As both on-chain and off-chain storage methods for nonfungible tokens (NFTs) come with their own distinct advantages and disadvantages, leaders in the Web3 space are urging creators to carefully consider which types of NFTs belong on the blockchain and which should be stored externally.
In 2022, NFTs were typically not directly stored on the blockchain; instead, they were linked to external data storage locations. This was the prevailing approach, but it revealed vulnerabilities during the FTX bankruptcy situation when NFTs hosted on FTX stopped working, displaying blank images instead of the original artworks. Jana Bertram, the head of strategy at Rari Foundation, pointed out:
“Off-chain storage relies on the accessibility of the network and the availability of the storage layer. This means that the security of the NFT is more susceptible to potential compromises, which can impact its permanence.”
However, the introduction of Bitcoin Ordinals brought about a change. With Ordinals, NFT data is now stored on-chain, offering benefits like permanence. Nevertheless, it also sparked a debate over whether NFTs should be hosted on the Bitcoin network, with some arguing that Ordinals were causing congestion on the Bitcoin network while others advocated for NFTs to remain on Bitcoin.
Given the various storage options available, Web3 creators now face the task of deciding where to place their NFTs. While this decision can be perplexing, experts in the NFT space have explained how creators can determine the appropriate storage location. Witek Radomski, the co-founder and chief technology officer of Atlas Development (Enjin), told Cointelegraph that off-chain storage is the most cost-effective option for managing large amounts of data. Conversely, on-chain storage is akin to a “permanent, tamper-proof vault.” Radomski further noted:
“I believe creators should decide which assets deserve the vault treatment and which can reside in the cloud.”
Radomski also highlighted that hybrid solutions, like Filecoin and the InterPlanetary File System (IPFS), provide decentralized storage options. These solutions are specifically designed for storage, unlike Bitcoin. “Storing images in IPFS still offers decentralization benefits, but at a much lower cost,” he explained.
Meanwhile, Bertram emphasized that the decision of whether an NFT should be stored on or off-chain should be based on its intended purpose. For instance, an NFT representing a house title might warrant on-chain storage, while an NFT for a brand loyalty membership might be adequately served by off-chain storage. She also noted that projects should carefully weigh the trade-off between security and scalability, considering the specific use case of NFTs before determining where to store these assets.
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