Why Many NFTs Are Just Overpriced Links to Google Drives — And How the Internet Computer Finally Fixes This Problem
In the blockchain world, which includes DFINITY as a major player, history will easily remember 2021 as the “Year of the NFT.” Barely known toward the end of 2020, non-fungible tokens (NFTs) exploded in popularity at 2021’s start, driven initially by NBA Top Shot, before quickly being surpassed by the likes of Beeple, CryptoPunks, the Bored Ape Yacht Club, and many more. In 2020, NFT market capitalization hovered around $330 million, while one year later, news outlets reported capitalizations exceeding $41 billion, a monstrous growth for the industry in just 12 months.
NFTs have introduced a new wave of participants into the blockchain and crypto space. New entrants are excitedly searching for the “next” Bored Ape project and dreaming of riches that only a space like crypto can bring. But for all the interest in NFTs, it’s likely many participants continue to lack true understanding of the underlying technology of NFTs and what it is they’re buying when funds are exchanged for the digital asset.
As NFTs continue to develop and mature in the following months and years, and as the valuations associated with a select group of NFTs continues to rise, it becomes more important than ever for individuals involved in these transactions to understand what it is that they bought.
Understanding What’s “Inside” an NFT
In its simplest form, NFTs are merely smart contracts populated with data and stored on a particular blockchain. This data can be of many things, including digital art files, digital signatures, and histories associated with this smart contract. When a buyer purchases an NFT, they’re effectively buying a smart contract and all the underlying data within it on a particular blockchain.
Why Understanding the Technical Contents of an NFT Matters
Anyone who has participated in the buying, selling, or transferring of NFTs is well aware that such transactions are extremely costly. In addition to the actual cost of the digital asset, users need to pay gas fees, which can often amount to hundreds of dollars for the party taking ownership of the new asset. However, a cost that’s frequently overlooked by the public is the cost of storing the data within the NFT itself. This cost — generally maintained by the NFT issuer — can be extremely high, depending upon the blockchain the NFT launched on.
On the Ethereum blockchain, storing one gigabyte worth of data can cost $240 million per year. The Solana blockchain, which rose in popularity in 2021 as an NFT blockchain alternative, fares relativelybetter but still is out of reach for most individuals, with a cost of $840,000 per year for the same amount of storage.
Last year, digital artist Beeple sold an NFT artwork titled “Everydays: The First 5,000 Days” for a record-setting $69 million. This piece of art, 316,939,910 bytes in size would cost more than $72 million (at a price of 1GB = $240 million) to store on the Ethereum blockchain — more than the amount paid for the work itself! Had Beeple launched on Solana, the same artwork would cost more than $250,000 to store, also a sizable amount.
As a result, what happens with most tokenized digital works of art is that the NFT file contains data that “points” to the actual file, which is stored off-chain. With this arrangement, NFT participants can avoid the cost of storing the actual files on-chain, yet still buy, sell, and exchange the product.
The Problem With Storing Files Off-Chain
In addition to the idea that many NFT owners may not be aware that the content they purchased on their NFT is not fully contained within the NFT file itself, storing NFT data off-chain exposes the NFT holder to significant risks related to centralization.
Imagine a scenario where digital artwork associated with an NFT has been stored on a Google or Amazon Web Services server. The cost to continue to rent and maintain that server needs to be paid by someone — often, this may be the NFT creators. Consider that the creators stop paying for that storage one day; the link that is in the NFT file will eventually point to nothing, once the servers are shut off and rented to another party.
Imagine another scenario where either Google or Amazon decides they no longer want to support these types of activities on their infrastructure. In an instant, these Web 2.0 behemoths could decide to shut down the servers where this digital artwork resides, creating issues for the underlying NFT by having it point to a link that no longer exists.
NFTs where the data is not stored on-chain ultimately face greater risks of having the underlying contents lost due to reliance on centralized third parties either to continue to support the IT infrastructure needed, or to continue to pay for maintenance.
DFINITY’s Internet Computer Solves This
While Ethereum and Solana have been popular blockchains to deploy NFTs during the past 12 months, the world will likely begin seeing an increasing number of NFT projects launch on DFINITY’s Internet Computer blockchain.
Why?
DFINITY’s Internet Computer (IC) blockchain is the world’s first blockchain solution that provides a true end-to-end decentralized experience for NFTs. From decentralized launching platforms to decentralized storage of NFT data files, DFINITY has introduced a solution that processes transactions at lightning speed, while keeping costs for all of its participants in the ecosystem affordably low.
In comparison to other blockchains, which require users to pay six- to nine-figure amounts to store 1GB of data, IC costs users only $5 per year to store the same amount of data on the IC blockchain.
With such low costs, NFT creators are more likely to store data files directly on the Internet Computer blockchain, as they’ll be incentivized to do so from a financial, operational, and marketing standpoint.
Financially, such low costs would be an immense saving from storing directly on Ethereum and Solana, and possibly even from centralized or private servers. Operationally, creators will not have to worry about continuing with maintenance costs of keeping files stored off-chain, thereby ensuring the NFT files sold will always exist. Lastly, the ability to claim that an NFT and all its content is truly contained on the DFINITY Internet Computer blockchain is a strong marketing angle — especially in a world where most files are stored off-chain. With DFINITY, users never have to worry about their files being lost or “shut-down” and holders will know that DFINITY provides a level of security on their assets that other solutions simply aren’t able to in the current market.
DFINITY’s NFT Offerings Continue To Build Momentum
As NFTs continue to remain hot entering into 2022, DFINITY and the Internet Computer blockchain will soon be expanding their footprint in this increasingly important space. In particular, this year will see the launch of Origyn Foundation, an NFT marketplace that will run on top of the Internet Computer. With investors like Paris Hilton, Bill Ackman, and Polychain Capital onboard, NFT audiences are about to see a completely new model take shape in this digital asset world.
Further, as more and more individuals enter the NFT space and begin truly learning about how NFTs work and where the underlying data is stored, increasing demand toward a full end-to-end decentralized solution is likely to take place. Further driven by the economics of low prices, no gas fees (the Internet Computer leverages a “reverse-gas” model), and blazing fast speeds, DFINITY and its Internet Computer are leading the way in defining what it truly means to own NFTs on the blockchain.