June 20, 2022

THE NFT APOCALYPSE

Jason Bailey explains why more than half of your NFT collection will likely break in the next five years
Credit: Norman Harman, Marathon Man Atomic Landscape A, 2022. Courtesy of the artist
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THE NFT APOCALYPSE

Many NFT collectors are living under a potentially devastating misapprehension — that their NFTs exist fully on the blockchain and are therefore safe. The reality is that the artwork and metadata for roughly 90% of NFTs are not stored on the blockchain. Typically the token itself lives “on chain” and links out to the art, metadata, and other assets “off chain.” This raises some critical questions that all NFT collectors should be asking but rarely do. Where does the artwork and metadata for my NFT live if it is not on chain? Who is paying to store the artwork associated with my NFT? And what would happen to the value of my NFT if the artwork and metadata permanently disappeared?

A recent study by YourNFTs, independently verified by ClubNFT data scientist Nick Hladek, shows that only ~10% of NFTs are on chain, ~40% are on private servers, while ~50% use a peer-to-peer protocol called InterPlanetary File System (IPFS).

This may sound technical, but if you collect NFTs I strongly urge you to stick with me. For this article, I’ve analyzed and backed up my own NFT collection using ClubNFT’s tools to show you how to analyze and backup your own collection for free. Should you have questions while reading this, feel free to Tweet me @artnome and I promise to do my best to answer your question. 

Let’s walk through the three storage scenarios one by one.

Fully On-Chain NFTs (~10% of all NFTs)  

In an ideal world, all NFTs would be on chain and I wouldn’t be writing an article about the inevitable NFT Apocalypse. Unfortunately, storing large files like images and videos on chain is crazy expensive and almost nobody does it. To put it into perspective, one megabyte of data on Ethereum can cost thousands of dollars at recent market rates. As a result, very few projects store everything on chain.

Out of my collection of over 1,000 NFTs, only one project, EthWords, is fully on chain. Because EthWords does not incorporate images, it remained affordable for them to keep it fully on chain.

Wallet Insights. Courtesy of ClubNFT

I expect that lots of people will be surprised when they first run their collection through ClubNFT’s backup tool to discover that many well-known NFT projects that are marketed as “on chain” really only store a portion of the NFT — the image, metadata, or code — fully on chain. Still other “on-chain” projects redundantly pin information on IPFS in addition to being on chain. If a project you thought was on chain shows up in your ClubNFT backup as “web” or “IPFS,” it doesn’t mean our analysis is wrong or broken. More likely it means that the project claims to be “on chain” but the NFT incorporates “off-chain” elements.

NFTs on Private Servers (40% of all NFTs)  

There is no way to sugarcoat this: NFTs on private servers (~40% of all NFTs) are doomed and there is nothing one can do, as a collector, to save them. When a marketplace mints a new NFT and creates a permanent link from the token on the blockchain to an image stored on their private server, the collector has zero control over what happens to the image. 

Norman Harman, Chariot and Mongrels Atomic Landscape A, 2022. Courtesy of the artist

It gets worse. Because NFT marketplaces are essentially tech startups and, statistically speaking, 90% of tech startups fail, 50% in the first five years, when these marketplaces do fail, they also shut down their private servers, at which point your images disappear and your NFT permanently points to nothing.

Put simply, ~40% of all NFTs are dependent on private servers owned by NFT marketplaces, 90% of which will fail. In pure dollar terms, of the $40 billion dollars in NFT sales last year, at least $16 billion worth of NFTs sold are doomed to fail, and many of these will fail within the next five years.

In my collection, 44 NFTs link to assets on private servers. These include several CryptoKitties, which I bought on my very first day of collecting in 2017, as well as many NFTs from the popular marketplace OpenSea. OpenSea is an interesting case because, by default, creators minting on the platform have the option to edit their NFTs after creation. However, they can also freeze their NFTs, which prevents their being edited in the future and moves all of their off-chain content onto IPFS. Many marketplaces offer this feature in order to support “reveals.” Hiding NFTs and metadata upon their initial minting allows one to control when people get to see the final assets, thereby gamifying the collecting process. Unfortunately, most artists don’t know about this, with the result that over 98% of NFTs on OpenSea remain unfrozen and therefore editable and dependent on private servers.

 Wallet Insights. Courtesy of ClubNFT

In general, nothing can be done to back up NFTs on private servers. Why? Because even if you download all the images and metadata locally to your computer, the token itself, the piece that lives on the blockchain, will permanently link out to the private server of the marketplace long after the server and images are gone. What’s needed is a system that allows collectors to back up and restore their NFTs without being forced to depend on a marketplace or any other third party. Luckily, that is exactly what IPFS offers!

NFTs on IPFS (~50% of all NFTs)

The remaining 50% of NFTs follow best practices, relying on the open-source peer-to-peer protocol called IPFS. IPFS is really cool in that it creates a link (hash) to images and metadata based on their actual content rather than their location (as would a traditional hyperlink). This is awesome because when you upload your content to IPFS, it creates a unique identifier based on the exact content. The NFT can then link to that identifier and as long as someone pays to pin it on IPFS then everything is good! 

When it comes to NFTs, IPFS is highly useful because it guarantees that the content that was originally linked from the NFT can’t be changed (rugged) so long as the token is frozen (immutable). If you buy an NFT of a sailboat, you won’t wake up in three months to find your sailboat has become a dog turd. 

One common misconception about IPFS is that it is a magical form of free storage. In reality, NFT marketplaces are typically the ones paying to pin NFT files to IPFS and if a marketplace stops paying, those files can still disappear from IPFS forever.

You need to do one of two things to take care of your IPFS NFTs. Pay a pinning service to create a contractual obligation that your images stay pinned to IPFS and/or download a backup of all your NFT files so that you can restore them to IPFS in the future should they disappear. We recommend you do both.

The great thing about IPFS is that you can actually fix a file which has disappeared from the network so long as you have a copy of it. Let’s look at some of the NFTs in my collection that utilize IPFS as a best practice. 

Wallet Insights. Courtesy of ClubNFT

SuperRare is a great example of a marketplace that follows the IPFS standard. And because it uses IPFS during NFT minting, as long as you have a local backup of all your files, you don’t have to depend on them or anyone else to protect your NFTs. All of my SuperRare works shown here are listed as “backed up,” with “low” NFT storage risk because they have an “IPFS” storage type. 

KnownOrigin as well as most Tezos-based marketplaces, including, but not limited to, fxhash, Objkt.com, Versum, and Teia, are examples of platforms that follow best practices for IPFS. You can see the Tezos bias toward following best practices in my wallet breakdown screen with all but one out of my 985 Tezos NFTs using IPFS.

Wallet Summary. Courtesy of ClubNFT

The Fastest Way to Protect Your NFT Collection

Congratulations, you made it to the end of the article! Hopefully, you are now excited to back up your NFTs even if you don’t fully understand all the technical details outlined above.

All you have to do now is go to backupmynfts.com, create an account, and back up the wallets associated with your NFT collection.

It’s free and should take no more than five minutes to start receiving information about the risk profile of your NFT collection. Generating the final backup file can take several days but, once you’ve signed up, all you need to do is wait for the email letting you know your backup is ready. After that, you just need to download and store the ZIP file of your backup somewhere safe in case you ever need to restore your NFTs in the future.

Of course, you may decide that you also want to pay a pinning service like Piñata, Infura, or Filebase to pin your files to IPFS in addition to maintaining your own local backup. ClubNFT makes that process a lot easier for you as well, but that’s for another article. For now, I just want to congratulate you on taking the first steps toward backing up your collection.

🎴🎴🎴

Jason Bailey is the creator of the art and tech blog Artnome.com and founder of GreenNFTs and ClubNFT where he serves as CEO. ClubNFT is a company that currently offers free NFT backups. Right Click Save is funded by ClubNFT but maintains editorial independence from it. Both ClubNFT and Right Click Save share a common mission to inform and protect NFT artists and collectors.