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In this post, we will tell you why your NFTs may disappear like the ones of the bankrupt FTX.
Can your NFTs disappear? Users who purchased NFTs on the FTX crypto exchange have seen them disappear from the platform. The reason for the disappearance is that they hosted the metadata on a Web2 service, and when they stopped paying invoices, the owners of the NFTs no longer had access to them. Yet another demonstration of the misuse of “decentralization” is that the NFTs and metadata managed by FTX were never decentralized. Therefore, the bankruptcy of the exchange has taken them with it.
The disappearance of FTX NFTs
Most centralized exchange platforms that handle NFTs do so similarly to FTX. The same thing is happening in applications such as OpenSea and Rarible. Twitter user @neitherconfirm created a collection of 26 NFTs in OpenSea, put them up for sale, and then changed his NFTs works for images of colorful carpets, making a bad joke worthy of a 4chan and Reddit threads.
The tweet clarified that implementing NFTs on platforms such as Ethereum or similar generates an indelible record of the transaction and the related data. However, the metadata and physical file mostly live outside the blockchain, so anyone can edit, delete and make them disappear. NFTs will only be genuinely decentralized once that problem is corrected. Deleting the edit button on the platforms doesn’t end the crisis either.
The drive to be first
Why is this happening? Is blockchain decentralization a lie? No. Blockchain can decentralize the world. The problem is that developers and companies often want to be the first to “decentralize,” but they do it incompletely. The eagerness to be the first and the best makes developers build incomplete platforms, opening security issues.
This eagerness to be the first affects large and small, and they often lie to the community. The problem not only affects the infrastructure area but also has an impact on governance. After the fall of Terra/Luna, DAO users voted on the rescue attempt. But all those votes were manipulated by a Sybil account of Do Kwon, co-founder and director of the company. This example underlines that an on-chain governance system that lacks safeguards to prevent this kind of situation cannot be called “decentralized governance.”
Fortunately, there are also community-friendly DAOs. One example is MakerDAO. Its governance is clearly defined, and the capacity of such a government is widely known—even its ability to stop MakerDAO if the conditions require it. Being able to stop a protocol like MakerDAO is a sign of centralization, but MakerDAO does not hide that capability. Neither are the conditions for activating it. The main difference with other projects is the transparency it boasts.
Ethereum and decentralization
In blockchain networks, something similar happens in Ethereum. We refer to Ethereum as the network where NFTs were born by Smart Contracts as we know them today. Among the many roadmaps that Vitalik Buterin has shown to the world, there was one in which Ethereum had its decentralized storage layer. This layer would deploy metadata and files needed for DApps and their decentralized operation.
Vitalik promised a wonder, but the reality is that such a storage layer does not exist and may never exist. Instead, Ethereum has patched the layer using third-party projects not intended for that purpose. An example is the case with IPFS, which offers data storage decentralization, something it does very well, but its integration with Ethereum is not native. Many developers cringe at working this way. Ultimately, it complicates development, and it’s much easier and cheaper to use centralized cloud storage.
To be fair, ethereum has chosen the right way to do things. In the end, blockchain is not an efficient structure for storing data. It’s a lesson that Bitcoin learned and solved a long time ago. If developers feel the freedom to use Web3 to link it with Web2, they cannot say that “everything is Web3” because the user of the service pays the consequences.
The dangerous cycle of “develop fast without measuring consequences” triggers situations like the one in FTX and OpenSea. Anyone who bought an NFT at FTX probably thought it was a “decentralized NFT.” Some might think it is logical what has happened since it is a centralized exchange, but the same thing happens daily at OpenSea.
OpenSea Marketplace
If OpenSea were to face problems someday, we could see “unchangeable NFTs” magically disappear. These issues negatively impact one of blockchain’s most powerful qualities: decentralization. The reason is that many initiatives want to fill headlines rather than generate real decentralization.
Some voices accuse Bitcoin of being outdated in the crypto industry. Bitcoin developers are much more conservative because they are looking to solve problems. If Bitcoin is slow, there is Lightning Network. Is it necessary to build DeFi protocols that extend to Bitcoin? It already has the foundations with Taproot and Taro Protocol. Do we want to expand the network’s capacity to create new functions? We investigate how to do this with initiatives such as the RGB project.
Indeed, this approach takes time, but it is better to build decentralization step by step and have it work well than to have decentralization of lies built on headlines and have it work poorly.