Open up the $ 69 million NFT that Beeple sold at Christie’s, and you won’t find much. The name of the work is not there. The artist’s name is missing. And most importantly, you won’t even find the real work of art.
It’s not a loophole in Beeple’s NFT – it’s just the way the system works.
It turns out that the house of cards that is the NFT system is even more precarious than it appears. NFTs are fundamentally built on trust – trust that a seller won’t fuck you, trust that these tokens have magical value – and this is true even at the deepest level of the system. Ultimately, you buy a collection of metadata defining what you own.
But there is a major loophole in the system ensuring that an NFT is held together: NFTs use liens to direct you to another place where the art and all the details about it are stored. And as anyone who’s ever been on the internet should know, links can and do die. So what if your NFT crashes and doesn’t point to anything?
“This is an extremely costly 404 error for buyers of these NFTs,” Aaron Perzanowski, professor of law at Case Western Reserve University and co-author of The end of the property, wrote in an e-mail to The edge.
NFTs are digital tokens used to buy and sell digital art. But unlike a painting, which can be placed with a buyer, an NFT is more like a piece of paper saying you own something – typically, a digital illustration or a video. Sometimes a strange cat.
The system usually relies on the Ethereum blockchain, which guarantees a few things: it keeps an unalterable record of everyone who has owned the NFT, and it prevents the NFT from constantly changing. This means that someone who buys an NFT and then resells it cannot misrepresent what they own. It’s all there in the NFT, as it was when they bought it. You can think of it like the papers that authenticate a thoroughbred: it is not the horse, but they certify the provenance and history of a thoroughbred.
However, very little data is stored directly in an NFT. The NFT includes information on where you can find a description of the artist’s name and the title of the work, but this information is usually not found on the blockchain itself. NFTs contain information on where you can find the artwork they represent, but the actual artwork is still a connection.
Traditional URLs pose real problems for NFTs. The domain owner might redirect the URL to point to something else (maybe leaving you with a million dollar Rickroll), or the domain owner might just forget to pay their hosting bill, and it’ll all go away. The animation that Grimes sold for $ 389,000 is mostly from a pair of traditional URLs, which could go down if one of the two different companies (Nifty Gateway, the auction site; or Cloudinary, the host Web) went bankrupt. As a buyer, this is something you have no control over, unless you are rich enough to buy out the entire domain and pay to keep it online.
To solve this problem, many NFTs turn to a system called IPFS, or InterPlanetary File System. Rather than identifying a specific file in a specific domain, IPFS addresses allow you to find content as long as someone somewhere on the IPFS network hosts it. Grimes’ NFT uses it as a backup, and Beeple’s NFT primarily uses it. This means that a multitude of hosts, rather than a single domain owner, could ensure that these files stay online. This system also gives control to buyers. They can pay to keep their NFT files online. They still have to remember to pay the hosting bill, but they can host it anywhere on the IPFS network.
However, the system has flaws. The team behind Check My NFT searched inside NFTs to see if their IPFS addresses actually worked, and in several cases, they found files that just didn’t load. The team found works of art that were temporarily missing from major artists, including Grimes, deadmau5 et Steve Aoki. The files eventually came back online, but only after the team called 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 sole responsibility for doing this for files over IPFS.
“A hard drive crash could result in permanent loss of assets,” the Check My NFT team warned in a message to The edge.
Like a painting, NFTs must be maintained. If a buyer purchases an NFT that relies on IPFS, it will ultimately be their responsibility to ensure that the file continues to be hosted and available to the system. If the NFT relies on a traditional URL, buyers would be in a more precarious position, hoping that the third party currently hosting the file – often the auction site, as with Grimes’ NFT – stays online.
So there is a very real chance that in a few years an NFT will indicate a missing file. If so, how do you prove what you really own? “You are still at that point in the evolution of blockchain where you need to have a traditional written contract that tells you what you are getting and which is enforceable against the seller of that asset,” said David Hoppe, Managing Partner at Gamma Law . The edge.
But most buyers don’t exactly have it. Despite the buzz surrounding Ethereum’s “smart contracts”, NFTs generally do not include literal contract a buyer engages with the seller of a work by detailing what he gets and how he can use it. These rights are generally simply incorporated into the terms of service of an auction site. “In many cases, NFTs offer very little beyond a simple claim of ownership of the NFT itself,” Perzanowski wrote.
Buyers could end up in one of two situations: In one case, they own an NFT with a broken link, but they and the rest of the world understand what work of art it represented – say, an extremely expensive collage. As long as this image exists somewhere globally, the NFT may retain its value as long as the artist, owner, and potential buyers all agree on what the token is meant to represent. It is, after all, a system built on trust.
In the other scenario, the image is gone and no one can tell which work the NFT was originally linked to. If so, it’s hard to imagine the NFT would have been very valuable anyway. You cannot sell a painting that has been burnt or a statue that has been lost. And an NFT with missing art is just that – nothing to look at.