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Where are NFTs Stored?
Where are NFTs Stored?

Where are NFTs Stored?

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Non-Fungible Tokens (“NFT”) are not an easy concept.  The overall NFT industry is all the rage right now, which means that uninformed people everywhere are jumping on the bandwagon without the slightest idea of what they are getting into.  Two of the biggest questions related to NFTs is: (1) “Where are NFTs stored? OR (2) What will happen to my NFT if the company I bought it from or the artist that creates it closes operations?  The simple answer is: “Trust the Blockchain.” This answer is halfway informed, but mostly misleading.  If you are asking this question you are either experiencing an issue or overtly curious about technical concepts.  Either way, please feel free to call me to discuss.

NFTs are virtual representations of an asset.  In its simplest form, an NFT is a record stored on a blockchain that directs you to where it’s associated content can be found.  Unlike cryptocurrency, NFTs are unique, and because they are unique they are indivisible.  The ownership and transferability of an NFT is managed via a smart contract.  The code supporting the smart contract is stored on the blockchain (IE Ethereum or Solana) and it’s not going anywhere. 

In simple terms, fungible tokens are stored as balances and non-fungible tokens are stored as unique items. In pseudocode it might look something like this:

// fungible

const balanceByUser = {

  ‘rob’: 100,

  ‘becca’: 55,

  ‘joe’: 15,

};

// non-fungible

const ownerByToken = {

  0x124: ‘rob’,

  0x553: ‘becca’,

  0x618: ‘joe’,

  0x790: ‘joe’,

};

Hence, the simple answer of “Trust the Blockchain” isn’t wrong, but it is misinformed. 

The content associated with the smart contract is not stored on the Blockchain.  IE you just purchased Bored Ape yacht Club#7689,which by the way was recently sold for $181,248.79.  The smart contract associated with this NFT is stored on the blockchain letting everyone know who owns it, the price history and when it was minted, but the file (IE .JPG) itself can be stored anywhere.  Since it could be stored anywhere, it is conceivable, albeit unlikely, that it could also disappear.  Back to the Bored Ape Yacht Club example, if this project were to close its doors the metadata associated with the actual art could disappear with it. 

NFTs can be stored is Software Wallets.  Think Metamask or Coinbase. That being said, in 2021 we have seen a shift from centralized servers holding NFTs to decentralized storage networks like Interplanetary File System (“IPFS”).  For each NFT, the smart contract will contain an IPFS link that it references. To clarify, NFTs are NOT stored on the blockchain. NFTs simply contain data on the blockchain that points to a file on IPFS. An NFT on a blockchain would have a hash signifying the NFT file (IE.jpg) and linking (with urls) to the actual storage location on ipfs.  Once entered into IPFS the hash of a file is also it’s identifier, which gets stored on the blockchain and can easily be looked up in the future. Even if ipfs were to somehow disappear, the actual NFT file would produce the same hash.  When using an IPFS,NFTs are stored off-chain. 

The pinning of the files to IPFS is done according to the smart contract and the entity performing the mint.  This option uses an identification code (Card Identification Number) linked to the content of your NFT. This type of data can’t be modified.  In contrast, a URL, which is another type of identifier, can be modified at any time.  When using IPFS, all of the important data is stored directly on your computer.  If someone or something were to try and access your data, you’ll get a notification since the system can detect hacker nodes. 

To simplify, IPFS gives your stuff a special name. A name so special that no one else in the whole world or ever in the future will have that name. IPFS makes sure that anyone who wants to view your NFT can find it via it’s special name. IPFS will even break your NFT down to smaller parts and give special names to all the parts to maximize space. IPFS is safer than a soft wallet, but susceptible to hackers and system outages. 

Lastly, NFTs can be stored on a hardware wallet, which means that it is stored 100%offline, and it’s protected.  Hardware wallets can be connected to the internet, and used like software wallets, as well. However, because of the device technology, your assets are safer from hackers than they would be if they were stored on a software wallet. 

As already stated, NFTs are in their infancy. The industry would benefit from some sort of persistence seal or a standard guarantee that the data supporting the NFT exists.  Whether that is decided by the platforms, creators, or the collectors is yet to be determined.  If you are curious about this topic or are having issues with NFT storage, please call my office to discuss your legal rights.  407-452-4918. 

407.452.4918