NFTs and the On-Chain Spectrum
How on-chain is your NFT? It's time to find out!
Metaversal is a Bankless newsletter for weekly level-ups on NFTs, virtual worlds, & collectibles
Dear Bankless Nation,
Understanding on-chain versus off-chain storage is hugely important when it comes to NFTs.
In the past, we’ve seen some NFT projects go bust and void their NFTs forever because they used off-chain storage that wasn’t redundant.
In other words, an NFT’s storage style can make the difference between you having a digital item in 10 years or not.
The stakes are high, then, so let’s spend some time today exploring what goes on under the hood when it comes to storing NFTs. It’s all about being shrewd, savvy, and safe, right!
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The On-Chain Spectrum
The NFT ecosystem is kicking off a media revolution. More people are realizing and diving into all the powerful and novel things you can do with NFTs.
Yet things are still early. And with the cryptoeconomy’s bullish momentum lately, we have crypto newcomers trying to wrap their heads around NFTs as well as crypto and DeFi veterans looking to get up to speed on this exciting “media legos” arena.
For both these camps, an important place to start is what you might call the NFT On-Chain Spectrum.
Source: Aavegotchi, a completely on-chain NFT project
Just like DeFi apps can be placed along a spectrum depending on how decentralized they are, NFTs can be placed along a spectrum depending on how “on-chain” they are, i.e. whether their media and metadata can be pulled entirely from a blockchain like Ethereum or not.
And just like how totally decentralized dapps like Uniswap have become the gold standard in DeFi, we’re starting to see totally on-chain NFTs increasingly embraced as being of superior quality. Let’s break down what I mean here.
What do we mean when we say tokenize, exactly?
For NFTs, it means taking media (like art, music, etc.) and creating a unique and tradable token out of it on a blockchain. You can choose to host this media and its associated metadata (e.g. a piece’s title, a game asset’s characteristics, etc.) to varying extents on Ethereum and so forth.
Yet at its base layer, Ethereum has limited storage capacity. That’s why totally on-chain NFTs, which have all their media + metadata stored directly within their associated smart contracts, have been less common than NFTs created with at least some of their data stored off-chain (e.g. AWS servers, IPFS). This latter hybrid approach simply offers more ease and flexibility to devs.
All that said, every NFT project has different needs and demands so they have to decide what minting approach along the “On-Chain Spectrum” best suits their respective needs.
Totally on-chain NFTs are completely secure and accessible indefinitely, though harder to make. Conversely, NFTs with metadata off-chain are easier to create but in many cases have heightened risk implications (e.g. off-chain metadata can be altered, lost to a project that goes bust, censored by AWS, etc.).
How to Think About NFT Projects
When you’re analyzing the fundamentals of an NFT project, a great place to start is by figuring out where it stands on the On-Chain Spectrum.
To this end, j1mmy.eth — one of the on-chain pioneers behind NFT projects like Avastars — recently offered a really insightful breakdown of some of the reigning on-chain storage styles.
Along this spectrum, projects like Avastars and Aave’s Aavegotchi are totally on-chain because they store all their media and metadata on Ethereum. Then you have interchain projects like Mintbase and InfiNFT, which mint NFTs using an Ethereum + Arweave combo. Go down the line and you get toward the other side of the spectrum, where projects like Nifty Gateway rely on a tandem of off-chain and on-chain storage.
Buying an NFT is just like buying anything: it’s important to understand what you’re getting. If you’re just collecting NFTs without paying any mind to how their data is stored, then you’re flying blind!
Zooming out, you can think about a totally on-chain NFT as being self-evident. It doesn’t have to rely on anything external to its smart contract, so it’s conservative in this sense.
With off-chain storage, additional trust implications come into play and it’s simply good to take note of these from the get-go. You can reasonably expect IPFS to be solid indefinitely, but AWS servers aren’t much of a guarantee for posterity, and so forth. This is how you want to be thinking as an early NFT trailblazer.
Find an NFT project that you’re not familiar with yet. Then do a little research and try and place its minting style along the On-Chain Spectrum!
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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