4 ways collectors can protect their NFTs

Having been collecting NFTs since late 2017, Jason Bailey – perhaps better known by his Twitter handle, Artnome – has seen his share of ups and downs. He was the first person to buy from the platform SuperRare, as well as the first to buy an NFT of XCOPY, an artist whose 2018 NFT A coin for the ferryman resold for $6 million on SuperRare last November. In March 2021, Bailey – easily recognizable to those in the crypto world thanks to his signature headband, long hair and beard – founded ClubNFT, a company that aims to address gaps in the NFT space by offering a free service to back up NFTs; start an online magazine for critical dialogue, Right click Save; and create a tool to search for artists across sales platforms.

Arguably the least sexy, but most important of these is the first. Bailey told me that only 10% of Ethereum-backed NFTs have their artwork stored on the blockchain, as it is prohibitively expensive to do so. Most NFTs store the artwork and metadata files (the information that tells you how rare your NFT is) off-chain, with the token’s immutable code pointing to the files’ off-chain location. This may come as a surprise to many NFT holders, especially those without a technical background, who didn’t even know the latter was possible. Bailey explained that 50% of Ethereum NFTs point to artwork files on decentralized servers such as the InterPlanetary File System (IPFS). The remaining 40% point to files held on private servers, usually via platforms that use AWS cloud storage accounts.

NFTs with art on the chain are the most secure and will exist as long as the blockchain. NFTs with work attached to networks like IPFS are also relatively secure, as long as you back up those files, since the very nature of these decentralized systems means that their data and services can be accessed publicly. But when it comes to owning NFTs that point to files on private servers, Bailey said, “these people are just kind of screwed.” That’s because if a platform goes out of business and stops paying its AWS bills, as Bailey saw time and time again in 2018, AWS will delete the data from its servers and “you’re going to have a token in your wallet pointing to nothing , and nothing can be done about it, he said.

Bailey knows the pain of this intimately. Ascribe, the platform where he bought XCOPY’s genesis NFT for £1, went under in 2018. Despite email confirmation of the purchase, he never received the NFT itself. Bailey wasn’t savvy enough at the time, he said, to look for it. But since Ascribe used private servers and didn’t maintain them after the dissolution, even though Bailey had received NFT, it would have been imageless – and thus almost worthless.

In 2021, Bailey was offered between $5 and $7 million by a whale collector for the XCOPY work if he could somehow revive the lost and broken NFT. But he couldn’t. He was, in his own words, screwed. But Bailey holds no grudges. “No one, including me, thought these would be worth an insane amount of money in three years,” he said. “We were playing on the bleeding edge of technology, just trying to get other people excited.”

Nevertheless, Bailey has taken this experience and made it his mission, among other things, to ensure that the same thing does not happen to other people. Below are four key ways he says collectors can protect their NFTs — not only from platforms that might go out of business, but also from phishers and other scammers.

Have separate “hot” and “cold” wallets

Bailey suggests that collectors have a “hot” wallet that they connect to websites to buy NFTs, which contains just enough money to buy the works they want. Once you’ve made your purchase, transfer that NFT to a “cold” wallet – one that never interacts with websites and is where you keep the rest of your crypto and NFTs. This will prevent you from losing everything in a phishing scam (where the entire contents of your wallet are stolen or compromised).

If you get phished, you may lose the money that is on your “hot” wallet, but your CryptoPunk and most of your crypto net worth will still be safe in the “cold”. “If I’m going to buy a bagel in a sketchy part of downtown, I’m not going to lug around my savings in a bunch of bags with a sign that says please don’t rob me,” Bailey said, illustrating his point . “I’ll bring $6 dollars or whatever I need to buy the bagel.”

Let your “cold” wallet be a hard wallet

Hard wallets, such as Ledger and Tezor, are physical devices that store your seed phrase (the collection of words used to access your wallet) offline. This setup makes it impossible for anyone not physically handling the hard wallet to approve transactions. “So even if someone gained access, somehow, they would need the device to move it,” Bailey said, referring to the wallet’s NFTs.

If you keep your hard wallet in a safe with a foolproof combination, you can pretty much guarantee that you’ll be the only one who ever handles that device. These extra layers of security make hard wallets a safer option than online wallets like Metamask or AlphaWallet, which store your seed phrase online and can thus be hacked.

Back up your NFTs – and don’t buy those stored on private servers

Do your homework and find out where an NFT is stored before you buy it. If it’s stored on a private server, don’t buy it. If it’s stored on-chain or on decentralized servers, go ahead.

Afterwards, you can back it up by making a local copy of the artwork and metadata files on your computer. In case the platform where you bought NFT goes out of business, you will be able to re-upload the files to a decentralized server and still have a fully functional work. (This is the same backup process that Bailey’s ClubNFT offers its users.)

For the NFTs you already own that use private servers, the only real preservation option is to ask the platform or artist to restore them using IPFS or a similar platform, and then follow the usual backup protocols.