• Non-fungible tokens (NFTs) are a way to prove ownership of digital art and collectibles.
  • The cool image or video the NFT owner owns doesn’t actually live on the blockchain. Instead the token refers to a file that sits somewhere else on the web.
  • If the file is stored at a traditional web address, the NFT owner is in some danger if that file is ever taken offline.
  • The NFT industry has solutions for this issue, but stakeholders haven’t settled on best practices yet, making it difficult for buyers to assess which NFTs safely store data for the long term.

Clearly, buyers are very excited about the potential of non-fungible tokens (NFTs).

This month alone, Nyan Cat’s creator nabbed almost $600,000 in ETH, a single Hashmask sold for $650,000, rare CryptoPunks are going for over $1 million and a chunk of “land” in the game Axie Infinity fetched 888 ETH.

But those buyers should consider a very important question: What will happen to their NFT when the company or artist that created it closes up shop?

That question may be somewhat ahead of the curve for an industry growing this fast. For one data point, Devin Finzer, CEO of NFT marketplace OpenSea, told CoinDesk in a phone call that the company has “had some pretty insane growth,” going from $1 million in volume as of August to $8 million in January and $50 million already in February.

An NFT is a completely unique blockchain token. This is distinct from other tokens, which are fungible. One of Augur’s REP tokens is as good as any other, but each CryptoKitties collectible is its own cat, and provably so. 

As this particular blockchain use-case clicks in the minds of buyers, it’s important that they get more sophisticated about considering how safe and secure their asset is – its persistence.

Persistence is more an issue for those buying art or collectibles than it is for people buying, for example, in-game items (such as weapons or land). Furthermore, NFTs can do a lot of things besides track content ownership. NFTs can make shipping invoices into loan collateral or manage smart-contract risk. 

But the key use-case right now is for owning cool stuff minted online, usually with an image or GIF, but sometimes with sound, video or text attached to a completely unique token on Ethereum or, in the case of the surging NBA Top Shot, on Flow.

So when users buy that cool-digital-thing, whether a sliver of basketball video or brilliant piece of artwork, do they know how the cool-digital-thing is hosted and can they verify it will continue to exist over time?

“When you talk about blockchain and decentralization that’s not something that’s on consumers’ minds. But LeBron James, they understand that,” David Pakman, a partner at the venture firm Venrock, told CoinDesk in a phone call.

If an NFT buyer spends enough on an NFT to make their wallet groan, though, they might want to think about the blockchain bits after all.

How does this all work?

On the simplest level, an NFT is a record (a document with a hash) stored on Ethereum (usually) that points to where its associated content (the image) lives somewhere else on the internet (it’s much too expensive to store images on Ethereum).

“You can go to the contract and you can actually query the contract for what’s called a TokenURI,” OpenSea’s Finzer told CoinDesk.

The people who made the ERC-721 standard explicitly decided not to weigh in on where a creator puts the data and how reliable that storage site is. “Who is the authority and who owns what and can we prove that?” William Entriken told CoinDesk. “This is a little bit outside of the scope of the standard.”

Entriken is an open-source promoter who got involved with the crypto community in 2018 to shepherd the ERC-721 standard that makes NFTs on Ethereum possible.

In short, the NFT tells you where the content lives at the time it was minted; the standard isn’t trying to enforce some concept of data persistence. That’s something the industry needs to work out itself.

There are more ways now to point at “where” content is than there was when the ERC-721 standard was finalized, and more may still be to come. The new web allows content to be addressed by what it is, rather than where it is (which is all the old web can do), and NFTs are a case in point for how this is advantageous.

To explain: On the web as we all know it, addresses point to locations. There’s a specific website and a specific file on that website where some data sits. There might be millions of copies of Nyan Cat across the internet, but a traditional HTTPS address (like the one at the top of your browser right now) will only point to one file online.

But now we also have content addressing, pioneered by the InterPlanetary File System (IPFS). Content addressing makes a hash of the content itself and, provided no one messes with the file, can find the nearest copy of that content when a user wants to see it.

So if there were 1,000 exact copies of Nyan Cat on a 1,000 different servers around the world, but 999 of the servers got destroyed one day, IPFS could still find the last one left. The hash of the content would tell you it really was the content you were looking for.

This is why content addressing might be especially important for NFT hodlers.

Scale matters

Pakman has been one of the investors who has been out front on NFTs since long before the present buzz took off. He told CoinDesk this conversation about NFT persistence is one that’s several steps ahead of where most buyers’ minds are at right now, but he agrees that it’s important.

“Some data today related to decentralized experiences is not being stored in a decentralized way,” Pakman granted, but he also said the level of concern a buyer should have is more relative to the scale of the entity creating it.

For example, Dapper Labs, which makes NBA Top Shot, the basketball site getting covered by ESPN these days, is prioritizing user experience over decentralization in the early going. But it’s also a well-funded company in relatively little danger of vanishing over the weekend.

Beyond NBA-licensed basketball cards, though, a lot of this work is being generated by independent artists – which is great: finally creatives are making some real money online.

“When we talk about owning digital artwork, the thing we want is the glory of being the one who supported the artist,” Entriken said.

That said, if you snag an NFT from one of the many pseudonymous, edgy digital artists making unique works for sites like SuperRare, Foundation or Portion, it might be worth doing some due diligence on where that content lives online. They could be a one-person shop.

If the artist got hit by a bus and their website went down, would you be able to really prove that a hash in your Ethereum wallet corresponded to a cartoon head with a bird bouncing around inside it?

Self-hosted art

Pinata is a company built on IPFS and Filecoin that has a particularly strong position on storage.

The project argues that when an art buyer buys a painting, the buyer then takes responsibility for care and custody of the painting and it’s out of the artists’ hands. So why, Pinata contends, should we expect digital content creators to manage ownership of NFTs forever?

Pinata’s solution, as articulated in a blog post last April, involves the NFT’s owner putting a copy into an IPFS instance they control. IPFS would be able to find either copy, but if the creator deleted theirs the new owner would still have one, and the hash would verify it was the same digital thing (even though it had moved).

Let’s pause here because Web 3 is weird. To restate the above: There can be one copy or a thousand copies or a million, but the NFT is like a deed. However many copies anyone makes there will only be one record that bestows ownership; it will be in just one wallet. That’s the owner of the NFT no matter how many people have a copy.

In fact, artist Sarah Friend argues on the Byzantine Dreams podcast that a digital artwork might become more valuable the more people decide to hold a copy.

End intermission, back to permanent storage options: There is another way a creator could at least try to host content in a way that lives forever. It’s a very new protocol, but Arweave’s whole premise is that creators can pay once and store a file for as long as the Arweave network persists.

“Artists can trivially mint their tokens via an integrated platform like Mintbase, or they can upload using ArDrive (or similar) and drop the Arweave URL into their minting app of choice,” Sam Williams, Arweave CEO, told CoinDesk in an email.

We haven’t hit “forever” yet or even very long, so Arweave might be a bit of a leap of faith. “I remember hearing really good things about Arweave, but IPFS has been around longer,” OpenSea’s Finzer noted.

Either way, Pakman thought it was good to raise another issue that might have some savvy buyers nervous. Could the people who created NFTs ever devalue them by trying to revoke owners rights to the content?

Take NBA Top Shot as an example. “Every time a moment is minted, the NBA can’t come and take away the rights from Dapper Labs,” Pakman said. “You own the IP that’s embedded in that.”

It’s just like baseball cards. The National Basketball Association could no more take back an owner’s video moment than Major League Baseball could go around and steal back everyone’s cardboard baseball cards if it got into a fight with their publisher, the Topps card company, for example.

How to check?

So if NFT buyers are mindful about persistence, how can they check the reliability of their content’s storage?

If that aforementioned TokenURI is an HTTPS address, it’s a little dicey. 

To self-host, the creator would basically need to turn his or her server over to the new owner. Sure, the new owner can download a copy, but you get into really sticky situations there about provenance if an NFT starts to be worth serious money (which, at this point, seems quite feasible).

But that’s also becoming less of an issue. “So far we have seen a shift from centralized servers holding NFT media to decentralized storage networks like IPFS, Arweave, Sia and Storj,” CoinFund’s Jake Brukhman noted.

It might make sense for the industry to sort out some kind “persistence seal,” like USDA-certified organic or UL certification, something that quickly tells consumers that an NFT has been minted in a way that could allow it to live beyond its creator.

But it’s not always easy to see on marketplaces where an offered item is stored, and platforms don’t always communicate signals about the storage method’s reliability. 

“It wouldn’t be hard for us to add,” Finzer said, if some sort of standard for persistence were adopted by the industry.

Alexander Salnikov, co-founder of another marketplace, Rarible, said his company is trying to stay ahead of NFT persistence without completely locking into one solution quite yet. 

“We expect Rarible to successfully function all the way up to full decentralisation with systems like Arweave and Filecoin,” he told CoinDesk in an email.

“This is definitely a long-term issue that the ecosystem will have to figure out,” Elpizo Choi, a developer at Foundation, told CoinDesk. To Foundation’s credit, when a work is stored on IPFS, it makes that very easy to see and verify (note the link on Nyan Cat’s page), but how the content gets stored with its metadata is inconsistent from creator to creator, Choi said.

Kyle Tut works for Pinata, which Foundation uses. Tut told CoinDesk in an email, “A standard to guarantee the NFT data exists still needs to be worked out for NFT owners. Whether that is decided by the platforms, creators, or the collectors is to be determined.”

“It’s early but I’m hoping we converge on something consistent and extensible soon,” Choi said.