by Qazal
When we talk about physical assets, the place where they’re “stored” is pretty straightforward. Proving physical assets such as gold or real estate exist is powered by the laws of physics. Therefore, the risk of a physical asset suddenly vanishing has never presented itself to owners. But what if I told you this counterintuitive fact gets more complicated for NFTs?
Nuances to NFTs
For the traditional ownership models, it’s a trivial fact that the gold somebody buys is guaranteed by the laws of physics to never go away. But new and emerging means of ownership in the digital Raum introduce new challenges regarding an asset’s immutability. Through the use of blockchain technology, creators can make digital items scarce and valuable. This also moved us away from the old copy-pasting approach to everything on the web and opened up opportunities for digital ownership of digital goods.
NFTs are the pioneers in this new trend and more than ever, we have to investigate the nuances in NFT investing. Although new economies bring huge returns, we have to be wary of the unknown risks of NFT investing.
How important is an NFT’s data?
The core value of an NFT is the thing it represents. This item can be an image of an artwork, a.eth name, etc. Therefore, it is clear that if the item is gone from the web, the NFT will lose its value. This is not a new phenomenon. Many NFT projects are vulnerable to this risk. This article aims to provide you with everything you need about NFT data security.
It’s not the end of the world for your NFTs!
The risk of a million-dollar NFT possibly losing its value should increase our awareness. Although this does not imply to all NFTs, understanding what makes an NFT vulnerable to losing its value will help you to make risk-aware decisions.
Oftentimes, this problem is overlooked, but it is a huge indicator of the potential for hazards. However, nobody can harm you if you’re aware of this risk. This is the beauty of blockchain. It is open and transparent and the data it shows never lies.
Ways of storing NFT data
Every project takes the most sensible and maintainable path for storing NFT data. There are two categories of data storage:
- Centralized
- Decentralized
You might be thinking to yourself: “wait, I thought we were talking about the blockchain and everything is permissionless and decentralized”. Well, it depends. Let me go a bit deeper into this topic.
How decentralized is an NFT?
Blockchain promises to be a decentralized ledger. This is powered by cryptography and opens up the doors for Bitcoin and Ethereum to exist. Although blockchains and cryptocurrencies are fundamentally decentralized, the case for NFTs is a bit more different than something like an ERC20 token.
At its core, an NFT is a smart contract hosted on a blockchain such as Ethereum. This NFT smart contract produces(aka. mints) ERC721 tokens. It gives each token a unique URI. The URI is like an ID number for the NFT. Until now, everything we talked about happens in a decentralized way on a blockchain. From this point on, NFT data divides into those two categories.
The token URI is like an address. This address is unique for every NFT and it points to a place where the NFT’s data is stored. Just like how your home’s address points to its location in the city, the NFT’s URI points to its location on the web.
The blockchain does not require the author of the smart contract to point the token URI to a decentralized place. Therefore, it is the developer that decides where to store the NFT’s data. This data consists of a title, image, and some attributes.
The conclusion is that although an NFT is fundamentally decentralized, the token URI might point to a centralized database. This means that the NFT still has some of the risks of centralization.
Data storage dilemma
We saw that it is up to the developers to decide whether they want the NFT’s data to point to a centralized or decentralized database. Technically, it is possible to store the metadata for an NFT on the blockchain itself. These NFTs are referred to as on-chain NFTs.
Projects such as Squiggly took this approach. The token URI for the NFTs are stored on a centralized API, but the images are also hardcoded on-chain for backup.
This means that an NFT’s image from Squiggly is impervious to corruption and is permanent.
But decentralized file storage is not limited to the costly approach of storing data directly on the blockchain.
Decentralized alternatives are adopted by developers of projects such as Bored Apes. The problem of making a decentralized file storage network isn’t new. Even before Ethereum, in the so-called “Bitcoin 2.0” movement people were thinking about this. Solutions such as FileCoin and IPFS exist today. The most popular approach is using IPFS.
You can see that we have given the immutable metadata tag to this NFT even though it doesn’t have on-chain metadata. So how is it immutable? Because its data is stored on IPFS which is a decentralized storage network.
IPFS stands for Interplanetary file system. This protocol aims to build a peer-to-peer network for storing data. If Bitcoin is peer-to-peer money, IPFS is the same for files. Each file in IPFS has a unique address (Just like the token URI for an NFT). This unique address is distributed in the network. After an image is stored on IPFS, it can’t change and it will remain until the existence of the network. Therefore, it is immune to centralized attacks and corruption.
This solution is common in NFT art and collectible collections where the metadata is not dynamic and doesn’t need change. However, this solution is not scalable for crypto games such as Axie.
If you look at an Axie on our website, you can see that unlike the last two, there’s no immutable metadata tag on it. This means that the NFT is vulnerable to centralization risk and is not censorship-resistant.
Let’s investigate why that’s the case:
If you’ve ever played video games you know that your character is dynamic. Meaning that you can level up, lose a battle and so on. The dynamic nature of an in-game NFT asset makes it nearly impossible for the developers to store the data in a decentralized way. This is why Axie has to rely on a centralized database so that the change of a character won’t cost the players too much gas fees. Imagine having to pay for every single move you make in a game. This would ruin the experience. That’s why Axie developers have decided to store the metadata on a centralized database. We can prove that by going on Etherscan and looking at the token URI for an Axie.
The solution for decentralized data storage
The blockchain ecosystem has an innovative and vibrant culture and talented people are working on new solutions. There are solutions like IPFS that have been through the test of time. However, as we saw with crypto gaming, the current solutions have limitations. NFTs are still a very young technology and this is just the beginning of a long journey. Necessity is the mother of invention. As demand rises for NFTs, we discover new and more scalable solutions. One of these innovative solutions is the Crust Network.
Crust Network is essentially an IPFS incentive layer protocol and a substrate-based blockchain that builds a decentralized storage network for the Web3.0 ecosystem. It is designed to build a decentralized cloud ecosystem that values data privacy and ownership.
NFT trading platforms serve an NFT’s metadata files by integrating Crust and IPFS. The solution can be divided into 5 steps:
- Import NFT files into IPFS;
- Store and distribute NFT files through Crust Network;
- Monitor the storage status of NFT files in Crust Network;
- Users access NFT files in the NFT trading platform;
- Renew order after six months to auto-extend expiratio of your NFT file.
This makes it very easy to store NFTs on Crust. Decentralized storage brings many benefits to NFT projects as well.
Recently, Crust also launched a low-threshold Web3 storage tool: Crust Files. Upload data with one click and store it for free. The pro version of Crust Files will be launched soon. You shouldn’t miss out the $50M event reward! For more detailed rules, please refer to:
The next time you see a little bluish text saying that the NFT’s metadata is immutable, you know exactly what that means!
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