hosting their first NFT sales, and artwork being sold at record prices (notably Beeple’s $69 million NFT). People are starting to realise the phenomenal potential of digital art and we are still very early in its development. If the opportunities in this space are endless, some crucial tech and security concerns need to be addressed.
There have been an incredible amount of fraud and plagiarism issues associated with NFTs: many artists had their work minted into NFTs and sold without their knowledge or consent. For example, Derek Laufman had the very unpleasant surprise of discovering that his artworks were being sold as NFTs on Rarible, through a verified profile impersonating his identity. Platforms selling NFTs are not yet very meticulous when it comes to verifying works/artists. SuperRare and OpenSea both recommend to ‘do your own research’ to safely acquire an NFT on their platforms. One of the mandatory steps to ensure the authenticity of the artwork is verifying the NFT’s smart contract on Etherscan — a blockchain explorer. Unfortunately, there are numerous NFT projects that don’t complete this necessary verification, meaning that you could easily end up acquiring a counterfeit.
The NFT industry also faces a significant appropriation challenge, caused by off-chain storage. The key principle behind NFTs is ownership, which relies on their decentralised nature. However, a considerable number of NFT projects are using centralised off-chain storage methods, which defeats the very purpose of NFTs, as they become open to external control. Some NFT projects use these methods because there are some technical limitations on the size of the data that can be stored directly on a blockchain. IPFS — an alternative technology to HTTP, focused on speed and security— can be used to store an NFT’s assets (the metadata and media) when the volume is too large, but some projects would rather use centralised servers. In that situation, the NFT can be altered by the organisation in control of it. If your NFT can be modified at any time, is it really yours?
Off-chain storage also entails longevity issues: with a centralised server, your NFT might eventually disappear. If your NFT is stored on a centralised network, and the company that owns the server goes under, your NFT would simply vanish. Collectors would then experience the pain of finding an ‘Error 404 this page not found’ message when checking on their NFT. On average, the lifespan of a website is between 2–5 years, which seems like a very short amount of time if you are acquiring a costly NFT! Beeple’s NFTs are not the only digital artworks worth millions: CryptoPunk #7804 and Jack Dorsey’s First Tweet were acquired for $7.5 million and $2.9 million respectively. If an NFT valued at a similar price was to break down in the near future, it would have a very negative impact on the industry.
In principle, if you buy an NFT, you should be able to enjoy it for as long as you want. Collectors need to ask themselves the following question when buying an NFT: will the artwork outlast the company that created it? This can only be answered by looking at the storage methods used. Imagine considering the acquisition of two different paintings, that cannot be removed from their current location. The first one is stored in a museum with an impenetrable security system, while the second one is in a run-down building that could collapse at any point. Which one would you buy?
As a new market phenomenon, the NFT space still requires adjustments to adopt an optimal approach to security. But if you complete the following steps, you will be able to acquire an NFT without facing the issues at hand.
Prior to acquiring an NFT, you should always inspect the provenance of the art, to verify its authenticity, vulnerability, and longevity. To authenticate an NFT, always conduct a search on its creator, and inspect if its smart contract has been verified on Etherscan. Then to see if an NFT could face tech or appropriation issues, you need to have visibility on where its assets are located. If the NFT’s assets are not mainly stored on the blockchain and/or IPFS, you cannot ensure that you really own it, or that it will not break down in the near future.
With off-chain storage, the ownership of your NFT becomes completely dependent on the project team that created it, meaning that an NFT worth millions could become completely worthless. An NFT’s location ultimately makes the difference between an artwork lasting for generations and a broken link.
If you are willing to spend money on your favorite NFT, you definitely should spend a short moment inspecting the tech behind it!