4 Ways Collectors Can Protect Their NFTs – Artsy | Candle Made Easy

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Mike Marble

After collecting NFTs since late 2017, Jason Bailey — perhaps better known by his Twitter handle Artnome — has had many ups and downs. He was the first person to buy from the SuperRare platform, as well as the first person to buy an NFT from XCOPY, an artist whose NFT was in 2018 A coin for the ferryman resold on SuperRare for $6 million last November. In March 2021, Bailey — easily recognizable in the crypto world thanks to his signature headband, long hair, and beard — founded ClubNFT, a company that aims to fill gaps in the NFT space by offering a free service to secure NFTs ; Start of an online magazine for critical dialogue, Right-click Save; and creating a tool for finding artists across sales platforms.

Arguably the least sexy, but the most important of these is the first. Bailey told me that only 10% of Ethereum-backed NFTs have their artwork files stored on the blockchain as it would be prohibitively expensive. Most NFTs store their graphics and metadata files (the information that tells you how rare your NFT is) off-chain, with the token’s immutable code pointing to the off-chain location of the files. This may come as a surprise to many NFT holders, especially those without a technical background who didn’t even know the latter was possible. Bailey explained that 50% of Ethereum’s NFTs point to artwork files on decentralized servers like the InterPlanetary File System (IPFS). The remaining 40% point to files stored on private servers, typically through platforms using AWS cloud storage accounts.

On-chain type NFTs are the most secure and will be around as long as the blockchain is around. NFTs, whose work is tied to networks like IPFS, are also relatively safe as long as you back up those files, as the nature of these decentralized systems means their data and services are publicly accessible. However, when it comes to owning NFTs that point to files on private servers, Bailey said, “These people are just kind of screwed.” Because when a platform goes out of business and stops paying their AWS bills, like Bailey did in 2018 repeatedly experienced, AWS will wipe the data from their servers, and “you will have a token in your wallet pointing to nothing and nothing can be done about it,” he said.

ClubNFT founder Jason Bailey. Courtesy of Jason Bailey.

Bailey knows the pain well. Ascribe, the platform on which he bought XCOPY’s Genesis NFT for £1, went under in 2018. Despite email confirmation of his purchase, he never received the actual NFT. Bailey wasn’t smart enough to look for it at the time, he said. However, since Ascribe used private servers and stopped maintaining them after the disbandment, even though Bailey would have had received the NFT, it would have been imageless – and thus almost worthless.

In 2021, Bailey was offered between $5 million and $7 million for XCOPY work by a whale collector if he could somehow revive the lost and broken NFT. But he couldn’t. He was, in his own words, screwed. But Bailey holds no grudges. “Nobody, including me, thought that three years from now these were going to be worth an insane amount of money,” he said. “We were playing around with the latest technology and just trying to get other people excited.”

Nonetheless, Bailey has tapped into that experience and, among other things, has made it his mission to make sure the same doesn’t happen to other people. Below are four key ways collectors can protect their NFTs—not only from platforms that may go out of business, but also from phishers and other scammers.

Have separate “hot” and “cold” wallets

Bailey suggests that collectors have a “hot” wallet that connects them to sites to buy NFTs that contains just enough money to buy the works they want. Once you make your purchase, transfer that NFT to a “cold” wallet – one that never interacts with websites and where you keep the rest of your crypto and NFTs. This prevents you from losing everything in the event of a phishing scam (where the entire contents of your wallet are stolen or compromised).

If you get phished, you might lose the money that’s on your “hot” wallet, but your CryptoPunk and most of your crypto net worth is still safe in the “cold” wallet. “When I’m shopping for a bagel in a seedy part of downtown, I don’t lug my life savings in a pile of sacks with a sign that says ‘Please don’t rob me,'” Bailey said, illustrating his point. “I’ll bring the $6 or whatever I need to buy the bagel.”

Let your “cold” wallet be a hard wallet

Hard wallets like Ledger and Tezor are physical devices that store your seed phrase (the collection of words used to access your wallet) offline. This setup makes it impossible for anyone who does not physically handle the hard wallet to approve transactions. “So even if someone had access one way or another, they would need the device to move it,” Bailey said, referring to the wallet’s NFTs.

If you store your hard wallet in a safe with a foolproof combination, you can be pretty sure that you will be the only one who ever handles this device. These extra layers of security make hard wallets a more secure option than web-based wallets like Metamask or AlphaWallet, which store your seed phrase online and are therefore potentially hackable.

Back up your NFTs – and don’t buy ones that are stored on private servers

Do your homework and find out where an NFT is stored before you buy it. If it’s stored on a private server, don’t buy it. If it’s stored on-chain or on decentralized servers, move on.

Then back it up by making a local copy of the graphics and metadata files on your computer. In case the platform you bought the NFT on goes out of service, you can re-upload the files to a decentralized server and still have a fully functional work. (This is the same backup process that Bailey’s ClubNFT makes available to its users.)

For the NFTs you already own that use private servers, the only real preservation option is to ask the platform or artist to rebuild them using IPFS or a similar platform, and then follow standard backup protocols.

Get custody of your NFTs

Nifty Gateway and other platforms that work with the MoonPay crypto exchange, like Open Sea, sell NFTs that use IPFS but then keep the actual tokens for you. This allows them to accept fiat instead of cryptocurrency and you can own an NFT without having to own crypto or a crypto wallet. This can feel more secure than physically storing all your money and NFTs in a hard wallet – what if you lose it? — and if something bad happens to your NFTs, at least in theory, there’s a company you can file a complaint with.

But beware: if this custodial platform goes out of business, there’s a good chance they’ll take your NFTs with them. Luckily, most platforms are happy to transfer your NFT to you if you ever ask for it. So get a crypto wallet if you don’t have one and ask to transfer all your NFTs to it your Wallet.

The crypto and NFT spaces are in a particularly hectic market moment, but Bailey has been there before: During the 2018-2019 crypto winter, he saw almost half of the NFT marketplaces — platforms like Ascribe, Rare Art Labs, and Editional Digital Objects – Go belly up.

Hopefully the winter of this cycle won’t be that bad. Still, we would all do well to heed Bailey’s advice and adopt these best practices for NFT collectors. Finally, the NFT market is volatile enough. No need to make it worse with bad habits.

Mike Marble

Mieke Marple is an artist based in Los Angeles

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