Know the Difference: On-Chain and Off-Chain NFTs

The drop of the new project ‘OnChain Monkey’ started a necessary conversation across the NFT community: what exactly does it mean when NFTs are referred to as being ‘on-chain’ or ‘off-chain’? The distinction between the two is just as confusing as it is essential to understand. 

There is a common perception that the blockchain technology that underpins NFTs leaves the digital assets impervious to corruption and is permanent. This is true in terms of the smart contract, however, there is a potential vulnerability that exists in the way that digital artwork (content and metadata) may be stored for some projects. If the metadata for the digital art is stored off-chain, there is a potential that you could be stuck down the road with the smart contract that points to a broken link. Knowing the on and off-chain components of your NFT will make you a more informed collector and enhance your understanding of project quality. 

Take the most recent proliferation of PFP NFT projects; they follow the same recipe: 10K+ assets, an adjective used to describe an animal, some rare traits, followed by a location (club, society, spaceship, stable, etc.), with promises of community and companion airdrops. The team behind the project starts a Twitter and Discord account, appoints a community manager, and starts whitelisting early participants for a shot to mint early.

At a high level, the NFTs in these projects exist in two parts—the smart contract and the metadata for the actual artwork. The smart contract exists on a blockchain, typically Ethereum, (although that is changing rapidly), and contains a set of rules or standards that facilitates the transaction and serves as a digital description of the content. The smart contract includes a link that points to the server that stores the digital artwork.

On the other hand, the digital artwork may not live on a blockchain and may be stored "off-chain" or simply, not on a blockchain. Off-chain storage includes centralized servers within the company or an InterPlanetary File System (IPFS). The issue with centralized storage is that if the server goes down (or the company dissolves) the image would be lost. IPFS is a more secure method of finding data as it utilizes a distributed, decentralized system. While still off-chain, if a storage location (node) goes down in one spot it may be found in another location. 

Due to the immutable quality of the smart contracts, rewrites to redirect to the image are not possible should there be a disruption to the off-chain method of storage. In this scenario, a collector would be left with a smart contract that contains a link to unavailable content. It’s fair to assume that this outcome is definitely not in sync with the expectations of the current collector.

Follow the steps below to see how your digital assets are stored. You can also try to Check My NFT if you know your contract address and token ID.

MetaMask Wallet: Open your MetaMask wallet and click on 'NFTs.' Select the NFT you’d like to review and click the link that appears directly across from 'Asset Contract.' This will bring you to Etherscan. 

OpenSea: Once you have pulled up the webpage of the NFT you would like to review, scroll down to 'Details' in the left-hand column and click the link across from 'Contract Address.' This will bring you to Etherscan. 

Once you are in Etherscan, click the 'Contract' tab located below the 'Contract Overview' box. After clicking on 'Contract,' select 'Read Contract' and scroll down to 'tokenURI.' This dropdown box allows you to enter the ID number of your token, which can be located in the name of the NFT, for instance, Cool Cat #7000, or on the OpenSea webpage in the 'Details' box below the contract link. Once the Token ID number is entered, click 'Query.' 

If a link appears, the artwork is most likely stored off-chain. The link may start with "ipfs://" or "https://api.", include the project name, and end with a token number.

Hundreds of projects dropped over the summer and hundreds more are in the queue to be released this fall. As fast as these NFTs are dropping, it's hard to believe that the creative teams are concerned with the long-term permanence of these assets. Conversations seem to revolve around floor prices and future airdrops, with several blatant rug pulls already occurring. 

Luckily, companies are already working on the issue of data permanence: InfiNFT is a user-friendly platform that allows creators to store metadata on-chain utilizing IPFS and Arweave. Arweave is a company that developed a blockchain derivative that is working toward a 'permaweb.' These solutions aren't the only ones up and running and they are followed by more in the pipeline. 

Taking into consideration the pace at which the very concept of NFTs is evolving (artwork has transformed into content with utility), there is no doubt that giant leaps in digital permanence are just around the corner. As the technology continues to evolve, researching a project's roadmap, artists, and dev teams will give you insight into the intentions and capabilities of the team.