A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 14
Possession or control: NFT
In this section, we use the term “control” to describe possession of an NFT.
This is the term recommended for use by the Law Commission’s Digital Assets
Consultation Paper, due to the non-tangible nature of these assets.
Once ownership of the NFT, the underlying asset and IP rights in the underlying
asset has been established and understood, the next question concerns control
of the NFT.
As described above, control and therefore effective possession of the NFT
is held by the owner of the private key. Care should be taken by the owner to
protect this private key as, if it is compromised by loss or hacking, access to the
NFT will be jeopardised. As to the underlying asset, the question of possession
is more complex. Assessing possession of the underlying asset will vary
depending on whether it is digital or physical.
For digital assets, how they are stored is key. The data and metadata parts of
the NFT are stored on the blockchain itself as a token; however, the underlying
digital asset (such as a piece of digital art) can be stored in a variety of ways,
including:
•
On chain: where the digital asset is written into the blockchain itself. This is the
most secure form of storage but is very expensive due to the “gas” fees derived
from the amount of data to be validated when it is put onto the blockchain.
However, for some high-value NFTs such as Larva Labs’ “Crypto Punks”, this is the
chosen method of storage.
•
Decentralised storage: where the digital asset is stored on a decentralised hosting
system, such as the InterPlanetary File System (IPFS). As with all decentralised
technology, these storage systems work by having multiple “nodes”, or computer
systems, on the network which store the content and make it available, also known
as “pinning” it. This is similar to storage on chain as it has no central control
and is more resistant to failure as the network is effectively made up of multiple
computers so if one fails, the others maintain the network. However, there is some
potential for failure if many “nodes” or computers are hacked or removed.
•
Centralised storage: where the digital asset is stored on a centralised website
or on a single device that is connected to a network. This not a safe way for an
NFT digital asset to be stored, as websites can be controlled and modified by the
owners, and devices can crash, be hacked or tampered with or be taken offline.
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