NFT Security Threats: Safeguarding Collectibles Amid Platform Closures and Hacks

Intricate virtual art gallery, various NFT collectibles displayed, selective desaturation, NFT collectors rushing to safeguard assets, crumbling infrastructure symbolizing platform closures, long shadows cast by dim, moody lighting, intense atmosphere, sense of urgency and insecurity.

In the ever-volatile world of NFTs, collectors have spent years amassing fortunes in generative art and unique digital assets—only to face the possibility of losing it all in an instant. Imagine the chaos when a major marketplace announces its bankruptcy, rendering NFTs on the platform inaccessible upon its shutdown. Customer support only offers generic canned responses, and users are left frantically searching for solutions.

It might seem far-fetched, but recent examples such as the shutdown of FTX NFTs and social token and NFT platform Rally have exposed the shaky trust assumptions that plague NFTs. Moreover, the ever-present threat of hacks and exploits have swiped countless valuable NFTs from unsuspecting holders.

In response to these risks, a growing number of blockchain companies are now developing solutions to safeguard collectors’ assets. While servers like InterPlanetary File System (IPFS) or fully on-chain collections appear to be bastions of data storage, that isn’t always the case. IPFS or centralized services such as Amazon AWS demand ongoing fees from users, and their existence hinges upon proper maintenance.

In the ever-evolving landscape of Web3, one sobering truth remains: assets connected to blockchains are never completely secure.

According to a January 2022 analysis by YourNFTS, roughly 10% of NFTs were stored on-chain, with another 40% of NFTs on private servers and the remaining 50% on IPFS. This presents risks for several reasons. Firstly, if NFT artwork is stored off-chain on servers operated by the marketplace, then should said marketplace collapse, it’s likely that any servers they operate or pay for will as well. Consequently, once the server is turned off, the NFT will point to a broken link.

Around 40% of NFTs on Ethereum are stored off-chain (relying on external servers), which could negatively impact the NFT market, considering the sizable investments made recently. Even IPFS is not without risks. For instance, if nobody pays to pin the images on IPFS, then the system will eventually remove them in a periodic cleanup to reduce redundant data.

Due to this, collectors must either take responsibility for pinning their NFT files to IPFS or back them up locally to restore them in the future or both. However, as these methods require a more technical skillset, the average collector rarely invests the time needed to pin their NFTs or create a backup.

Despite these issues, an independent academic paper published in 2021 by UC Santa Barbara noted that IPFS remains a far better choice than private servers. The paper found that lost NFTs not on IPFS represented “a staggering $160,761,805 in revenue from 118,294 transactions.” These findings suggest that using IPFS to host NFT assets and metadata is still the most viable option for creators and collectors.

Market consolidation and potential platform closures following a broader market collapse pose a significant threat to NFT security. However, various solutions and alternatives, such as ClubNFT, Arweave, and Akord, have emerged to address these problems. ClubNFT offers a free analysis tool for collectors to find where their NFTs are stored, and IPFS backups are being made available.

While these solutions provide a sense of security, one harsh reality remains: assets connected to blockchains are never completely secure. The path towards securing collectors’ assets involves technological development, user education, and proactive risk mitigation. Only time will tell if these initiatives will be sufficient to prevent future collapses and losses within the NFT space.

Source: Decrypt

Sponsored ad