Non-Fungible Tokens Don’t Live on the Blockchain, Experts Say

Non-Fungible Tokens Don’t Live on the Blockchain, Experts Say

Since non-fungible tokens (NFTs) are advertised as blockchain-based technologies, there are misconceptions about how they are stored, according to two experts. They argue that Technically, these tokens do not exist on the blockchain, but are stored elsewhere.

In an interview with Cointelegraph, Jonathan Victor, head of Web3 storage at Protocol Labs, and Alex Salnikov, co-founder of Rarible, discussed decentralized storage, the future of the NFT space, and investing in NFTs.

According to Victor, main chains are very limited in size and data storage on the blockchain can be very expensive. Due to the large size of asset files, off-chain storage solutions are introduced. He said that NFT data can live anywhere from a hosted node or decentralized storage networks.

Salnikov also weighed in on the issue, saying that since NFTs are a new concept, there may be a lot of misconceptions about how NFT storage works. He said that the transaction is confirmed by the blockchain, but the file is located elsewhere. He explained that:

“It’s important to understand that the NFT that lives in a user’s wallet only points to the file it represents – the actual file itself, aka NFT metadata, is usually stored elsewhere.”

Despite this, experts noted that NFT storage can still be considered decentralized. Victor explained that his NFT.Storage project does this using decentralized storage networks like Filecoin (FIL) and the InterPlanetary System (IPFS). With this, they are able to store NFTs as a public good, similar to the Internet archive. He has said so:

“When we think about decentralization, I like to frame it in terms of whether there’s a single point of failure. Simply storing data off-chain doesn’t introduce centralization, as long as we do it carefully.”

Salnikov also shared that in the Rarible NFT market, they store NFTs using IPFS. However, to further improve data integrity, Rarible’s co-founder said they integrated with NFT.Storage, which implements both Filecoin and IPFS storage.

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When asked about the future of the NFT space, experts shared their predictions. Victor believes that there will be more digital goods represented by NFTs and that more use cases will appear. He also believes that the upcoming merger or merger in Ethereum (ETH) may help boost NFT prices. On the other hand, Salnikov shared that their vision of the space is multi-chain and that is why they are trying to democratize storage and access to NFTs.

When asked if it is a good idea to invest in NFTs now, the experts gave some of their advice. Victor warned investors not to put themselves in a situation where they are forced to sell. He said that NFTs are typically less liquid and advised investors to structure their portfolios in a way that they are not forced into a fire sale.

Meanwhile, Salinkov shared the things on his mind, like taking a step back and looking at the big picture. He explained that there will always be price volatility in the market, but looking from a broader perspective, the value of NFTs continues to rise.

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