Demystifying NFT Storage: Where's Your Digital Art Actually Living?

When you buy an NFT, you receive proof of ownership, not the artwork itself.

This ownership can be thought of as a link in a smart contract that is assigned to your address. This link looks like an ID token to us and refers to the NFT metadata store.

In other words, NFTs are not stored in your wallet, the wallet only gives access to storage with metadata (pictures, music, text, etc.).

Let's figure out where our art is actually stored and what storage methods exist.

Where are NFTs stored?

Storage outside the blockchain (offchain)

As we have already found out, NFTs are not stored on the blockchain, only a contract is written there stating that the NFT exists and who it belongs to.

More often than not, the actual art (metadata) is stored elsewhere as a hash.

ℹ️hash is data converted into one unique string as a set of characters. Using a hash function, we can turn huge data into a string of a fixed size, for example 256 bits.

The hashes themselves refer to centralized or decentralized storage.

Examples of centralized storage are Amazon or Google servers that store NFT metadata. With such storage, there is a risk of data loss due to disruption of servers (unlikely) and censorship (more likely).

Examples of decentralized storage are IPFS or Arweave.

IPFS

ℹ️The abbreviation IPFS stands for InterPlanetary File System or interplanetary file system. In simple words, it is a decentralized storage, data from which is stored on many computers.

ℹ️Arweave is an open, perpetual, unrestricted and uncensored decentralized archive. Essentially, this is a blockchain for storing data.

This option involves using a identification code (CID) associated with the NFT content. This type of data cannot be changed (unlike a centrally stored URL, which can be changed at any time).

It's important to note that decentralized storage is often cheaper. For example, at Arweave, the one-time fee for storing 1 MB of data forever is $0.01. And with the development of the network, the cost will only decrease.

Above we talked about off-chain storage of NFTs, that is, outside the blockchain. However, there are ways to store metadata within the blockchain. In this case, instead of NFT, the concept of a digital artifact is used.

Now we will dig deeper into the main difference - on-chain metadata storage.

Storage within the blockchain (on-chain)

Some digital assets are stored entirely on the blockchain. Simply put, they are recorded on the blockchain, along with their smart contracts and metadata.

In some ways, this is the optimal way to store digital artifacts. It leverages the best features of blockchain by storing complete information about digital artifacts in a secure, decentralized network. This ensures complete protection against censorship and hacking.

The downside is that storing this amount of information on the blockchain can be expensive, especially if the tokens themselves have a large file size. For example, in February 2022, hosting 500 KB on the Ethereum network cost $20 thousand.

However, some projects have managed to place their collections on the blockchain. CryptoPunks is a prime example. Indeed, although the collection was initially stored off-chain, Larva Labs moved it entirely to the blockchain in August 2021. Other major examples of artifacts are Loot, Autoglyphs, and Nouns.

Also, don’t forget about ordinals, all collections of which are located inside the blockchain. By the way, their metadata can hold up to 4 MB of video, pictures or text. In theory, NFTs on the Ethereum network can store 1 GB of data, but this will cost more than $150 thousand.

There are more suitable blockchains for storing data, for example, Filecoin, Sia and their analogues, which have almost unlimited capacity.

How to Securely Store Your NFTs

Just because your NFTs are stored outside of your wallet doesn't mean they're out of harm's way. You still need to take several steps to ensure that your assets are stored as securely as possible.

The most secure way to store NFTs, as well as other crypto assets, is a hardware wallet. A hardware wallet stores your private keys and passwords offline, which is why it is also called a cold wallet. This is in contrast to a software wallet such as MetaMask, which stores keys and passwords online and is called a hot wallet.

Initially, it may seem that a seed phrase of 12-24 words makes these hot wallets quite secure, but this is far from the case.

A huge number of MetaMask users have had their hot wallets compromised as a result of phishing attacks and social engineering. Unfortunately, the very thing that makes hot wallets convenient is also what makes them vulnerable.

Luckily, there is an alternative that greatly reduces the risk of losing your NFTs to hackers and scammers.

A hardware wallet is best used for long-term storage. An important caveat: do not use a cold wallet for purchases. This ensures that all access points to your wallet address remain offline.

This means that the best option is to buy an NFT using a hot wallet, where only an amount equal to the value of the NFT + gas (essentially a transaction fee depending on how much computational work it requires) is stored in the balance. And after the purchase, transfer the asset to a cold wallet. Then, if you decide to sell the NFT, you can transfer it back to the software wallet and put it up for sale.

Another option for maximum security is to use two separate hardware wallets: one for buying and selling, and the other for long-term storage.

If you are involved in NFT trading, then it would be logical to use a hot wallet and periodically transfer profits to a cold one.

Safe storage of NFTs is the responsibility of the collector himself. Set strong passwords, do not connect wallets to dubious sites, carefully analyze the project and read the description of transactions. which you sign. This basic hygiene on the Internet will protect you from losses.