NFTs, Storage, and Persistence Issues

Today, the most valuable assets are no longer just those with physical assets such as housing, land, and artwork. Virtual assets that came into our lives with digitalization have become so widespread and appreciated that, all around the world, a new category under the name of "digital assets" is needed. Regulation studies have already begun on this issue. Undoubtedly, crypto assets such as tokens, crypto money, and NFT, which have a place in our lives with the blockchain, take an essential role in the emergence of these ideas. 

NFTs cover a wide range of assets, values, and objects, such as art, music, video game, collectibles, sports moments, memes, domains, virtual fashion, and real-world assets. NFTs, as unique and non-substitutable crypto assets, have acted as a certificate of ownership or a receipt for the digital content in these fields sorted.

Where is the content that an NFT represents stored?

As a token, NFT and the content that an NFT represents as a digital file are different things from each other. Let's take a collection NFT as an example: the collection item and the NFT as a token representing this collection item on the blockchain should be evaluated separately. When a person buys NFT- unless otherwise clearly expressed- he will gain only a right over this unique token, NFT. In this framework, the person who buys the NFT representing a collectible item does not gain any rights on the item in the real world itself. In other words, unless there is an explicit arrangement with the smart contract, the person who buys the NFT of a painting will not become a right holder on that painting. We should remember that the person who purchases an NFT actually gains ownership over a set of codes.

What makes an NFT we purchased valuable is the content (media file) represented by it. This media file is a part of the metadata of NFT. That's why NFTs have been valuable as long as they refer to or represent valuable data.

So, where is this content represented by NFT, in other words, the content underlying the NFT? There are various possibilities regarding the storage of the contents represented by NFTs. We should understand that the underlying content of NFTs has not been stored the same across all projects. Within these possibilities, NFTs are divided into on-chain and off-chain NFTs.

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The distinction between off-chain and on-chain NFTs

NFTs consist of two fundamental components; a number called a token ID and an alphanumeric code known as a smart contract address. 

In on-chain NFTs, data such as the smart contract code and the metadata that includes the definition of NFT and its basic features are all in the blockchain. Since metadata in on-chain NFTs has integrated with on-chain NFTs, these data become recorded in the blockchain. Therefore, the existence and persistence of on-chain NFTs have become guaranteed by blockchain principles. However, on-chain NFTs are less common because of the limited storage capacity of the blockchain. Usually, an average NFT collection consists of ten thousand NFTs. Here, storing large amounts of data in the blockchain comes to the fore. Since the data stored on the blockchain must be validated and spread within the framework of blockchain consensus mechanisms, storing large amounts of data lead to high costs.

For these reasons, off-chain NFTs are much more preferred. In off-chain NFTs, the digital content represented is held in external systems apart from the blockchain. Storages such as Dropbox, Google Drive, central hardware server storage, and IPFS (Interplanetary File System) can be examples of these external storage options. In off-chain NFTs, smart contracts are on the blockchain, and this smart contract acts as a bridge between the token and the server on which the content has stored outside the blockchain. In off-chain storage, NFT's smart contract contains information that points to some off-chain location where the JPEG image of the content represented by the NFT is stored.

When central servers have chosen to store content in off-chain NFTs, it will be possible that the people operating this server will shut down the server and block access to its content. In addition, such central servers are also vulnerable to cyber-attacks. Similarly, keeping the content external from the blockchain puts its persistence at risk. Despite these, popular NFT projects such as CryptoPunks and Bored Ape Yacht Club have adopted off-chain storage. For example, if you own a Bored Ape Yacht Club NFT, the smart contract of this NFT will point to an external environment where the monkey image has located.

IPFS (Interplanetary File System)

When an off-chain NFT is created and establishing a link between this NFT and content stored on a system external to the blockchain is desired, how the connection between the data has established owns of great importance. IPFS is a favorite of off-chain NFTs because it is reliable for content storage. IPFS relies on a distributed, decentralized, and peer-to-peer (P2P) storage network. The uploaded files have stored on multiple computers in the network. Thus, IPFS provides an experience of more secure data storage. 

However, if there is a problem with the network where the off-chain content has located, this connection becomes unusable. Also, the person who created the NFT has a risk of deleting the file related to the NFT, that is, breaking the link between the content file and the blockchain. It means that NFT is still on the blockchain as a token, but it is inaccessible by NFT holders- since this NFT is a kind of hollow technically. Although IPFS is more reliable compared to other centralized systems, files stored in IPFS either do not have absolute persistence.