What Are On-Chain NFTs And Why You Want One

NFTs are a form of digital asset widely perceived to be impervious to many threats and have a permanent record on a blockchain. While this is true, one glaring vulnerability remains: the way NFT media are stored for some projects. In this article, we’ll look at how (off-chain) NFTs work, what on-chain NFTs can potentially do, and why you’d want one.

On-Chain NFTs and Why You Want One

Table of Contents

How Do Off-Chain NFTS Work?

To begin, let’s take a refresher on the basics of how NFTs work. Blockchains are a new way to make exchanges in which records of every transaction made on the network are publicly accessible and shared from peer-to-peer. Non-fungible tokens (NFTs) are a type of digital asset which are unique tokens on a blockchain. Due to the fact that NFTs are unique and its source can be checked on the blockchain, it makes the NFT’s scarcity verifiable. This, along with other things such as utility, are what gives NFTs value.

This blockchain technology has made the transfer of assets (including tangible ones such as real estate and artwork) easier, faster, and reduces the likelihood of fraud compared to traditional systems.

What’s The Problem With Off-Chain NFTs?

The way NFT assets, along with any important information that goes with it (known as metadata), are stored is potentially vulnerable to a major threat: where and how this data is stored.

Off-chain NFTs are usually stored on a server, cloud storage, or IPFS somewhere. As you can imagine, this poses a few problems. Server storage may be a good solution for other forms of media, but it can be quite costly for storing a small NFT collection of jpegs. Cloud storage is convenient and cheap, but not invulnerable to hacks or downtime. An InterPlanetary File System (IPFS) may solve these problems – it is a peer-to-peer system where the storage of assets is distributed across multiple locations, which makes it harder to hack and less likely to have downtime. This is why IPFS is preferred by most in the NFT community but is it the perfect solution?

Off-chain NFTs have its smart contract on the blockchain, but still have to link to the IPFS for access to the digital asset. In any event, if the storage service is disrupted or completely goes down for whatever reason, the link will lead to nowhere and the asset will not be accessible.

Now let’s look at what on-chain NFTs offer as a solution to this problem.

What Do On-Chain NFTs Do?

The solution seems simple, right? Simply move all data to the blockchain – if you’re able to access the blockchain, you’ll always be able to make transactions and transfer NFTs without a hitch. However, it’s not just the image (or whatever format the NFT is in) that needs to be accessible, it’s also the metadata (descriptions, characteristics, edition, etc.) that is also really important.

In fact, a few notable projects have done this – Gnars, Nouns, and OCM Genesis were NFT projects that managed to host the NFT assets and accompanying metadata on the blockchain by saving it in vector format.

The implications of on-chain NFTs are great for owners. In the (woefully common) event where an NFT project becomes abandoned by its developers, owners can still have full access to their NFT and its metadata as it’s all stored on the blockchain. This makes it possible for abandoned projects to become a community effort and be revived, whereas in the past the inability to access the NFTs meant that holders simply had to cut their losses.

Truly, the impact is greater than we can fathom as this means that some of the most critical vulnerabilities about NFTs are eliminated.

So, Why Aren’t All NFTs On-Chain?

This sounds great and all, but why aren’t all NFTs on-chain?

Unfortunately, the cost is a huge inhibitive factor. As you can imagine, with the average project numbering 10,000 NFTs, this is quite a substantial amount of data to be stored on the blockchain. For creators and developers, this means higher costs in gas fees. For example, Cryptopunks moved its 10,000 NFTs to be fully on-chain, but this reportedly cost Larva Labs 73M in gas fees.

Popular On-Chain NFTs

  • Scryptals are full on-chain dynamic digital crystals you can mint and evolve to unlock the power to discover more rare NFTs. Scryptals is a charitable project, 80% of gains go to charity.
  • Arpeggi Genesis – Genesis is a music-based project that enables musicians to compose and mint original songs as NFTs fully on-chain.
  • Cryptopunks – Launched in 2017, Cryptopunk is a highly valued NFT collection that moved to be fully on-chain in 2021.
  • Gnars – Gnars is an extension of Nouns, created by sports enthusiasts as a new way of sponsoring extreme athletes using Web3 technology.
  • Nouns – What started out as an experimental collection is now a wildly successful public domain project with a thriving community and a well-developed DAO.
  • OCM Genesis – A first for on-chain NFTs, this unique collection is completely generated from the smart contract, instead of images being individually designed and uploaded onto the blockchain.

Conclusion: Do You Want An On-Chain NFT?

Despite the move of Cryptopunks to being fully on-chain costing a whopping 73m in gas fees, as Larva Labs puts it, it’s a move that was well worth doing as now the NFT collection and attributes are permanently on the Ethereum blockchain. 

In many ways, on-chain NFTs bolster the project’s longevity and remove dependence on media storage systems. This is great for holders who are looking to make long-term investments. For this reason, on-chain might even become the new norm in the NFT world. However, what’s glaringly obvious is that its cost is going to be much higher than off-chain NFTs.

The verdict? We think the cost is well worth paying for high-value NFTs and this is a good move for the NFT community as a whole. It cuts away the dependence on not just the servers, but also developers who too often abandon projects, leaving their buyers high and dry. Your collection is pretty much safe as long as the blockchain is there.

If only the gas fees could be more reasonable, we might just be looking at the future of NFTs and Web3.