Are all NFTs what they claim to be? How to see past the beautiful pictures of a NFT
Non Fungible Tokens or NFTs for short was the talk of the day during the 2021 crypto boom. During this period numerous NFT collections came into circulation and many investors/traders were in on the act of buying and selling NFTs. Like any other thing in the world, fake NFTs (NFTs not up to standard) came into circulation owing to the immense popularity gained by NFTs. These NFTs might appear as your ordinary NFT, but if you can look past the beautiful image you can see that they are a scam. Whether you are an investor, trader or just an enthusiast in the web3 space, it is really important that you know what is real and what is not.
What were the “standards” I was referring to in the above paragraph, you may ask. Well it’s simple. Every NFT must adhere to the basic principles of web3. Putting it in different terms, NFTs must be truly decentralized. They should not depend on the platform it was created on, the owner nor anything else. The NFTs should exist even if the platform it was created on gets destroyed, even if the address it was used to create is no longer existent, or any other reason. But does all the NFTs circulating in the market adhere to these basic principles of web3. The answer is “No”. These “fake” NFTs can be seen up for sale even on famous marketplaces like Opensea.
In this article, I will explain how to see through the “pretty picture” of a NFT, so that you can verify that the NFT you are trying to buy is truly decentralized. For this, I will use some NFTs listed on the Opensea marketplace as reference and examples.
These are some of the “red flags” in regards to NFTs, that you should be on the lookout when going through NFTs.
1. If the source code for the smart contract is hidden.
Before buying a NFT, it is important to know what project this NFT represents. Reading the smart contract of that NFT, will also allow you as an investor to get a good idea of the vision of the creator of this collection.
But if the source code of the smart contract is hidden and not available publicly, this might be a huge red flag for you as an investor. This will not only mean that you will not get an overall idea of the project this NFT, but there is the threat that there can be security loopholes and the creator hid the source code for the smart contract intentionally. Sometimes the creator might have written the code for him to be able to retrieve all the NFTs back to his wallet after they are sold off. Who knows!!.
On Opensea you can easily look at the contract code as follows,
First go to your NFT and click on “details” tab as shown in the first picture. Clicking on the contract address will lead you to the relevant page for that contract on Etherscan.(shown in figure 2). Scroll down and click “Contract” tab. If your output looks something like the one in the picture ( some hex values), we do have a problem here. This means that the creator has not verified the smart contract with Etherscan and has not made the contract public. If the creator of the collection has verified and made the contract public this is what you will see on Etherscan,
The green tick will ensure that the smart contract used to mint the NFT has been verified. You can even read through the code to see that there are no any security loopholes. NFTs like this are truly decentralized NFTs.
2. Metadata is hosted on a private server
Metadata is a very important part of a NFT. Metadata is what describes the NFT and its special features. It adds additional value to it. Without an image, name or other details, a NFT would be worthless.
A disturbing fact that I found out when going through NFTs listed on Opensea, is that a lot of the NFTs metadata are stored in centralized servers. If those servers do go out of service, the NFTs would loose all its value. This is a single point of failure from the point of NFTs and should be avoided at all times.
This is how to check if your NFTs metadata is hosted on a centralized server.
I have chosen a NFT on polygon for this example. On Polygonscan I entered the contract address of the NFT, and scrolled down to the “Contract” session as I did on Etherscan for the previous example.
Under the “Read Contract” tab search where you can query the metadata URI given the tokenID. As shown above, you will receive the metadata URI. On navigating to the above URI you will see something like this,
As you can see, this is a centralized server hosted by Opensea. If Opensea were to no longer exist, it will take down all the NFTs hosted on this server with it as well. This is not the web3 we know. I don’t see the point of using blockchain technology for these kind of NFTs. Actually these cannot be termed as NFTs. They are actually images in a web2 world. If you are to buy these NFTs, you have a high probability of loosing your money.
When you go through a NFT marketplace like Opensea, you would be amazed to find so many NFTs, that do not meet the basic requirements to be even named a NFT. But if you know your NFTs, and know how to play your cards you can be a master of the the NFT ecosystem.
Although there are many outliers like the above, there are a lot of purely decentralized NFT projects. We just have to be careful when buying NFTs. These truly decentralized NFTs do carry a huge value and potential. You just have to learn to see past the beautiful image of a NFT, because not all beautiful stones are gems!!!