How to keep your NFT assets safe — A primer for beginners
If you were the owner of a physical piece of artwork that was worth millions of dollars, such as a Monet or a Van Gogh, you would, in all likelihood, spend a significant amount of time and money searching for the ideal location in which to store it in a secure manner.
This is also true for nonfungible tokens, also known as NFTs. Despite the fact that they are not yet considered to be on the same level as the masterpieces created by the greatest artists in history, some of them are still worth thousands or even millions of dollars.
As a result, understanding how to store nonfungible assets could be a critically important skill to acquire to prevent losing access to personal investments.
Tokens that cannot be exchanged for currency are also works of art. They can be used to represent anything, from a work of art or a video or audio recording of a musical performance to digital documentation of a person’s personal identity, academic titles, ownership of a car or house, etc.
Before the advent of blockchain technology, digital assets could be copied and dispersed. The majority of the items were virtually worthless because their owners did not know what or where the original digital asset was located.
By providing a digital ledger that is immutable, blockchain makes it possible for artists to create and validate original works, allowing them to manage their assets in a trustless setting without the need for intermediaries.
This development marks a significant step forward in the ownership of digital assets and paves the way for a flourishing market over the next ten years, not only in the realm of digital arts but also in digital real estate, identities, and gaming, to name a few of the aforementioned industries.
It is becoming increasingly important to properly store non-fungible tokens (NFTs) to protect one’s digital assets from theft and other forms of fraud prevalent in the digital world.
The expanding market for NFTs
According to a report by Reuters, the value of the NFT market skyrocketed to $2.5 billion in the spring of 2021, up from $13.7 million during the same time period the year before. Following the meteoric rise in popularity of NFTs, recent sales volumes have remained exceptionally high, reaching nearly $5 billion.
A new record for digital art was established in March when Christie’s sold an NFT created by the digital artist Beeple for $69 million (or £50 million). The other notable high-priced non-fungible token sale was a “CryptoPunk” that was sold at Sotheby’s and brought in $11.8 million. In the month of October, the volume of sales on the widely used NFT marketplace OpenSea reached a new all-time high of one billion dollars.
In the past few months, musician Grimes has sold some of her digital artwork for more than $6 million, and in the same time period, Jack Dorsey, the founder of Twitter, has sold the very first tweet as a non-fungible token (NFT), with bids reaching $2.5 million.
The potential for this kind of asset is enormous, especially when one considers the popularity and the financial impact that the Metaverse will bring to NFTs in the future.
Why is it important to properly store non-fungible tokens (NFTs)?
In recent months, nonfungible tokens have developed into highly valuable rare assets, which have attracted investors. However, investors have also become targets for hackers looking to steal digital artwork or credit card information to purchase more tokens.
A few months ago, hackers broke into user accounts on the NFT marketplace Nifty Gateway and stole assets with a combined value of thousands of dollars.
Hackers were able to easily identify users’ credentials and steal their assets because the platform’s customers did not use two-factor authentication. The platform has placed the blame for the hack on its customers.
The integrity of the organization’s security was not undermined. On the other hand, some legitimate concerns have been voiced regarding the level of safety associated with leaving NFTs or any other digital item stored on these third-party solutions.
It is possible and even encouraged to apply the well-known mantra “Not your keys, not your crypto” to non-fungible tokens (NFTs). People who are interested in cryptocurrencies are likely familiar with this expression, which indicates that you do not own the cryptocurrency if you do not hold the private keys to access it, such as when it is stored on an exchange.
Until recently, cryptocurrency wallets have only been able to store crypto assets. However, as the market for NFTs has grown, new kinds of cryptocurrency wallets that are designed specifically for storing NFT data have emerged.
What types of storage are available to choose from?
When it comes to the storage of non-fungible tokens (NFTs), security is just as important as it is for storing cryptocurrencies.
If you leave them in an exchange (or marketplace platforms in the case of NFTs), you leave yourself open to the risk of being hacked, the exchange itself engaging in fraudulent activity, or a single point of failure.
Blockchain-based storage is decentralized, and as a result, it is much more secure than centralized storage of digital assets and provides property owners with complete sovereignty over their holdings. In addition to this, it offers a variety of solutions that can bring greater tranquillity.
It is important to keep in mind that you do not keep non-fiat currencies or cryptocurrencies in your wallet. Instead, a wallet uses a private key to ensure the user can access their investments stored on the blockchain.
When you have the private key, it is as if you own the cryptographic address as well as anything stored at that address. However, if your digital asset is stored online, it will still be susceptible to hacking attempts as long as it is there.
Therefore, saving and storing non-fungible tokens in offline solutions for cold storage is essential. This presupposes storage in a platform that is not connected to the internet and is, therefore, less susceptible to unauthorized access, cyber-attacks, and other vulnerabilities typical of internet-connected data.
Investing in a cold storage hardware wallet and moving one’s digital assets is the most secure way to store non-fungible tokens away from the internet.
By remaining offline, the wallet will deter potential thieves and keyloggers, both of which have limited capabilities when it comes to gaining access.
In addition, for an additional layer of protection, each hardware wallet comes equipped with a unique ID and password. Users can take a few precautions to protect their privacy and avoid becoming the target of cybercriminals and identity thieves before delving into the various solutions that are available.
It is essential to ensure compatibility across different chains and with the marketplace used to buy and sell NFTs when choosing from the options available for NFT storage.
In addition to this, you need to make sure that the wallet offers a high level of security and has an interface that is simple to use.
Given that the vast majority of NFTs are built on Ethereum, it is important to check that the wallet is compatible with the Ethereum blockchain.
The Most Common Ways to Store NFTs
Software Wallets (Wallets)
Even users with little or no prior experience with technology should have no trouble establishing an online software wallet. Due to their intuitive user interface, software wallets have quickly become the most common and preferred method of storing digital assets.
In the realm of NFT, there is a plethora of software wallet options available, the majority of which are compatible with mobile devices in addition to web browsers.
A software wallet, such as Metamask, is easy to set up and is considered the standard form of security for your NFTs.
Transactions made with Metamask are encrypted and protected by a password as well as a 12-24 word seed phrase. Metamask can only be used with the Chrome web browser. It is compatible with both DeFi and Ethereum.
Since services such as Metamask are accessible online, they are susceptible to being attacked by hackers. They have been compromised in the past, and they could very well be compromised again in the future.
Always make sure you are using a genuine and sanctioned application, as many phony versions of Metamask have been known to trick users.
Enjin wallet is another software solution that allows users to store cryptocurrencies as well as create, distribute, and integrate NFTs. It currently has a marketplace volume of $10.3 million.
Additionally, it is compatible with Ethereum and Defi and will soon be included as the official NFT wallet app on Samsung smartphones beginning with the S10.
The Math wallet stands out from the competition thanks to its remarkable array of native support for more than 70 different public blockchains. Additionally, the Trust wallet supports a wide variety of blockchains, in addition to functioning as a DeFi, crypto, and NFT wallet.
Coinbase has just recently announced the creation of a peer-to-peer marketplace, which will enable holders of NFTs to mint new assets, purchase existing ones, display their holdings, and manage them.
InterPlanetary File System (IPFS)
IPFS stands for InterPlanetary File System and is a peer-to-peer hypermedia protocol. It allows users to store their decentralized NFTs off-chain, reducing the risk of being hacked.
IPFS is an innovative protocol that uses content-based addressing rather than the more conventional location-based addressing to facilitate the global dissemination of information.
When you upload a file to IPFS, that file gets chopped up into smaller chunks, cryptographically hashed, and assigned a content identifier, which is essentially a unique fingerprint (CID).
Instead of using HTTP links, which can be altered and hacked, content identifiers are hashes that are directly connected to a user’s NFT content. This provides a significant increase in the level of security.
This CID serves as a permanent record of your file, and if you upload an updated version of your file to IPFS, the resulting cryptographic hash will be unique; as a result, the updated file will receive a new CID.
Because of this, files that are stored on IPFS cannot be altered in any way or censored, and any changes made to a file will not cause the original file to be overwritten. In the event that a hacker node ever generates a CID hash, you will be notified on your end of the potentially fraudulent data.
Your NFTs can be stored in a manner that is more protected, thanks to the additional advantages provided by an IPFS. Additionally, this type of storage architecture is decentralized and distributed, which is compatible with the principles of blockchain technology; in particular, intermediaries are not required.
Pinata is a network-based token wallet that is based on IPFS. It was launched in 2018 and already had more than 45 million files and more than 70,000 users worldwide.
Despite the fact that it is not the most common storage solution, it has the potential to become more widespread, particularly among programmers, due to the increased safety it provides.
Cold Storage Hardware Wallet
NFT holders interested in substantially enhancing their holdings’ safety should consider acquiring a hardware wallet that provides the option for cold storage (also known as offline storage).
This means that the private keys that allow users to access their digital assets are stored in an unhackable hardware wallet device rather than on the internet, where they are susceptible to being stolen. The internet is a much more vulnerable location for these keys.
The use of two-factor authentication, which is always active with the hardware wallet, is an additional layer of security. It is impossible to hack and steal the contents of a wallet if one does not have physical possession of the device.
Trezor and Ledger are currently the two most widely used hardware wallets. The digital artwork, as well as any cryptocurrency, is not physically stored within the wallets themselves.
On the other hand, they are the ones who store the private keys that users need in order to access the holdings that they have kept on the blockchain.
In the end, the ownership of collectibles or any other kind of digital asset should not result in headaches or concerns regarding the safety of those assets.
These days, there are options available to meet the needs of anyone and under any circumstance, ranging from more pricey solutions to inexpensive online platforms that guarantee a relatively secure atmosphere.
Those investors who hold a significant amount of NFTs may wish to give some consideration to the purchase of more expensive options, such as hardware wallets, due to the increased security that these wallets provide.
Summary
NFTs are digital works of art that cannot be exchanged for currency. The NFT market is expected to reach $2.5 billion in spring 2021, up from $13.7 million the year before. Blockchain technology lets artists create and verify original works and manage their assets without intermediaries. Twitter founder Jack Dorsey sold the first tweet as an NFT. “Not your keys, not your crypto” applies to NFTs, and it’s encouraged.
“Not your keys, not your crypto” applies to non-fungible tokens (NFTs). Cryptocurrency wallets only stored crypto assets until recently. As with cryptocurrencies, NFT storage requires security. Storing NFTs offline in a cold storage hardware wallet is safest. Blockchain-based storage is decentralized and secure, giving property owners full control over their assets.
Most NFTs are built on Ethereum, so your wallet must be compatible. Trust is a DeFi, crypto, and NFT wallet that supports many blockchains. IPFS wallets store decentralized NFTs off-chain, reducing hacking risk. IPFS-based token wallet Pinata. NFT holders should buy a hardware wallet that allows cold storage (offline storage).
Instead of storing private keys online, users store them in an unhackable hardware wallet device. Hardware wallets always use two-factor authentication, which adds security. Collectibles and other digital assets should not cause headaches or safety concerns.
Today, everyone has options, from expensive solutions to inexpensive online platforms with a relatively secure environment. Digital artwork and cryptocurrency are not stored in wallets. They store the private keys users need to access their blockchain holdings.
