Blockchain technology has successfully mapped currency to the digital world, creating a series of homogeneous encrypted digital currencies, which has set off a wave of investment in various currencies in recent years. What we see is not the emergence of NFT heterogeneous tokens, but the ability to map the entire real world.

With the exception of currency, most objects in the real world are unique, with different properties and values. The characteristics of NFTs can perfectly adapt to this situation and achieve generalization of different objects in the digital world.

By utilizing the characteristics of blockchain that is tamper-proof, open, transparent, and traceable, we can complete the mapping from the real world to the digital world, and then build people’s long-awaited fantasy - the virtual universe.

However, due to the current technical bottleneck, NFT has not been able to perfectly realize the above vision. Due to the congested communication conditions on the chain, limited scalability, and high gas costs, the metadata and media data of NFT cannot be used. It is completely stored on the chain, but it is chosen to be stored on the chain, without the protection of blockchain technology. This piece of data is not completely safe and reliable, which means that the current NFT cannot be encrypted like Bitcoin. The reliability of the currency is the same, but this is a craze for NFTs and has received little attention.

According to Coinecko data, as of press time, the total market value of Marketplace NFT is $22.97 billion, accounting for 1.2% of the total market value of the global crypto market, with a transaction volume of 24, currently at $3.25 billion, still maintaining a strong momentum. The security behind the huge Marketplace value of NFT is fragile.

Due to the uncertainty of off-chain storage, NFT loss incidents occur from time to time. Once the metadata and corresponding Media Data become invalid, the certificate of NFT ownership stored on the chain is just a worthless check without an acceptor. William Entriken, the author of ERC721, the most widely used NFT standard today, once said: "Your ownership is only guaranteed when you trust the custodian to actually manage your assets. It is valid only when it is recorded in the ledger."

NFT is not safe now. Cryptocurrency transaction information such as Bitcoin is completely stored on the chain, but NFT is different. Although its transaction process is also completed on the chain, due to its particularity, it often involves complex metadata and media data, which requires a large storage space and is usually stored on a computer, the project's centralized server, a third-party cloud server, IPFS or MEFS (MEmo File System) and other NFT hosting projects. These are complex "custodians" with different risk factors than on-chain storage.

The basic meaning of NFT

NFT Basics

NFT stands for Non-Fungible Token, a heterogeneous token. It is a heterogeneous token derived from Ethereum smart contracts. As a unique digital asset, it has the characteristics of being indivisible, unforgeable, irreplaceable and unique.

Relatively speaking, FT (Fungible Token) is also a homogeneous token. Ethereum is an example. Each Ethereum is the same, there is no difference between them, and they can be divided into smaller units. Each NFT has a unique and unique identifier and cannot be exchanged or split.

NFT empowers creators in different fields with its unique characteristics, providing a more convenient and reliable way to verify digital assets. Creators can easily prove the existence and ownership of digital works through NFT, including but not limited to pictures, videos, artworks, tickets, etc. In addition, creators can also earn royalties from every NFT transaction.

How are NFTs different from cryptocurrencies?

NFT stands for non-fungible token. It is usually built using the same type of programming as cryptocurrencies, such as Bitcoin or Ethereum, but the similarities end there.

Physical currencies and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They are also equal in value — one dollar is always worth another dollar; one bitcoin is always equal to another bitcoin. The fungibility of cryptocurrencies makes them a reliable way to conduct transactions on the blockchain.

NFTs are different. Each has a digital signature that makes the NFT not interchangeable or equal (and therefore non-fungible). For example, an NBA Top Shot clip is not equal to EVERYDAYS, because both are NFTs. (For that matter, an NBA Top Shot clip is not even necessarily equal to another NBA Top Shot clip.)

What are the uses of NFT?

Blockchain technology and NFTs offer artists and content creators a unique opportunity to monetize their work. For example, artists no longer have to rely on galleries or auction houses to sell their art. Artists can sell it directly to consumers as NFTs, which also allows them to keep more of the profits. Additionally, artists can program with royalties so that they receive a percentage of the revenue each time their work is sold to a new owner. This is an attractive feature because artists typically do not receive future proceeds after the initial sale of their art.

Art isn’t the only way to make money with NFTs. Brands like Charmin and Taco Bell have auctioned off themed NFT artworks to raise money for charity. Charmin named its product “NFTP” (non-replaceable toilet paper), while Taco Bell’s NFT artwork sold out in minutes with the highest bid being 1.5 wrapped ether (WETH) — equivalent to $3,723.83 at the time of writing.

Nyan Cat, a 2011 gif of a cat with a Pop-Pie-shaped body, sold for nearly $600,000 in February 2011. By the end of the month, NBA Top Shot had surpassed $500 million in sales. 3. LeBron James-featuring NFT has raised over $200,000.

Even celebrities like Snoop Dogg and Lindsay Lohan have jumped on the NFT bandwagon, releasing unique memories, artworks, and moments as securitized NFTs.

NFT’s technology stack

Layer 1: NFT Infrastructure

NFT blockchain layers have been around for a long time and have seen success with many specialized applications such as Flow and WAX. Ethereum is arguably still the largest NFT blockchain and created the ERC721 standard.

Past NFT projects have congested Ethereum (Cryptokitties in 2017), necessitating blockchain scaling solutions. OpenSea, the largest NFT marketplace, is based on Polygon. Other projects are building Rollups implementations, like Immutable X, or creating their own child chains, like Axie’s Ronin. To this end, Dapper Labs chose to create its own L1 blockchain called Flow.

Layer 2: Creators and Marketplace

During this crypto bull run, we’ve seen a real increase in usage of Layer 2 and Layer 3 of the stack – that part of the technology stack that people are talking about when they say NFTs are where creative economics meets the marketplace of companion products.

Major NFT sales grew to around $200 million in February 2021. Beeple sold his first Everydays: 5000 Days for $69.3 million, while Twitter founder and CEO Jack Dorxxx sold his first tweet for $2.9 million.

In Layer 2, the Creators Layer and the Marketplace, we observed the following:

  1. Fluid content market

  2. Through content that is valued in creator influence/past work

  3. Accessibility and ownership of art

  4. The commercialization of “art”

Items on Layer 2 are a function of their application/purpose. In my previous post, I discussed different types of NFTs based on “actionable” vs. “non-actionable.” They can be further segregated based on the user profile and functionality of the NFT.

With creative development kits, art creation going mainstream, and the rise of metamaterials, new concepts have emerged and become popular.

Layer 3: Aggregation and Communication (Community)

Layer 3 is communities, DAOs, and platforms like CryptoVoxels that allow collectors to display their art. Virtual galleries and real estate are also a good example. Recently, 8 plots of land in the Axie infinity universe were sold for $1.5 million.

Layers 3 and 5 support the argument for what I like to call the “collector economy” — an extension of the creator economy. Collectors buy and display art, and DeFi supports collectors — lending, renting, leasing, borrowing, staking, trading, and their NFTs. This will effectively become a community, platform, and financial product that supports the art portfolio.

Layer 4: Due Diligence and Fair Valuation of NFTs

Layer 4 addresses the valuation and appraisal system for NFTs. This is necessary for fair valuation of digital art and for collectors to keep an eye on their portfolios. Fair pricing innovation for NFTs and other art forms is essential for the “collectible economy” to work. Without a proper valuation process, financing NFTs becomes difficult and “frothy.”

There are many experiments going on in this space, such as Upshot, which uses a canonical prediction/opinion market; Performance Time uses a different approach - the more "likes" a piece of art gets on the platform, the higher its price. Existing standard pricing mechanisms use auctions. Some NFT platforms are adopting crypto-native mechanisms of linking curves, where supply/demand (or other designs) are used to determine the price of the next NFT sold from a collectible or artist.

Layer 5: DeFi meets NFT

Layer 5 is the financialization of renting, borrowing, lending, and leasing digital assets...

1. Lending/borrowing: Collectors receive income.

2. Selling/renting copies: royalty collection

3. Collateral: Borrow property using your NFTs (portfolio) as collateral.

4. Index Funds: Bring Liquidity to Your NFT Assets

Investing in NFTs is investing in culture. This is evident in the NFT representation of digital art, music, and video. However, NFTs have many more applications in store for the future.

Technical composition of NFT

Blockchain: Blockchain was originally known as Bitcoin's distributed ledger. Blockchain is a distributed and immutable database. It is basically a list of recorded data and information and uses cryptographic protocols to protect the information. Blockchain offers a possible solution to the ancient Byzantine problem.

Smart contracts: Smart contracts accelerate the execution and verification of digital agreements. Blockchain-based smart contracts use Turing-complete scripting languages ​​to achieve compatibility with complex functions and rely on consensus algorithms to ensure consistency. Smart contract execution does not rely on fair transactions of third-party credit intermediaries, and can achieve value interaction in multiple industries, fields, and ecosystems.

On-chain transactions: On-chain transactions need to be conducted through blockchain addresses and transaction instructions. Blockchain addresses consist of a fixed number of letters, numbers, and characters. This is a unique identifier similar to a bank account for users to send and receive assets. And there is a corresponding public and private key pair to verify the authenticity of the transaction.

Data encryption: Through data encryption, files can be compressed into an efficient format to save storage space. When an NFT asset is claimed, it actually confirms the hash value of the signature of the creator of the NFT. Others can copy these metadata, but they cannot prove their ownership.

The basic model of NFT

Protocol Standards

The underlying logic of NFT is based on distributed ledgers, and its transactions are based on peer-to-peer networks. If the distributed ledger of blockchain is regarded as a special database, then NFTs will be stored in this database. The actual storage of NFTs in Vietnam is more complicated. If this database has basic characteristics such as security, consistency, integrity and availability, then the entire NFT ecological closed loop mainly has the following scenarios.

1. NFT digitization: The NFT creator checks that the file, title, and description are completely correct, and then converts the NFT's metadata into a suitable format.

2. NFT Storage: NFT creators can choose between on-chain and off-chain methods to store metadata. On-chain storage is costly and congested, but the metadata will always exist with the tokens. Off-chain storage has small limitations but theoretically has the risk of losing metadata. Currently, alternatives to off-chain storage include centralized data storage, IPFS, and decentralized cloud storage.

3. NFT signature: The NFT creator signs the information including the hash value of the NFT data and sends it to the smart contract.

4.NFT mining and trading: After receiving the complete NFT information, the smart contract can start minting and start the transaction process at the same time. Its main mechanism is built according to the token standard.

5. NFT confirmation: Once the transaction information is confirmed on the chain, the NFT is minted and the minted NFT is permanently linked to a unique blockchain address to prove its existence. However, the actual content of the NFT is usually stored off-chain, and the ownership of the NFT belongs to both storage systems.

Main properties of NFT

NFT is essentially a dApp, or decentralized application, so it has different characteristics from the underlying public ledger, which can be summarized as follows:

  • Verifiability: NFT metadata and token ownership can be publicly verified. The premise is that the metadata is stored on the chain. If it is stored off-chain, the off-chain storage system determines whether it can be publicly verified. Centralized storage cannot be publicly verified, and the device owner can change the data at will; IPFS can verify whether the data has been tampered with through CID, but cannot verify the storage status; distributed cloud storage systems such as MEFS can not only verify whether the data has been tampered with, but also verify its storage and redundancy status.

  • Transaction transparency: The entire process of NFT from minting to selling to buying is open and transparent. However, the storage of Meta Data NFT and Media Data is not completely open and transparent. NFT creators will choose their own storage methods, but the security of most storage methods cannot be clearly evaluated.

  • Availability: The chain system that NFT relies on will never be paralyzed. As long as the NFT is issued, it is unlikely to be unsold or unavailable. The data stored in the NFT chain may be unavailable. At present, there is no control except for the complete risk control of decentralized cloud storage systems such as MEFS, centralized storage, and IPFS.

  • Unalterable: Once confirmed, NFT metadata and complete transaction records are permanently saved, and only new information can be added, and past information cannot be modified. If the metadata is stored in a centralized server, the service operator can tamper with the data at will, while file systems like IPFS and MEFS are unalterable.

  • Convenient circulation: The information seen by each NFT user is updated instantly, eliminating the information barriers between traditional producers, credit intermediaries and buyers, and the information is clear and easy to circulate.

  • Atomicity: NFT transactions can be completed in an atomic, consistent, isolated, and durable (ACID) system.

  • Tradability: NFT and its corresponding products can be traded and exchanged at will. The storage standard of NFT is the main support of its value, and the value component of NFT trading needs to be considered.

NFT Risk Assessment

The NFT system is a technology that integrates blockchain, storage, and network applications. Ensuring security is a challenge. Each component may become a security vulnerability, exposing the entire system to attacks. This article uses the STRIDE method for threat modeling and analyzes the output of the NFT system from aspects such as Spooling, Tampering, Repudiation, Information Disclosure, Denial of Service (Dos), and Elevation of privilege.

Forgery: Forgery corresponds to authenticity, that is, the ability to impersonate another person or thing in the system. When users mint or trade NFTs, malicious attackers can exploit authentication vulnerabilities or steal user private keys to obtain illegal ownership of NFTs. It is recommended that the official verify the NFT smart contract and use cold wallets to isolate online data to prevent private key leakage.

Tampering: Forging the corresponding integrity refers to malicious modification of NFT data. Blockchain is a powerful distributed ledger. The hash encryption algorithm it uses is resistant to pre-image and secondary pre-image. If the metadata of the NFT is stored on the chain, once the transaction is confirmed, the metadata and ownership of the NFT cannot be maliciously tampered with. However, if the metadata NFT is stored off-chain and the media data is stored off-chain, these can be manipulated. It is recommended to use a decentralized distributed cloud storage system to ensure the security and reliability of data.

Rejection: After the transaction information is confirmed on the chain, the creator or owner of the NFT cannot refuse or withdraw funds. The security of this process is guaranteed by the distributed ledger characteristics of the blockchain and the inability to sign, but the hash involved can be stolen or replaced by malicious attackers. It is recommended to use smart contracts with multi-signature verification to avoid some risks.

Information Disclosure: Information disclosure corresponds to confidentiality, which refers to the disclosure of NFT-related information to unauthorized users. Since in the NFT system, the status information and transaction instruction code of the smart contract are completely transparent and can be publicly accessed by anyone, once this happens, the risk of information leakage is high. Even if only the hash value of the NFT is obtained, malicious attackers can use the correlation between the hash value and transaction information to do other things. NFT creators should use privacy-preserving smart contracts to replace traditional privacy-preserving smart contracts.

Denial of Service: Denial of service as opposed to availability. It refers to a malicious attacker attacking a dApp or raw data stored off-chain, causing it to refuse to provide services to the NFT system. Thanks to the high availability of the blockchain, users can call up the information they need at any time without worrying about denial of service from the on-chain system. However, due to the limitations of space and on-chain communication pressure, some functions of NFT need to rely on off-chain systems to be implemented, such as Meta Data and Media Data storage. Centralized network applications and storage systems are still vulnerable to traditional DoS attacks. Denial of service to the NFT system. A new hybrid blockchain architecture or decentralized cloud storage system should be used.

Privilege escalation: Privilege escalation corresponds to authorization, which means that attackers use smart contract vulnerabilities to obtain NFT-related permissions, or obtain illegal permissions by attacking the system, which is related to the NFT series. NFT authorization is completely managed by smart contracts. Improperly designed smart contracts will bring authorization risks. At the same time, Meta Data NFT or media data stored on the chain may also have the risk of affecting permissions. For example, tampering or deleting metadata or media data stored off-chain will make NFT ownership meaningless. Creators should use mature and complete smart contracts when minting NFTs.

Current NFT Storage Status

NFT Product Types

With its unique properties, NFT has brought a certain degree of change to many fields including Metaverse, digital art, collectibles, games, DeFi, public utilities and sports. NFT products are classified as the target group for studying the current status of NFT storage.

On-chain storage

The blockchains currently used by NFT mainly include public chains such as Ethereum, Flow, BSC, and sub-chains such as Polygon and Ronin.

Limited by high gas costs and congested on-chain communication conditions, most NFT projects choose to store NFT ownership data only on-chain to ensure immutability, traceability, and non-denial of ownership. Transactions do not require a centralized trust institution as an intermediary and can be completed directly through on-chain smart contracts, providing good liquidity for NFTs and using technology that is not controlled by any real estate agent or any third party acting as a credit intermediary.

Media Data represents the actual form of NFT stored off-chain, and in some cases, some more complex Meta Data information is also stored off-chain, decoupled from the proprietary storage system. Property, which prevents strictly protected property rights blockchain technology. There is a shadow.

Off-chain storage

Currently, there are four main ways to store NFTs on-chain: centralized, centralized and verifiable, decentralized, and decentralized and repairable.

centralization

Most NFT projects do not have a Marketplace volume like Openea, and many are in their early stages and do not pay much attention to the security of off-chain data storage. Specific identifiers in smart contracts can be used to return metadata and related vehicle data.

They usually use a URL running on a web server as an identifier. The server is either operated by the company or provided by a cloud service provider such as Amazon. Centralized hosting introduces risks such as tampering and denial of service.

Centralized and verifiable

CryptoPunks is an example. It initially stores the integrated image of the product in a centralized server, and then stores the encrypted hash of this image in a smart contract for verification. The benefit of this is that the image can be verified by the hash value to ensure that it has not been modified, giving the NFT media data the characteristic of being unspoofable.

However, the media data itself is stored in a central server, rather than backing up the entire network node like storing NFT ownership on-chain, which poses many risks such as data loss and denial of service.

Centralized and verifiable off-chain storage is an optimization of the centralized method, but there are still many risks and it cannot meet the high-reliability storage requirements of NFTs or even Metaverse for corresponding data messages.

Decentralization

As a representative project of decentralized storage, IPFS is gradually being accepted by the NFT industry. IPFS aims to provide a decentralized addressing supplement for traditional centralized HTTP. Take the Bored Ape Yacht Club as an example. Metadata and its media data are stored in IPFS. IPFS provides redundant backup and stable content addressing. As an address network running on multiple nodes, it solves the pain point of the previous centralized storage of disabled URLs and avoids dependence on centralized service providers.

IPFS, a decentralized settlement method, further improves the way of storing Meta Data NFT and media data, but as an addressing system, it cannot provide sufficiently secure and reliable storage services, even if the CID address is still in the system

Although it exists, the corresponding specific data is not stable. The reason is that the network nodes in IPFS control their own backup content. If only a single node or a few nodes back up their own content, these nodes go down or go offline, the stored data will disappear, and the CID can only point to an empty space.

Decentralized and fixable

Decentralized and repairable storage systems, as a new possibility for NFT to solve off-chain storage, are attracting widespread attention from both inside and outside the industry. Decentralized distributed cloud storage projects such as Filecoin, Memo, and Arweave are also actively exploring for NFT enthusiasts. To provide better storage optimization solutions, Filecoin and Memo have launched NFT storage projects based on their respective storage ecosystems.

Archive is an NFT storage project initiated by Protocol Labs based on the Filecoin ecosystem. NFTs stored through this project will be stored in IPFS or Filecoin. Currently, the capacity of a single data storage is limited to less than 100MB. Its repair function is based on Filecoin's incentive mechanism. Through the scoring system and verification of storage nodes, damaged or lost data can be discovered and repaired in a timely manner.

However, the storage in IPFS is provided by Protocol Labs, which requires more network nodes to join and further decentralize. The storage in Filecoin is still not connected to the main network and is provided by test network nodes, which is at risk of loss due to network reset.

Metastorage.org is based on the MEFS storage file system. Memo Ecology NFT hosting project. NFTs stored through this project will be stored in IPFS and MEFS. MEFS is a storage system developed by Memo Labs. There is no limit on the amount. Its repair function is based on the MEFS storage system, adopts multiple copies and erase redundancy mechanisms, and provides an open verification method.

The KEEPER role in the system is responsible for matching users with verified and challenged nodes, and for continuous evaluation and maintenance. Although the mefs master repair mechanism is separated from the blockchain, it still requires the participation of a larger series of nodes in the Memo system to provide support for the MEFS system and form a stable ecosystem.

The Repairable Decentralized Storage System is expected to become a solution for NFT storage in the future, making NFT Meta Data and Media Data storage more compatible with ownership storage. At present, the technology and product scale are still in their infancy, and the degree of implementation needs further observation.

NFT Custody Opportunities

Metaverse Value Support

Generally speaking, Metaverse refers to a virtual world built using a series of technologies including the Internet and VR. This concept was born decades ago, but it has never been implemented. With the rapid development of blockchain, Metaverse has opened up the possibility of becoming a reality.

Blockchain provides an ideal decentralized environment for the Metaverse world, and the emergence of NFT also provides a possible way to verify digital assets. Restricted by current blockchain technology, the actual content of NFT requires a storage method suitable for storing its ownership, which is also driven by the need for technological development. The decentralized cloud storage industry dedicated to solving the NFT storage problem will open up a broad market place. Break the current security bottleneck of NFT centralized storage.

In this blockchain-driven virtual reality, participants can have very broad and rich imaginations, such as enjoying games, displaying homemade art, owning and trading virtual assets, etc. In addition, users have the opportunity to benefit from a unique virtual economic system. They can buy land controlled by decentralized organizations, freely build in the form of NFTs, rent buildings to others for a fee, or raise, breed rare pets and sell them for profit.

The Metaverse ecosystem includes all the Metaverse projects discussed above. Most of these projects are still in their early stages. Blockchain is often used to record and protect the ownership of users' digital assets and the corresponding means of ownership. Most data is still stored in centralized servers or IPFS without the protection of matching ownership, which also poses a certain risk to the integrity of digital assets. Without a complete and reliable storage closed loop, it is meaningless to use blockchain technology to protect ownership.

P2E gaming industry infrastructure

Recently, P2E games have ushered in a boom period and have received widespread attention from players and the capital market. In particular, Axie Infinity has surpassed NBA Top Shot to become the NFT project with the highest market value. It can be seen that NFT has great potential in the gaming industry. Some available crypto games include CrytpoKitties, Cryptocats, CryptoPunks, Meebits, Axie Infinity, Gods Unchanged and TradeStars. A very attractive feature of this type of game is the "regeneration" mechanism. Users can pamper themselves and spend a lot of time nurturing new offspring. They can also buy rare/limited edition virtual pets and then sell them at a high price.

Due to the value circulation characteristics of P2E games, the current storage method cannot meet its high security requirements. Distributed cloud storage systems like Memo are more suitable infrastructure for high-value storage of NFTs.

The additional bonuses attract more investors to the game, which makes NFTs even more important. Another cool feature of NFTs is that they provide a record of in-game item ownership. Players can own personal exclusive game items, enhance economic identity in the ecosystem, and benefit both developers and players. Players and game developers who are NFT publishers can receive royalties every time an NFT is sold on the open market, thus completing a virtuous cycle to feed the ecosystem.

The reliability of NFT memory will determine the growth ceiling of the P2E gaming industry. As the industry develops to a certain extent, the different hidden dangers in the NFT hosting link will eventually receive more attention, and different game projects will eventually invest in it, which will improve NFT storage and reduce risks to a certain extent.

Forgery means that once a ticket is sold, the ticket holder cannot sell it again. NFT is a blockchain-based smart contract that provides a transparent ticket trading platform for consumers, event organizers and other stakeholders. Consumers can buy and sell NFT tickets through smart contracts without relying on any third party.

The storage methods of media data corresponding to these NFTs are equally important. High-value transactions require highly secure infrastructure as support. As NFT forms become more diverse and complex, the NFT storage industry will also grow with the development of NFT ecological projects.

NFT helps protect digital property rights

Digital collectibles include trading cards, wine, digital images, videos, virtual real estate, domain names, diamonds, crypto stamps, intellectual property, and other physical objects. Let’s take art as an example.

First, traditionally, artists have few channels to display their works. Acquiring traditional channels requires money and network resources, as well as a lot of energy. Due to the lack of attention, the price cannot reflect the true value of their works. Even the works they publish on social networks will be charged intermediary, platform and advertising fees by platforms and advertisers.

NFT converts their work into a digital format with full rights. Artists do not have to hand over ownership and content to dealers, which provides them with the possibility of high profits. Good examples include Mad Dog Jones' Replicator sold for $4.1 million, Grimes' works sold for a total of about $6 million, and works of other great crypto artists and other greats, such as the famous Beeple and Trevor Jones.

NFTs have well-protected the ownership of artworks, but their actual content, such as metadata and media data, has no secure industry storage standards and reliability. Distributed storage systems like Memo are expected to solve this problem.

In addition, in traditional cases, artists cannot receive royalties from future sales of their works. Instead, NFTs can be programmed so that every time an artist exchanges his digital work on the market, he will receive a predetermined royalty every time his digital work is sold. It is an effective way to manage and protect digital masterpieces. In addition, some platforms, such as Mintbase and Mintable, have even set up tools to help ordinary people easily create their own NFT works.

The media data of these digital collections is indeed the essence of the NFTs they mint. Losing ownership and copyright of the work itself will be meaningless, and the NFT itself will lose value. Traditional collecting behavior is often accompanied by higher storage costs. Collections in the digital age obviously need better storage solutions.

See more NFT projects: Introduction to ETHO protocol - the combination of Ethereum and FileCoin

The Storage Challenge of NFTs

As with any new technology, there are a number of obstacles that must be overcome to achieve the growth of the above-mentioned NFT storage applications. This article discusses some typical challenges from the perspectives of usability, security, regulation, and scalability, including system-level issues and human factors caused by blockchain-based platforms, such as regulators, regulations, and social factors.

Challenging availability

Usability refers to evaluating a particular product by measuring the effectiveness, efficiency, and satisfaction of users when testing it. Most NFT projects are built on Ethereum. Therefore, it is obvious that the main shortcomings of Ethereum have been inherited. We discussed three major challenges that have a direct impact on user experience.

Scarce backup mechanism

Through previous analysis, NFT is now mainly stored in centralized data centers and IPFS, and the redundancy mechanisms of these two methods are not very reliable. Centralized data centers often use multiple redundant copies to replicate multiple copies of files for redundancy, which is very expensive. IPFS does not have a self-running fallback method. Although CID corresponds to a file broadcast throughout the network, the file data is stored locally on the node, and other nodes need to be automatically backed up. As the IPFS incentive layer, Filecoin has not yet completed the work of incentivizing backup nodes. Most of the data stored in network nodes is invalid data that is stored first. The MEFS system developed by Memo uses a storage method that combines multiple copies and erasure.

Slow confirmation speed

NFTs often send transactions to smart contracts for transparent and reliable management such as minting, sales, and redemption. However, current NFT systems are tightly coupled with their underlying blockchains, which makes their performance very low. Bitcoin has only 7 TPS, while Ethereum has only 30 TPS, resulting in extremely slow confirmation of NFTs. Solving this problem requires redesigning the blockchain topology, optimizing its structure, or improving the consensus mechanism. Current blockchain systems cannot meet these requirements. This also defines the status quo of storing complex metadata and "huge" media data in off-chain systems.

High gas bills

High gas fees have become a major problem for NFT Marketplace, especially because large-scale NFT forging requires uploading metadata to the blockchain network. Each transaction involving NFT is more expensive than a simple wire transfer. Because smart contracts involve computing resources and storage processing. Complex operations, high congestion pressure, and high costs have greatly limited the widespread adoption of NFTs. In most cases, the transaction costs incurred by minting NFTs are much higher than the current value of the NFT. Storing as much data related to NFTs as possible is currently the main solution to correct this serious imbalance, but it is also accompanied by various risks.

Security and privacy issues with hosting

Data from users is the top priority of any system. However, this data stored off-chain but associated with on-chain tokens is at risk of losing communication or being misused by malicious parties.

  • NFT data is inaccessible

In mainstream NFT projects, most cryptographic hashes are used as identifiers instead of real vehicle data, which are then recorded on the blockchain to save gas consumption. This causes users to lose confidence in NFTs because the original files may be lost or damaged. Several NFT projects have begun to cooperate with specialized file storage systems such as IPFS, which allow users to address content by hash values. As long as someone is hosting on the IPFS network, users can get the Content hash corresponding to that value. However, such a system still has its inevitable shortcomings. When users upload metadata NFTs and media data to IPFS nodes, there is no guarantee that their data will be replicated in all nodes. Data is stored on IPFS. It is possible that only one node stores the content and no other nodes back it up. If the only node hosting it is disconnected from the network, the data may be unavailable. Decryption. IO and CHECKMYNFT.COM reported this issue. The Memo project is trying to use the MEFS system developed to make up for this shortcoming of IPFS.

Additionally, an NFT can also indicate a false file address. If this is the case, the user cannot prove that they actually own the NFT. In general, relying on external systems as core components of an NFT system is fragile.

  • Anonymity and Privacy

Most NFT transactions rely on its underlying Ethereum platform, which only provides pseudo-anonymity, not anonymity or strict privacy. Users can partially hide their identities. If the connection between their real identity and the corresponding address is known to the public, all user activities under the exposed address can be observed. Due to complex cryptographic primitives and security assumptions, existing privacy protection solutions, such as homomorphic encryption, zero-knowledge proofs, ring signatures, multi-party computation, etc., have not yet been widely applied to NFT-related solutions.

Similar to other types of blockchain-based systems, reducing expensive computational costs has become key to protecting the security and privacy of NFT data.

Legal obstacles

Similar to the situation of most cryptocurrencies, NFT also faces obstacles such as strict supervision by regulatory agencies, and how to properly monitor this new technology in the respective Marketplace is also a challenge. This article discusses it from two typical perspectives.

  • Legal aspects

The legal and policy issues facing NFTs cover a wide range. Potentially related areas include commodities, cross-border transactions, KYC (Know Your Customer) data... Before entering the NFT field, it is important to understand the regulations related to review and litigation. In some countries, the regulatory requirements for cryptocurrencies are strict, and the same is true for NFT sales. Governance difficulties must be overcome to mint, trade, sell or buy NFTs. Legally, users can only trade derivatives such as stocks and NFTs on authorized exchanges. Several other countries, such as Malta and France, are trying to implement appropriate laws to regulate digital asset services. They require buyers to comply with complex and even contradictory terms. Therefore, conducting due diligence is a necessary step before investing in NFT assets.

  • Taxable property

Products related to intellectual property, including artworks, books, domain names, etc., are considered taxable property under the applicable legal framework. However, the sales volume of NFTs is not yet within this scope. Although a few countries such as the United States tax crypto assets as property, most parts of the world have not yet considered taxing crypto assets. This may lead to an unexpected increase in financial crimes under the guise of NFT transactions to evade taxation by governments in various regions. Individual participants are taxed on any capital gains related to NFT assets. In addition, transactions such as NFT-for-NFT, NFT-for-IP, Eth-for-NFT, etc. are all subject to tax. In addition, higher tax rates should be applied to assets with high profits or earnings. So,

Scalability issues

The scalability of NFT programs includes two aspects. The first is to emphasize whether the system can interact with other ecosystems. The second point is whether the NFT system can be updated when the current version is abandoned.

  • NFT Interoperability

The current NFT ecosystem is isolated from each other. Once users choose a product, they can only trade within the same ecosystem due to the underlying blockchain platform. Currently, if you want to conduct cross-ecosystem transactions, you need to go through a third-party trading platform like Openea. The trust organization that is separated from the original blockchain platform increases the trust cost. Cross-chain interoperability and communication has always been an obstacle to the widespread promotion of dApps, and cross-chain communication can only be achieved with the help of trusted external parties. In this way, the decentralized characteristics will inevitably be lost to a certain extent.

Fortunately, most NFT-related projects use Ethereum as their underlying platform. This means that they share similar data structures and can be exchanged according to the same rules. Although the storage methods of NFT projects vary, how to maintain decentralization and a unified risk structure is an important topic for the future.

  • Renewable NFTs

Forward blockchains often update protocols through soft and hard forks, which illustrates the difficulties and tradeoffs of updating existing blockchains. Despite being a general model, new blockchains still have strict requirements, such as tolerating specific adversarial behaviors and staying online during updates. NFT programs rely heavily on their underlying foundation and are consistent with it. While data is often stored in separate components (such as IPFS and MEFS file systems), the most important logic and tokenIds are still recorded on the chain and need to be updated appropriately.