News March 19, 2021

There’s one fatal flaw when it comes to the future of NFTs

Image: Nifty Gateway | Grimes

NFTs have been a point of overwhelming fascination in the music and art world, but the latest crypto-obsession may have one fatal flaw.

NFTs or non-fungible tokens are cryptographically-generated blockchain entries that represent a unique item that cannot be interchanged with another. Over the past few weeks, a number of musicians like Grimes, Flume, Aphex Twin, and Kings of Leon have all released NFT art.

On Friday, March 12th, digital artist Beeple set a record when the auction house Christie’s sold photo collage ‘Everydays — The First 5000 Days,’ for $US70 million ($90 million).

The flourishing market for NFTS is reinventing — and polarizing — the art world. Proponents of the market argue that it solves the problem of monetizing digital artwork, whilst sceptics have cited environmental problems, copyright theft and longevity.

“As a mechanism, NFTs make it possible to assign value to digital art, which opens the door to a sea of possibility for a medium that is unbridled by physical limitations,” says Noah Davis, a contemporary art specialist at Christie’s.

In a Twitter thread software engineer Jonty Wareing has illuminated the fragility of the NFT market. The thread hones in on the dependency that NFT has on URLs and IFPS hashes — and the likelihood that many NFTs sold thus far will be broken in a decade.

Short version:

The NFT token you bought either points to a URL on the internet, or an IPFS hash. In most circumstances it references an IPFS gateway on the internet run by the startup you bought the NFT from.

Oh, and that URL is not the media. That URL is a JSON metadata file

— Jonty Wareing (@jonty) March 17, 2021

THAT file refers to the actual media you just “bought”. Which in this case is hosted via a @cloudinary CDN, served by Nifty’s servers again.

So if Nifty goes bust, your token is now worthless. It refers to nothing. This can’t be changed.

“But you said some use IPFS!”

— Jonty Wareing (@jonty) March 17, 2021

So, well done for referring to IPFS – it references the specific file rather than a URL that might break!

…however the metadata links to “https://t.co/RzXLzsqegH”

This is an IPFS gateway run by https://t.co/yR25JR9mkk, the NFT-minting startup.

Who will go bust one day

— Jonty Wareing (@jonty) March 17, 2021

In fact, this is already happening: https://t.co/UdUfMuyurw

— Jonty Wareing (@jonty) March 17, 2021

In short: Right now NFT’s are built on an absolute house of cards constructed by the people selling them.

It is likely that _every_ NFT sold so far will be broken within a decade.

Will that make them worthless? Hard to say

— Jonty Wareing (@jonty) March 17, 2021

The thread poses a question of ownership. NFT tokens and records of ownership live on a blockchain — and the asset those tokens refer to are stored separately. If a startup that sold the NFT goes under and stops hosting the digital assets, buyers may be left with tokens directing to files that no longer exist.

There are ways to counteract this problem — like using decentralized services to store files — which experts have predicted may be the future of the market.

This article originally appeared on The Industry Observer, which is now part of The Music Network.