The saying, “Not your keys, not your coins” is a truism amongst seasoned blockchain users. It means that if your private keys are not in your own digital wallet (preferably a hardware wallet), you do not actually own your cryptocurrency or NFTs or any other asset stored on a blockchain you believe you own.
If you do not know what private keys are, you should not own any crypto or NFTs or any other asset stored on a blockchain or any physical asset where proof of ownership is stored on a blockchain. Here’s a primer in plain English.
When FTX filed for protection under the bankruptcy laws, assets were frozen and almost everyone lost access to their accounts, including some very high-profile NFT projects that were built and lived on FTX’s custodial NFT platform. The vast majority of NFTs minted by users related to programs from Coachella and Tomorrowland, NBA star Steph Curry’s 2974 NFT collection, and Formula One-themed NFTs from the Mercedes-AMG Petronas racing team are unavailable to their owners. Decrypt reports that, in some cases, even those who took custody of their NFTs before FTX went bust cannot access their assets.
This last point is subtle, but it is super important. An NFT is a receipt stored on a blockchain. Because an NFT is only a receipt (proof of ownership), it generally just points to the asset, which can be absolutely anything from a physical item (such as a house, car, or deed) to any type of digital file (such as a .mov, .mp4, .m4v, .mp3, .png, .gif, etc.). Almost all of the NFTs on FTX proved ownership of digital files, and the digital files were stored separately (as is the practice for most NFTs no matter where you mint them).
This means that while your NFT may be stored on a block written to the Ethereum blockchain, the asset will almost always be stored in an off-chain database such as IPFS, AWS, Azure, Google Cloud, etc. Remember: an NFT is a receipt, NOT the item.
When you buy a Bored Ape and say, “I bought an NFT,” you’re actually saying, “I just bought a .jpg file of a Bored Ape and I have an NFT to prove it.” The .jpg file is NOT the NFT, and it is NOT stored on the blockchain. What is stored on the blockchain? In most cases, the NFT contains a URL or URI (the IP address of the file on a database), or – in the case of physical assets – a unique serial number or other identifying data. In some cases where Web3 databases are used, the content id is stored in the NFT. (A content id is how you locate files in a decentralized database; you can think of it as the Web3 equivalent of a Web2 URL. More info here.)
If I lost you in the weeds, that’s because this is a very complicated process that has been made to seem uncomplicated.
If you own digital assets, learn where they are and learn how to protect them. If you own NFTs, make sure you have them stored in your own personal, private, secure, (hopefully hardware) digital wallet.
Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.