Non-fungible tokens don’t live on the blockchain, experts say

As non-fungible tokens (NFTs) are advertised as blockchain-based technologies, there are misconceptions about how they are stored, according to two experts. They claimed that technically these tokens do not exist in the blockchain, but are actually stored elsewhere.

In a Cointelegraph interview, Jonathan Victor, the Web3 storage lead at Protocol Labs and Alex Salnikov, the co-founder of Rarible, discussed decentralized storage, the future of the NFT space, and investing in NFTs.

According to Victor, the main chains are very limited in size and storing data on the blockchain can be very expensive. Due to the large file sizes of assets, off-chain storage solutions are introduced. He said NFT data can live anywhere from a host node or decentralized storage networks.

Salnikov also weighed in on the topic, saying that since NFTs are a new concept, there can be many misconceptions about how NFT storage works. He said the transaction is verified by the blockchain, but the file is located elsewhere. He explained that:

“It’s important to understand that the NFT residing in a user’s wallet only points to the file it represents – the file itself, also known as an NFT’s metadata, is usually stored elsewhere.”

Despite this, the experts noted that storage for NFTs can still be considered decentralized. Victor explained that their project NFT.Storage does this by using decentralized storage networks such as Filecoin (FIL) and the InterPlanetary File System (IPFS). With this, they are able to store NFTs as a public good, similar to the Internet Archive. He said that:

“When we think about decentralization – I like to frame it in terms of whether there is a single point of failure. Simply storing data off-chain does not introduce centralization – as long as we do it thoughtfully.”

Salnikov also shared that on the NFT marketplace Rarible, they stored NFTs using IPFS. To further improve data integrity, the Rarible co-founder said they integrated with NFT.Storage, which implements both Filecoin and IPFS storage.

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When asked about the future of the NFT space, the experts shared their predictions. Victor believes that there will be more digital goods represented by NFTs and more use cases will emerge. He also believes that the upcoming merger on Ethereum (ETH) could help boost NFT prices. On the other hand, Salnikov shared that their vision of the space is multi-chain and this is why they are trying to democratize storage and access to NFTs.

When asked if it is a good idea to invest in NFTs now, the experts offered some of their advice. Victor warned investors not to put themselves in a situation where they would become forced sellers. He said NFTs are often less liquid and advised investors to structure their portfolios in a way that is not forced into a fire sale.

Meanwhile, Salinkov shared things he remembers as taking a step back and looking at the bigger picture. He explained that there will always be price volatility in the market, but looking from a broader perspective, the NFT value continues to increase.