Many brands are launching their NFT collection. But due to technical and legal ignorance, they take significant risks with regard to what they actually offer for sale. decryption.
Let’s go back to the beginning: a NFT (Non Fungible Token) is the immutable association between a digital asset (image, 3D object, video, sound file, etc.) and the certificate of authenticity. This association made on a Blockchain makes it inoperable. That is, not replaceable. On Ethereum, the reference blockchain for NFT collections, we talk about SmartContract as contracts that describe the underlying value of this digital asset: owner, description (metadata), price, gas costs (commissions) and most importantly, location. That is, the place where the asset in question is physically stored.
The problem is that today 95% of NTFs in circulation are not mined (integrated on the blockchain). Only their SmartContract is. And when we look at the location of the asset in the contract, it usually refers to a web address outside the blockchain. The asset is therefore stored in a classic web environment (centralized server) or more mainly in the decentralized network IPFS (InterPlanetay File System), a peer-to-peer storage network that is more secure and less risky than a web server. Sure, but that’s not Blockchain either. And the consequences are many!
1/ You do not own the asset
Owning an NFT physically hosted on IPFS or worse on a classic Cloud (sometimes Google Drive), you are really only the owner of the asset’s location address. And not of the asset in question. Because only the address is mined on the blockchain and is therefore really yours. In short, you do not own the asset, but the GPS coordinates of its location.
Today, if you decide to buy an NFT from the Bored Ape collection on Opensea (the market leader in NFT sales), you will have to pay over $100,000 and the image of the sad monkey you are about to buy will not be yours. not.
You have the IPFS location link where the image is hosted in an immutable and intangible way.
2/ Your property may temporarily disappear
The digital asset that is not encrypted on the blockchain may eventually be replaced by another file or worse, disappear. The developer of the NFT can post an image of his vacation or even remove the image. And there is the 404 error. Nothing is displayed. Which is totally impossible if the digital object is actually physically on the Blockchain.
In March 2022, CoolCat disappeared a famous collection of NFTs for a week because the (remote) servers hosting the collection went down. Even worse, Opensea kept selling (and buying customers) this collection (because the images are stored on this platform) while NFTs were dead!
3/ Your property can die
The promise of the NFT, supported by the Blockchain, is the durability of the object over time. However, as we can guess, this way of encoding NFTs does not guarantee their durability. From the moment the developer team, brand or creator hosts the asset outside the Blockchain, there is a risk. If he stops paying for, say, server hosting, the NFT dies. Hence the need for the investor interested in a Web3 project to learn more about the intrinsic quality of the NFT, to be interested in the SmartContract it describes and above all to see the quality of the team, the roadmap of the project and its viability over time.
So how do you avoid these serious mistakes?
First of all, it is necessary to impose an obligation to provide information about the reality of the contract and the underlying values. This would enable the buyer to invest consciously.
In addition, it will be a matter of making the “On-Chain” functionality of NFTs a standard by encapsulating the digital object directly on the Blockchain. The object and certificate are thus permanently connected and engraved for life. This means paying the price and having a much more advanced coding knowledge. An NFT On-Chain should be much more valued than an NFT Off-Chain because the ownership title is immeasurable!
The brands that launch therefore have to think carefully about the nature of the SmartContracts they issue: best practice, source code, On or Off Chain, optimization of Gas.
In short, it is possible to create quality NFTs and give a real guarantee of security and real ownership to the digital asset. But we must stop believing that we can achieve this result by creating these NFTs on free Marketplaces. It is a know-how and a precise support (technical, economic, legal) that must be considered!
Otherwise, watch out for the bad buzz!