The world of Non-Fungible Tokens (NFTs) promises digital ownership, but a recent incident involving Nike's RTFKT brand has exposed a critical vulnerability. Several Ethereum NFT collections from RTFKT unfortunately lost their artwork. This initial incident raised major alarms over what true ownership looks like when it comes to digital assets. Our aim is to bring attention to the dangers associated with particular methods of storing NFTs, as outlined during this event. It calls out the importance of understanding how digital assets are protected.

That wasn’t the real problem, which had to do with RTFKT’s decision on how to host the images linked to its NFTs. Rather than writing the artwork directly to the blockchain, or on-chain, the images were saved on a separate hosting provider, Cloudflare. It was a problem that Samuel Cardillo, Head of Technology at RTFKT, had pinpointed. Takeaway It all began when a Cloudflare contract cut short a few days from expected end date. The unforeseen cancellation made the removal of the artwork necessary, so soon after that it disappeared. The NFTs required an outside service to display the images. RTFKT had previously announced plans to close down shop by the end of December, marking three years since Nike purchased the studio. This scenario highlights a critical danger that threatens all NFT projects that rely on centralized storage methods.

The fraught situation leads to even more fundamental questions regarding digital ownership, and the lasting permanence of NFTs. The blockchain serves to prove ownership of the token. At the same time, the related metadata, such as the artwork, can be kept in a separate database. This separation creates a single point of failure, as was the case in the RTFKT incident. Her commission’s disappearance accentuates the perils of relying on central, hierarchical institutions. It illustrates the dangers in trying to ensure that digital assets are preserved forever. FearlessToken.com is primed to explore this incident and get past all the BS. We’ll take a closer look at what this means for NFT holders and creators.

The Perils of Off-Chain NFT Storage

The RTFKT incident is perhaps the best real-life example to date of the unique dangers posed by off-chain NFT storage. NFT security vulnerabilities Storing NFT data, particularly the visual representation of the asset, off-chain increases the vulnerability to numerous risks. A variety of growing risks now threaten its integrity and accessibility. Realizing these risks is essential for anyone participating in the NFT space, be it a creator, collector, or investor.

Centralization and Third-Party Dependence

One of the biggest issues that has been raised with off-chain storage is its dependence on centralized servers or platforms. This reliance renders this entire complicated system a single point of failure. If the third-party hosting platform were to shut down, you may lose access to your NFT’s data entirely. If it ceases operations or otherwise restructures what it does, that data could be lost for good. And that’s precisely what happened with the RTFKT NFTs. On one of these occasions, when a Cloudflare contract was cancelled, so too did the artwork disappear.

Data Alteration and Removal

Maintaining NFT data with a third-party entity presents the risk of data manipulation or deletion. In stark contrast to the unchangeable, permanent nature of the blockchain, centralized servers are vulnerable to human error, vicious attacks, and policy shifts. The hosting platform may change the data without notice or even knowledge. Alternatively, it might choose to censor it or remove it altogether, significantly diminishing the worth and originality of the NFT.

Security Breaches and Platform Vulnerabilities

That means the centralized servers hackers and cybercriminals target, putting people’s sensitive data at risk, are prime targets. If one of the platforms that host NFT metadata suffers a security breach, the linked content—including financial information—could be lost, taken, or altered. This troubling convergence of circumstances could lead to abandonment or demolition of irreplaceable community assets. It could damage reputations and erode confidence in the NFT ecosystem.

Dependence on Platform's Database

Off-chain NFTs require the platform’s own database to verify ownership. This reliance on a single platform creates an immediate danger, should that platform go down or be otherwise compromised. This reliance on a centralized database opens up a vulnerability, because the central platform’s integrity is key to proving ownership.

On-Chain vs. Off-Chain: A Tale of Two Storages

To fully appreciate the risks of off-chain storage, it's essential to understand the alternative: on-chain storage. Each method has distinct benefits and drawbacks. Make the right choice. The blockchain you choose will impact the security and long-term viability of your NFT.

1) On-chain storage This method means that the NFT’s data, which can consist of the actual artwork or the metadata, is directly embedded onto the blockchain. This approach offers several key benefits:

  • Immutability: Once the data is written to the blockchain, it cannot be altered or removed. This ensures the long-term integrity and authenticity of the NFT.
  • Decentralization: The data is distributed across a network of nodes, eliminating the risk of a single point of failure.
  • Transparency: All data is publicly accessible and verifiable on the blockchain.

Off-chain storage, as we explained in our last blog, is where an NFT’s assets are stored on a centralized server or platform. This approach offers:

  • Cost: Storing large files on the blockchain can be expensive, as it requires significant computational resources.
  • Scalability: Blockchains have limited capacity, which can restrict the size and complexity of NFTs stored on-chain.

Ultimately, the decision between on-chain and off-chain storage should align with the goals and values of the NFT project. For high-value, long-term assets, on-chain storage provides the best security and durability assurance. However for lower-value items or projects with small budgets, off-chain storage is a viable alternative. Do not lose sight of the peril that accompanies its presence.

  • Cost-effectiveness: Off-chain storage is generally cheaper than on-chain storage, especially for large files.
  • Scalability: Centralized servers can handle large amounts of data, making them suitable for complex NFTs.

As a solution to address the shortcomings of off-chain storage, decentralized and permanent storage solutions, such as Arweave, have been developed. Arweave’s sustainable, permanent, decentralized, and censorship-resistant storage was a natural fit for NFTs.

  • Centralization: Reliance on a single entity creates a point of failure.
  • Vulnerability: Data is susceptible to alteration, removal, and security breaches.
  • Lack of Immutability: The data can be changed or deleted by the hosting provider.

Arweave functions like a digital decentralized vault where a global decentralized network of computers continuously and collectively cooperate to store data. Once you upload something to Arweave, it’s there forever. No one organization, agency or company can change it, or just get rid of it. This ensures that NFTs stored on Arweave are permanently available. They will be truly immutable, regardless of what happens to the original author or the company that stores it.

Arweave: A Potential Solution for Permanent NFT Storage

Treating NFT smart contracts, metadata, and digital NFT asset data as one collective unit is possible with Arweave’s Atomic Assets feature. This feature closely connects these pieces together at a low level across Ethereum and Arweave. This serves as a solution to the issue of NFT storage fragmentation. When different elements of an NFT are stored in multiple locations, this opens up multiple points of failure.

Permanent and Decentralized Storage

Arweave’s atomic assets give users the power to easily move their virtual assets from one blockchain to another. This feature enables the free flow of access and use across multiple ecosystems. Arweave’s atomic asset cutting function allows users to seamlessly cut up one NFT into multiple non-identical fragmented assets. This feature enabling separate private sales or public uses of these shards creates more flexible, useful NFTs.

Atomic Assets

Arweave is a technology that provides permanent, decentralized storage. NFT creators now have these tools to help mitigate centralized storage risks and ensure the ongoing preservation of their digital assets.

On-Chain Asset Transfer and Cutting Function

The RTFKT incident offers us perhaps the best lesson imaginable. This emphasizes the importance of diversifying our digital footprint and maintaining ownership of our digital real estate. Creators and collectors alike should take note of the following:

These are crucial considerations to have baked into the process when developing any online asset.

Lessons Learned: Diversification and Control

Building the systems that make digital ownership safe requires deep expertise in cryptography, distributed systems, and blockchain technology. This newfound complexity represents a huge hurdle for many creators.

  • Diversify Online Presence: Creators who built businesses on platforms like TikTok, only to have their accounts banned without explanation, highlight the importance of not relying on a single platform for content and connections.
  • Understand Terms and Conditions: When purchasing digital media, such as movies or books, the terms and conditions may disclaim ownership, leaving the buyer uncertain about their rights.
  • Avoid Platform Dependence: Creators who rely heavily on social media platforms may lose control over their content and audience if the platform's algorithm changes or if their account is suspended.
  • Build a Personal Platform: Having a personal website or platform allows creators to own their content, have direct engagement with their audience, and monetize their work without relying on third-party platforms.

The RTFKT incident should be a warning shot to the NFT space. This experience demonstrates the vulnerabilities of off-chain storage and further amplifies the need for all parties to understand how digital assets are being secured. Explore and adopt decentralized storage solutions, such as Arweave, to protect your projects’ digital footprint. In adopting such an approach, creators and collectors alike can better manage risk while protecting the long-term viability and continued worth of their NFTs. FearlessToken.com will continue to be your go-to source for the industry expertise you need to lead in the rapidly changing world of digital ownership.

Technical complexity is a barrier to digital ownership

Building secure systems for digital ownership requires deep expertise in cryptography, distributed systems, and blockchain technology, making it challenging for many creators.

The RTFKT incident serves as a wake-up call to the NFT community. It highlights the vulnerabilities of off-chain storage and underscores the importance of understanding how digital assets are secured. By embracing decentralized storage solutions like Arweave and prioritizing control over their digital presence, creators and collectors can mitigate risks and ensure the long-term value and accessibility of their NFTs. FearlessToken.com remains committed to providing the insights needed to navigate the evolving landscape of digital ownership.