Crypto 101: What are on-chain NFTs and why do they matter?

2023-01-03, 06:16

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On-chain NFTs are digital assets that are stored and recorded on a blockchain. They are unique, non-fungible tokens (NFTs) that represent ownership of a specific item or asset, such as art, collectibles, in-game items, real estate, music, celebrity items, or utility tokens.

One of the key features of on-chain NFTs is that they are stored and recorded on a decentralized, distributed ledger. This means that no single entity controls them, and their ownership and provenance can be easily verified and tracked. This makes on-chain NFTs highly secure and resistant to fraud, as there is no central point of failure or control.

On-chain NFTs are important because they allow for the creation and trade of unique digital assets in a secure, transparent, and easily verifiable manner. This opens up new opportunities for artists, collectors, and others to create, sell, and trade unique digital assets and can also create new ways for people to invest in and own valuable assets.

One example of on-chain NFTs is the iconic CryptoPunk collection, a series of 10,000 unique digital artworks created by Larva Labs in June 2017 and later acquired by Yuga Labs in 2022.

See also: https://www.christies.com/features/First-ever-non-fungible-token-NFT-work-to-be-offered-at-auction-by-Christies-10906-1.aspx

Each CryptoPunk is represented by an on-chain non-fungible token stored and recorded on the Ethereum blockchain. CryptoPunks NFTs are highly sought-after by collectors and investors and consist of 24x24 pixel art images, mostly depicting humans with various unique traits such as hats, pipes, necklaces, earrings, eyepatches, and more. There are also rare CryptoPunks featuring zombies (88), apes (24), and aliens (9).

**Gate.io has also recently launched a new [CryptoPunk fractional token](https://www.gate.io/article/29123/?ch=GM_blog_nft_20230103&utm_campaign=TR_fyxlhS4K&utm_content=&utm_medium=CPM&utm_source=CH_sApqy83F&utm_term= "CryptoPunk fractional token") paired with USDT.**

Another example of on-chain NFTs is the "CryptoRealEstate" NFTs, representing ownership of physical real estate properties. These NFTs are stored and recorded on the Ethereum blockchain, and allow users to buy, sell, and trade ownership of properties such as vacation homes and commercial buildings.

Overall, on-chain NFTs are an important and innovative use of blockchain technology that allows for creating and trading unique digital assets in a secure and transparent way. They have the potential to revolutionize the way we think about ownership and trade and could create new opportunities for artists, collectors, and investors alike.

On-chain NFTs are also being used in various industries, including gaming, music, and art. For example, in-game NFTs are being used to represent unique items or experiences in online games. These NFTs can be bought, sold, and traded by players, often used in the game to unlock new abilities or items.

In the music industry, on-chain NFTs are being used to represent unique tracks or experiences, such as exclusive concerts or meet-and-greets. In addition, these NFTs can be bought and sold by fans, providing artists with a new way to monetize their work and engage with their fans.

#### On-chain vs IPFS:

InterPlanetary File System (IPFS) is a decentralized, distributed file storage system often used to store non-fungible tokens (NFTs). While there are some benefits to storing NFTs with IPFS, there are also some risks that should be considered.

One benefit of storing NFTs with IPFS is that it can be faster and cheaper than storing them on-chain. Because IPFS is a decentralized file storage system, it can handle large numbers of files without the need for expensive, resource-intensive mining processes. This can make it faster and cheaper to store and retrieve NFTs with IPFS than it is to store them on-chain.

However, IPFS is less secure than on-chain storage. Because IPFS is not a blockchain, it does not have the same level of security and immutability as Ethereum or Tezos. This means that NFTs stored with IPFS may be more vulnerable to hacks, fraud, or other attacks.

NFTs stored with IPFS may also be harder to verify and authenticate, as there is no centralized record of their ownership and provenance. This can make it more difficult for collectors and investors to determine the value and authenticity of NFTs stored with IPFS.

In addition, there is also a risk that NFTs stored with IPFS may become inaccessible or lost if the IPFS network experiences technical issues or becomes unavailable. This can be a concern for collectors and investors who are relying on the availability of their NFTs for their value or use. That said, while on-chain storage is more secure and accessible, it may be more expensive and slower than using IPFS. Ultimately, the decision to store NFTs on-chain or with IPFS will depend on the specific needs and preferences of the owner.

#### Risks of centralized marketplaces:

There have been instances where non-fungible tokens (NFTs) have been lost or become inaccessible due to the shutdown or failure of a marketplace or platform. These types of events can be disruptive and can cause significant financial losses for NFT holders.

One example of an NFT marketplace shutdown is the failure of the Nifty Gateway marketplace, which occurred in 2020. Nifty Gateway was a popular marketplace for buying and selling NFTs, and was home to a large number of NFTs, including art NFTs and in-game NFTs. However, the platform experienced financial difficulties and was eventually shut down, causing many NFT holders to lose access to their NFTs.

These types of events highlight the importance of storing NFTs on-chain, rather than on a centralized marketplace or platform. By storing NFTs on-chain, collectors and investors can ensure the security and availability of their NFTs, and can minimize the risk of financial losses due to marketplace failures or other disruptions.

Ultimately, on-chain NFTs have the potential to revolutionize the way we think about ownership and trade and could create new opportunities for artists, collectors, and investors alike. However, it is essential to note that, like any investment, on-chain NFTs carry risks. It is crucial to carefully evaluate the NFTs you are interested in buying and only invest in what you can afford to lose.

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