Open the $ 69 million NFT that Beeple sold at Christie’s and you won’t find much. The name of the artwork is not there. The artist’s name is missing. And, most importantly, you won’t even find the real work of art.
This is not a flaw in Beeple’s NFT – it’s just how the system works.
It turns out that the house of cards that is the NFT system is even more precarious than it seems at first. NFTs are fundamentally based on trust – trust that a seller will not disturb you, trust that these tokens magically have value – and this is true even at the deepest level of the system. Ultimately, you are buying a collection of metadata that defines what you own.
But there is a significant gap in the system to ensure that an NFT is kept together: the use of NFTs links to direct you to another place where the art and all the details about it are being stored. And as anyone who has browsed the Internet before should know, links can and do die. So, what happens if your NFT breaks and points to nothing?
“It is a terribly expensive 404 error for buyers of these NFTs,” Aaron Perzanowski, a professor of law at Case Western Reserve University and co-author of The End of Ownership, wrote in an email to The Verge.
NFTs are digital tokens used to buy and sell digital art. But unlike a painting, which can be placed in a buyer’s home, an NFT is more like a piece of paper saying you have something – usually, a digital illustration or a video. Sometimes a strange-looking cat.
The system generally depends on the Ethereum blockchain, which guarantees a few things: it keeps an unalterable record of everyone who owned the NFT and prevents the NFT from ever changing. This means that someone who buys an NFT and then resells it cannot misrepresent what he owns. It’s all there at NFT, exactly as it was when they bought it. You can think of it as the papers that authenticate a thoroughbred: they are not the horse, but they certify the provenance and history of one.
However, very little data is stored directly within an NFT. The NFT includes information about where you can find a description of the artist’s name and the title of the work, but that information is not typically on the blockchain itself. NFTs include information about where you can find the work of art they represent, but the real work of art is still a link away.
Traditional URLs pose real problems for NFTs. The domain owner can redirect the URL to point to something else (leaving you with perhaps a million dollar Rickroll), or the domain owner can simply forget to pay the hosting bill and it all disappears. The animation that Grimes sold for $ 389,000 comes primarily from a pair of traditional URLs, which could break if either of the two different companies (Nifty Gateway, the auction site; or Cloudinary, the host) went bankrupt. As a buyer, you have no control over this unless you are wealthy enough to buy the entire domain and pay to keep it online.
To solve this problem, many NFTs use a system called IPFS or InterPlanetary File System. Instead of identifying a specific file in a specific domain, IPFS addresses allow you to find a piece of content, as long as somebody somewhere on the IPFS network is hosting it. Grimes’ NFT uses this as a backup, and Beeple’s NFT uses it primarily. This means that multiple hosts, instead of a single domain owner, can ensure that these files remain online. This system also gives buyers control. They can pay to keep their NFT files online. They still need to remember to pay the hosting bill, but they can host it anywhere on the IPFS network.
Even so, the system fails. The team behind Check My NFT has been examining NFTs to see if their IPFS addresses really work, and in many cases, they have found files that they just don’t load. The team found works of art that were temporarily absent from major artists, including Grimes, deadmau5 and Steve Aoki. The files eventually returned online, but only after the team drew attention to their absence. Files must be actively available on the network for the system to function and, unlike a domain owner, no host has the sole responsibility for doing this for files on IPFS.
“The failure of a hard drive can lead to permanent loss of assets,” warned the Check My NFT team in a message to The Verge.
Like a painting, NFTs need to be maintained. If a buyer purchases an NFT that depends on IPFS, it will be up to him to ensure that the file remains hosted and available to the system. If the NFT relies on a traditional URL, buyers would be in a more precarious position, having to wait for any third party currently hosting the file – usually the auction site, like the Grimes NFT – to remain online.
So there is a very real chance that, in a few years’ time, an NFT will point to a missing file. If so, how do you prove what you really own? “You are still at this stage of evolution in the blockchain where you need to have a traditional written contract that says what you are getting and that can be executed against the seller of that asset,” said David Hoppe, managing partner of Gamma Law The Verge.
But most buyers don’t have exactly that. Despite the buzz surrounding Ethereum’s “smart contracts”, NFTs typically don’t include the literal contract a buyer agrees with the seller of a work detailing what he is receiving and how he can use it. These rights are normally only included in an auction website’s terms of service. “In many cases, NFTs offer little more than a mere claim to ownership of the NFT itself,” wrote Perzanowski.
Buyers can end up in one of two situations: in one case, they have an NFT with a broken link, but they and the rest of the world understand what artwork used to represent – say, an extremely expensive collage. As long as this image exists somewhere Worldwide, it is possible for the NFT to retain value, as long as the artist, owner and potential buyers agree with what the token is intended to represent. After all, it is a system based on trust.
In the other scenario, the image has disappeared and no one can tell which artwork the NFT was originally linked to. If that is the case, it is difficult to imagine that the NFT would be of much value anyway. You cannot sell a painting that has been burned or a statue that has been lost. And an NFT without art is just that – nothing to look at.