In recent weeks, the NFT space has seen a large amount of regulatory pressure from the SEC coming to a head, with examples like Stoner Cats being charged, raising concerns around the longevity of digital assets and what happens to them if a company is shut down.
On top of conversations and speculation around what is and what is not a security, the NFT space is also starting to become increasingly curious as to what it means to have an asset be truly on-chain.
To dig deeper into all of this, we recently spoke with artist Patrick Amadon, a thought leader on these subjects and a proponent for truly on-chain art or, at the very least, an advocate for a standard level of education in the space that would have participants know the difference.
Below, we look at a few crucial aspects to consider when collecting digital assets, primarily knowing what it is you’re collecting, as well as where and how it’s stored.
Before we go deeper into the technical side of things, we need to first take a look at the specific type of digital asset we’re looking at collecting, as a PFP collectible and a digital artwork represent two entirely different assets.
This has recently been made evident in the case of the Stoner Cats, an NFT project co-created by actress Mila Kunis that has since been removed from major NFT marketplaces like OpenSea, Blur, and Rarible following charges by the SEC for conducting an unregistered offering of crypto asset securities.
However, despite trading being disabled for Stoner Cats, platforms like OpenSea still have the collections project page online, largely because it, like other marketplaces, acts as a blockchain explorer for NFTs — something we’ll get into in a bit when we discuss storage.
Continuing on the topic of what classifies as a security, however, is something Amadon has further highlighted and brought attention to in one of his most recent works, This is a security, which, while satirical in nature, reflects an actual securities contract that meets the criteria set out by the Howey Test. Notably, a test used to determine what qualifies as an investment contract was created and first saw use in 1948.
However, despite the title of the work, Amadon plainly shared with us that Art isn’t a [security]. Explaining, “That’s quite clearly defined by precedent law.”
He further shared, “As for PFP land, there is a very strong case they are in fact securities, and that’s not helped by the recent history of companies using drops as capital raises,” adding, “I believe the question should be whether or not we need to amend the definition of security in this case.”
As for the longevity of certain types of digital assets, Amadon shared that “Collectibles have a lifespan of months and only on the rare exception, years. Feel like most confuse the gambling game we’ve created here for actual value. They’re all going to die except Cryptopunks, and even that isn’t a given. Art, on the other hand, the prognosis is much better.”
Summarizing what we’ve just covered, it becomes extremely important to pay attention to the fine print or underlying details of what it is you’re collecting, as well as recognizing the risk that comes with an unregulated and emerging asset class. With these considerations in mind, you can more precisely analyze a digital asset’s associated risk and potential longevity.
The next and possibly the most important aspect to consider when collecting a digital asset is knowing where and how it’s stored, with a common misconception in the Web3 space being that all NFTs are in decentralized storage or truly on the blockchain — when many are, in fact, not.
This becomes important because if a digital asset is not stored properly, a collector runs the risk of hardship and potential loss of it in the case of a company shutting down, something we’re hopeful you can avoid altogether by knowing what to look for.
However, this does bring up the topic of longevity or durability, with Amadon sharing that “For art, one of the biggest questions among many collectors from the traditional world is ‘How durable are NFTs?’. The tech is opaque to many and there are valid questions around decentralized storage links like IPFS/Arweave over long time horizons // 20+ years. On-chain addresses that breakable element, but it’s not necessarily that big of a deal.”
To understand why this is important and for the unversed, IPFS or InterPlanetary File System, is a system that by its simplest explanation, allows for many copies of content, in many places, including copies stored by the content owner offline, all of which can be verified as the authentic digital asset. This acts as a means of decentralized storage and doesn’t rely on a centralized storage solution like AWS.
With this in mind, we asked Amadon if it would be possible, or rather worthwhile, for significant projects or artists to move their works to decentralized means of storage if they currently aren’t.
He explained, “Generally no. Provenance matters,” and that “Burning something to remint it elsewhere breaks the provenance.”
The artist added ” a majority of projects are built on immutable contracts with IPFS/Arweave pointers,” but that “If it’s hosted on AWS… run.”
So if storage, as we discussed above, is so important, why aren’t all NFTs stored truly on-chain?
Well, Amadon explained that “NFTs aren’t the simplest medium to understand, and a lot of our community isn’t coming from a tech background.”
He added, “I think it just comes down to education. The challenge being that we have people in this space for years who still don’t know the difference of this… it really underscores the distance we still have to go for the mainstream to understand what we are doing here.”
So, with all of this in mind, it’s our hope that you have a better grasp on what to keep an eye out for when selecting the digital assets you choose to collect and that you’ll lean into the expertise of thought leaders like Amadon and others who would see this space fully and truly utilize the decentralized solutions in which it is prided for.
Whether you’re collecting art or PFPs, always aim to be as educated and aware as you can be in the asset’s current classification from a legal standpoint, the basis of its online storage, and the overarching volatility that comes with an emerging sector.
Editor’s note: This article was edited to remove an erroneous Axios report that stated that Art Blocks projects were stored via AWS.