What is NFT?
NFT stands for non-fungible token. A non-fungible token is a financial security consisting of digital data stored in a blockchain, a form of distributed ledger.
For more detail, check out this article.
Where do NFTs go to after you bought them?
A common misconception is that NFTs are stored on the blockchain. This is not entirely accurate — depending on which part of the NFT you are referring to. The NFT itself actually refers to the digital signature that is created during the minting process, i.e. when an NFT is created. This unique digital signature (also known as a “certificate”) is a token that includes a traditional web address that links to the digital item, e.g. a digital artwork, file, or other forms of digital assets.
The digital signature itself (i.e. the token) is actually the part that is stored on the blockchain, whereas the file, which it is associated with, is stored on the platform where you purchased it.
The NFT is a way to prove ownership of the item you have bought, but the image itself lives somewhere on the web, usually the website of the marketplace where you bought it.
Ways to Store NFTs
Software Wallets (MetaMask)
Software wallets imply a clear meaning with their name, as you can find them just like any other software application. It is also interesting to note that a blockchain software wallet qualifies as a ‘hot wallet’ because of internet connectivity. Software wallets remain connected to the internet in one or another way, thereby providing the assurance of better accessibility. Some notable variants of software wallets include web wallets, desktop wallets, and mobile wallets.
There are plenty of software wallet options in the NFT space, and most of them have both mobile and web applications. However, the most popular wallet at the moment is without a doubt MetaMask, the reasons being as follows:
- MetaMask allows you to trade your tokens directly from the app: A DEX (Decentralized Exchange) such as Uniswap can be used manually or you can utilize the built-in Swaps function in the MetaMask wallet (the browser extension version and the mobile app version both offer this feature).
- You can use MetaMask to explore dApps on the Ethereum network: There is a MetaMask wallet for decentralized apps that do not require a full Ethereum client or node to be installed on your computer. You can connect to Ethereum-based services like OpenSea, Axie Infinity, and Rarible with ease thanks to this feature.
- No need to use a Separate app to purchase crypto tokens: Since the wallet allows the capability to easily buy Ethereum using a credit card or debit card inside the dApp, you don’t need to use a separate app to purchase Ether or ERC20 tokens using MetaMask.
- You can use MetaMask to easily swap any tokens from within the wallet itself: To use MetaMask, you don’t need to register a second account on any of these platforms, which is a huge time-saver when you get the hang of it.
Even without mentioning the above advantages, MetaMask is also very easy to use and you can directly purchase funds, which helps its popularity.
Hardware wallets or ‘cold wallets’ are physical devices that make it possible for you to store your tokens offline, they are one of the most secure methods for storing cryptocurrency currently. Advantages of hardware wallets are:
- Minimizes risks associated with Data Breaches: With hardware wallets, they minimize the risks that you can’t control such as major data breaches at NFT marketplaces or cryptocurrency exchanges or malware that exploits zero-day vulnerabilities in mobile and desktop operating systems.
- The private keys are not made public: Your hardware device is the only place where you’ll need to store your private keys. Your private key cannot be hacked or duplicated because it never makes it to your machine.
- Verification of the Device: You can’t verify your online transaction on a computer; you need to do it on your hardware wallet. Because of this, no one can use your smartphone to do transactions without getting your permission first. You are certain at all times that your money is protected so long as you keep your hard wallet device secure.
- Encryption of Pin improves security: The hardware wallet is secured with an encrypted pin. This pin is generated by you and only you know its secret. The device will self-destruct after the third incorrect pin enter if anyone attempts to forcefully activate it. To keep your money safe, both the public and private keys are removed from the device.
- The device is immune to Virus Infection: Due to the nature of virus attacks on system software, your hardware wallet is not vulnerable. Unlike software wallets, hardware wallets are impenetrable, making them the safest alternative for storing your cryptocurrency.
InterPlanetary File System (IPFS)
An IPFS is a peer-to-peer hypermedia protocol that allows users to store their decentralized NFTs off-chain, decreasing the likelihood of being hacked.
IPFS changes how information is distributed across the world using content-based addressing instead of the standard location-based addressing. When you add a file to IPFS, your file is split into smaller pieces, cryptographically hashed, and given a unique fingerprint called a content identifier (CID).
Content identifiers are hashes directly connected to a user’s NFT content instead of an HTTP link which can be modified and hacked, allowing for significant security. This CID acts as a permanent record of your file, and if you create a new version of your file to IPFS, its cryptographic hash is different, so it gets a new CID.
This means files stored on IPFS cannot be tampered with or censored, and the original cannot be overwritten by any changes to a file. If a hacker node ever produces a CID hash, you will be notified on your end of the false data.
The added benefits of an IPFS make for a more secure storage option for your NFTs. Moreover, this type of storage’s decentralized and distributed architecture is in line with blockchain principles; in particular, intermediaries are unnecessary.