Open the $ 69 million NFT that Beeple sold at Christie’s and you won’t find much. The name of the artwork is not there. The name of the artist is missing. And most importantly, you won’t even find the actual artwork.
That’s not a flaw in Beeple’s NFT, it’s just how the system works.
It turns out that the house of cards that is the NFT system is even more precarious than it seems. NFTs are fundamentally based on trust, trust that a seller won’t screw you up, trust that these tokens magically have value, and that’s true even at the deepest level of the system. Ultimately, you are buying a collection of metadata that defines what you own.
But there is a significant gap in the system that ensures that an NFT sticks together: NFTs use Links to go to another place where the art is stored and any details about it. And as anyone who has ever surfed the Internet before should know, links can and do die. So what happens if your NFT breaks and isn’t pointing at anything?
“That’s an insanely expensive 404 error for buyers of these NFTs,” said Aaron Perzanowski, a law professor at Case Western Reserve University and a co-author of The end of the propertywrote in an email to The edge.
NFTs are digital tokens that are used to buy and sell digital art. But unlike a painting, which can be placed in a buyer’s home, an NFT is more like a piece of paper that says you own something, usually a digital illustration or a video. Sometimes a strange looking cat.
The system is generally based on the Ethereum blockchain, which guarantees a few things: it keeps an unalterable record of everyone who has owned the NFT and prevents the NFT from constantly changing. That means that someone who buys an NFT and then resells it cannot misrepresent what they own. Everything is in the NFT, just as it was when you bought it. You can think of it as the papers that authenticate a thoroughbred: they are not the horse, but they certify one’s provenance and history.
However, very little data is stored directly within an NFT. The NFT includes information on where you can find a description of the artist’s name and the title of the work, but that information is not usually on the blockchain itself. The NFTs include information on where you can find the artwork they represent, but the actual artwork is still a link away.
Traditional URLs pose real problems for NFTs. The domain owner could redirect the URL to point to something else (leaving you, perhaps, with a million dollar Rickroll), or the domain owner could simply forget to pay their hosting bill and everything will be gone. The animation that Grimes sold for $ 389,000 comes mostly from a couple of traditional URLs, which could fail if either of two different companies – Nifty Gateway, the auction site; or Cloudinary, the web host – fails. As a buyer, this is something you would have no control over, unless you are wealthy enough to buy the entire domain and pay to keep it online.
To solve that problem, many NFTs turn to a system called IPFS or InterPlanetary File System. Rather than identifying a specific file in a specific domain, IPFS addresses allow you to find a piece of content whenever somebody somewhere on the IPFS network you host it. Grimes’ NFT uses this as a backup, and Beeple’s NFT uses it primarily. That means a multitude of hosts, rather than a single domain owner, could ensure that these files remain online. This system also gives buyers control. They can pay to keep their NFT files online. They still have to remember to pay the bill for the hosting, but they can host it anywhere on the IPFS network.
Still, the system is flawed. The team behind Check My NFT have been looking inside the NFTs to see if their IPFS addresses really work, and in several cases they have found files that just won’t load. The team found temporarily missing artwork from top artists, including Grimes, deadmau5 and Steve Aoki. The files eventually came back online, but only after the team drew attention to their absence. Files must be actively available on the network for the system to function, and unlike a domain owner, no host has a singular responsibility to do that with files on IPFS.
“A hard drive failure could cause permanent loss of assets,” the Check My NFT team warned in a message to The edge.
Like a painting, the NFTs must be maintained. If a buyer purchases an NFT that is based on IPFS, it will ultimately be up to them to ensure that the file remains hosted and available to the system. If the NFT is based on a traditional URL, buyers would be in a more precarious position, having to wait for any third party currently hosting the file, often the auction site, such as Grimes’ NFT, to remain online.
So there is a very real chance that, within a few years, an NFT will point to a missing file. If that’s the case, how can you prove what it is you really own? “You are still in this stage of blockchain evolution where you need to have a traditional written contract that tells you what you are getting and is enforceable against the seller of that asset,” said David Hoppe, managing partner at Gamma Law. The edge.
But most buyers don’t have that exactly. Despite the buzz around Ethereum’s “smart contracts,” NFTs typically don’t include the literal contract a buyer agrees with the seller of a job detailing what he is getting and how he can use it. These rights are typically only included in an auction site’s terms of service. “In many cases, the NFTs offer little beyond a simple property claim from the NFT itself,” Perzanowski wrote.
Buyers could end up in one of two situations: In one case, they own an NFT with a broken link, but they and the rest of the world understand what artwork used to represent, for example, an extremely expensive collage. As long as that image exists somewhere In the world, it is possible for NFT to retain value as long as the artist, owner, and prospective buyers agree on what the token is supposed to represent. After all, it is a trust-based system.
In the other scenario, the image has disappeared and no one can tell which artwork the NFT was originally linked to. If that’s the case, it’s hard to imagine that the NFT would have been of much value anyway. You cannot sell a painting that has been burned or a statue that has been lost. And an NFT with lost art is just that, nothing to look at.