How to protect your NFTs
Last month, a crypto twitter influencer accidentally destroyed their $129K CryptoPunk NFT. Here are some best practices to protect your NFTs from loss to technical mishaps with your crypto.
“This is truly a devastating mistake for me.💔 But I did this myself, and it’s no one else’s fault but my own. Both the beauty and the curse of self-defense,” tweeted Crypto investor Brandon Riley, “Stay safe out there, everyone, and please be a lot more careful than I was. Thank you so much to so many of you for your kind words. 🙏🏼”
NFT Collector Loses $129K CryptoPunk
Riley reported on March 24 that he had “accidentally burned” a non-fungible token, CryptoPunk #685. The health, fitness and finance influencer tried to wrap the CryptoPunk NFT.
Wrapping extends the smart contract functionality of NFT so that it can be listed for trading on Ethereum NFT markets. It includes popular NFT exchanges such as OpenSea and Rarible.
But the NFT collector made a tragic mistake, entering the wrong address while following the instructions to wrap the NFT for the first time. As a result, he irretrievably sent NFT to nowhere, destroying a third of his net worth from investing in cryptocurrency:
“I was so focused on following the instructions exactly that I slipped up and destroyed a third of my net worth in a single transaction.”
Riley wrote:
“For those wondering how this happened…
When I tried to create a proxy wallet, something went wrong.
Follow the instructions on the website, step 1. I accessed the contract on Etherscan.
Step 2. I entered my own wallet address and tried to get my proxy wallet address.
Step 3 reads: “Skip to step 2 if the address IS NOT 0x00…0000”
I understood that because the address was exactly that, that it must be correct and I could move on to the next step. I thought that was the proxy address I was supposed to use.
I followed step 4 to ‘write contract’ and ‘register proxy’ and then step 5 to copy proxy address…
I should have known something was wrong and realized this was a mistake, but I didn’t. It wasn’t until I went to stamp my wrapped punk that the astronomical gas gave it away.”
Unfortunately, Riley went out on his own with $129,000 in tow and did what developers call “lone wolfing” it. He executed code to wrap his NFT without having done so before and without advice or peer review from anyone else in the NFT community before jumping headlong into the doomed operation.
Here’s how to take care of yourself out there in DeFi
If it was a centralized enterprise app Riley was dealing with, he could have emailed customer support. For an account with a $129,000 asset on their platform, the company would surely have resolved the issue and restored the user’s property.
But in such a scenario, with centralized corporate monitoring, would NFT be worth that much in the first place? It is unlikely.
Still, Ethereum’s total market capitalization is well over $200 billion in this tepid market. During bull markets, it has a higher market value. On November 21, 2021, Ethereum was worth nearly $600 billion. So why is it so valuable despite these dangers?
Investors are willing to take the risk of these trade-offs for the freedom from centralized control that DeFi offers. With fiat-denominated assets, investors can wake up tomorrow to find that the value of their holdings has diminished. But with DeFi, investors can rest assured that their assets will be valued by the market.
However, for this trade-off, there is a higher demand for due diligence from Ethereum investors. The NFT collector who lost $129,000 should have been more careful when trying a new technique on a P2P platform.
Before trying something new with a valuable digital asset, try wrapping another NFT worth a dime first. Maybe try wrapping more NFTs to find these issues and debug cheaply.
This can be extended to just about any cryptocurrency endeavor for beginners.
Anyone doing something new for the first time is a beginner at it, whether they are a total crypto newbie setting up their first Coinbase account or a division of Binance launching a new product.
