Non-Fungible Tokens (NFTs) have taken the digital art, collectibles, and gaming worlds by storm, with their unique characteristics and decentralized nature captivating enthusiasts and investors alike. However, beneath the surface of these digital treasures lies a complex technical infrastructure that enables their existence and functionality. In this blog post, we'll delve into the technical details of NFTs, exploring their data structure, asset storage mechanisms, decentralization, and custody.

Data Structure: The Building Blocks of an NFT

An NFT's data structure is comprised of several key components, which are stored on a blockchain:

1. Token ID: A unique identifier that distinguishes one NFT from another.

2. Contract Address: The Ethereum smart contract address that governs the NFT's behavior and ownership.

3. Token Standard: The specific standard used to create and manage the NFT, such as ERC-721 or ERC-1155.

4. Metadata: A set of attributes that describe the NFT, including its name, description, image, and other relevant information. Metadata is typically stored off-chain, with a URI (Uniform Resource Identifier) pointing to its location.

5. Asset Hash: A cryptographic hash that links the NFT to its associated digital asset.

These components are stored on a blockchain, which ensures the immutability and transparency of the NFT's data.

You will note that the asset (JPG image) is not store on-chain. It would be too expensive to do so.

Some NFT collection use the SVG image format to store the asset on-chain, but the space is limited and the tokens are expensive to mint.

Asset Storage Mechanisms: Where Do NFTs Live?

NFTs can be stored in various ways, depending on the chosen platform and use case. Here are some common asset storage mechanisms:

1. Centralized Storage: The digital asset is stored on a centralized server or cloud storage, with the NFT's metadata pointing to the asset's location using DNS Domain name and HTTP protocol. This approach is more cost-effective but compromises on decentralization and security.

2. Decentralized Storage: The digital asset is stored on a decentralized storage network, such as InterPlanetary File System (IPFS), which provides a balance between security, decentralization, and cost-effectiveness.

3. Hybrid Storage: A combination of centralized and decentralized storage, where the asset is stored on a decentralized server, but the metadata is stored on-chain.

4. Specialized Storage Solutions: Purpose built solutions like Arweave or Walrus are built to store data long term and have immutability built-in.

A Custody challenge

While owning an NFT token on-chain provides a sense of security and ownership, it's crucial to recognize that this only guarantees control over the token itself, not the associated digital asset or metadata. If a private entity hosts the NFT's metadata and assets under a domain name, the risk of asset loss or manipulation remains. For instance, if the entity goes out of business or decides to revoke access, the NFT's value is severely diminished, even if the token remains in the owner's wallet.

This highlights the challenge of custody in NFTs, where ownership of the on-chain token is only half the battle. To truly ensure the longevity and integrity of the digital asset, it's essential to consider decentralized storage solutions for metadata and assets, such as IPFS, and to carefully evaluate the terms of service and data management practices of any third-party hosting entities. Otherwise, the promise of decentralized ownership and control may be little more than an illusion."

Conclusion

In conclusion, the true value of NFTs extends far beyond the token itself, residing in the associated data that brings it to life. However, this data comes at a cost, and the sheer scale of storage required to support the growing NFT market raises important questions about decentralization and custody. As the majority of NFT data is stored off-chain, it's crucial that this data remains accessible and intact for as long as the blockchain referencing it exists. If not, the value of the NFT is severely compromised. This highlights a critical tension between the promise of decentralization and the reality of centralized data storage, leaving the NFT industry to grapple with the challenge of reconciling these two competing interests.

NFT Freezer is working on this issue by letting you pin your own NFTs on IPFS.