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Best practices for NFT data storage

By Brien Posey

The non-fungible token is essentially a digital asset. While this concept might seem trivial, NFTs can be worth thousands or even millions of dollars, so storage is critical.

While some people think of NFTs as merely digital collectibles, enterprises are figuring out how to use NFTs for business. Some organizations, for example, have begun using NFTs as a part of their customer loyalty program and as a tool for tracking purchases. Others are looking at NFTs as an alternative to physical documents such as real estate deeds.

Why NFTs are valuable

NFTs differ from other types of digital files in that they are tied to blockchain, thereby making it possible to prove whether a file is an original or a copy. An asset that can be proven to be unique has value, whether that asset is digital or physical.

For example, think about an art museum with a painting on display. In the gift shop, a print of that same painting costs $20. While the print is worth little more than the paper it is printed on, the original painting is priceless.

This same concept applies to NFTs. Artists, musicians and others have begun issuing digital works as NFTs, some of which they have sold for tens of millions of dollars. However, nearly any type of digital asset can be turned into an NFT. For example, Jack Dorsey sold Twitter's first-ever tweet as an NFT for nearly $3 million.

Top places to store NFTs

Whether NFTs are an opportunity to invest in digital artwork or a tool for more meaningful customer interactions, consider the best place for NFT data storage.

Remember, an NFT's value stems from its uniqueness. As such, an organization that loses, accidentally deletes, corrupts or otherwise compromises an NFT will incur real financial loss. Likewise, NFTs need protection against hackers who seek to steal them and cash in on their value.

The bottom line is that NFTs need secure storage. There are three top locations for NFT data storage:

• A software wallet might sound odd, but remember that the organization stores a digital key. This key gives access to the NFT on the blockchain network. A software wallet can store NFT and cryptocurrency keys. The wallet acts as an encrypted vault that has protection with a password and a seed phrase.
• The InterPlanetary File System (IPFS) is likely more secure than a software wallet because the file system uses content identifiers (CIDs). These CIDs are hashed; the hashes are stored locally on an organization's own device. To access an NFT, the CID hashes are required as a form of verification, proving ownership of the asset.
• A hardware wallet is generally considered to be the most secure option for NFT data storage because it remains offline unless the organization actively uses it for access. Typically, the contents of a hardware wallet are encrypted and protected by a password or biometrics.

Concerns and risks

There are risks associated with each NFT data storage method.

Software wallets are considered the least secure because they are often browser-based and tied to cloud services, making them susceptible to attacks by hackers or malware.

While IPFS might be more secure than a software wallet, it too has risks. The CID hashes are stored on a computer, meaning that if the hard drive fails or if ransomware encrypts the CID hashes, then the organization could lose access to its NFTs.

A cold storage hardware wallet could malfunction or be destroyed, such as by an accidental spill. A physical wallet can also be susceptible to theft. Some manufacturers do offer a feature that enables an organization to restore keys to another wallet if there are problems with the primary.