A popular NFT marketplace, Hic et nunc (HEN), running on the Tezos blockchain, went down abruptly in November 2021.
A very active Twitter community helped it become one of the Top 20 NFT marketplaces per dApp Radar metrics.
Active users trying to visit the site were met with an error; the server could not be found.
The official Twitter account’s bio cryptically tweeted the market’s smart contract address, shutting off all replies as it shut down to the almost 50,000 traders on the platform. The only clue: The Twitter bio was changed to “discontinued.” While there wasn’t any immediate explanation for the shutdown, crypto artist @MrRudeManners, HEN’s developer Rafael Lima may have shut down the site after receiving negative messages.
Lima had built the HEN marketplace from scratch and was the central authority for the site. However, according to other members of the HEN discord, internal disagreements led to the sudden shut down of the site.
After launching in March of 2021, HEN gained steam among indie artists as a place to sell unique, affordable art pieces. By May, it had more daily active users than OpenSea. Compared to NFTs minted and sold on Ethereum, NFTs within the Tezos ecosystem had significantly cheaper minting fees and, according to Tezos, were also two million times more energy efficient.
While this spurred chaos in the community, the NFTs were not lost to the internet’s ether. A venture capital-backed crypto company called DNA created a mirror of the site with a new domain, handing control of that domain to Joseph Magly, another one of HEN’s developers.
Underlying this whole debacle is the understanding of what exactly you’re buying with an NFT, where those assets are stored and the general volatility of and indemnity of these marketplaces.
“Reports of my death are greatly exaggerated,”
— Mark Twain (an embellished quote) and HEN (probably)
What is an NFT, really?
NFTs are misunderstood assets, easily and often regarded as over-priced .JPEGs.
NFT is a token encoded through a smart contract on a blockchain. This slice of code contains all the information necessary for the NFT to appear on a marketplace. That token represents ownership of a specific asset on the blockchain, like a receipt.
The smart contract encodes the NFT then points towards this asset to display it in your wallet or on an NFT marketplace.
In Ethereum for example, NFTs are often minted as ERC-721 tokens which link to an external .JSON database file which contains the metadata. It may look something like this:
{
“title”: “Asset Metadata”,
“properties”: {
“name”: {
“description”: “Identifies the asset to which this NFT represents”
},
“description”: {
“description”: “Describes the asset to which this NFT represents”
},
“image”: someNFT.art/1233{
“description”: “Blah blah blah – link to image.”
}
}
}
Aside from a few NFTs that are coded directly into the smart contract, many of the assets (images, sounds, videos) relating to the NFT are hosted elsewhere, usually the InterPlanetary File System (IPFS). These are stored externally because the cost of storing these images directly on the blockchain approaches $20,000.
While some people panicked over their NFTs when HEN went down, the underlying assets were safely stored and hosted on IPFS while the ownership remained recorded on the Tezos blockchain. That means that even though the store went down, you still had your receipt, which conferred your ownership of an asset hosted elsewhere.
Will My NFT’s Metadata Be Stored Forever?
IPFS File Storage
IPFS is a decentralized internet protocol that functions akin to a traditional torrenting site. Like The Pirate Bay uses a peer-to-peer network to transfer files, IPFS uses a decentralized peer-to-peer network to host web pages on the internet. It is no surprise that IPFS has become a more popular decentralized hosting platform.
Traditionally, URLs are addresses that point to content on the traditional internet. In the IPFS protocol, the content is specified rather than an address — meaning that it points you directly to the site or assets you want to view. Each file is fragmented and given unique hashes that refer to the specific content; many different nodes or computers can then host the same content, ensuring that even if one node goes down the data will still be hosted somewhere.
But the IPFS does not guarantee that your NFT won’t go missing. When data is uploaded to IPFS, it isn’t automatically replicated across the web. Filecoin is a tokenized incentive that can ensure your NFT or project remains available on the blockchain. In short, users are incentivized to host your data through Filecoin rewards.
IFPS now offers services to ensure the permanence of NFT assets on their network through NFT.storage. However, not every NFT is made equal, and some are built with poor data storage practices.
Poor Storage Practices
Many NFTs are still hosted on traditional web infrastructure, meaning no permanent or immutable URL to the assets. An $11 million album bought through Nifty Gateway has gone missing; the price of the NFT does not dictate how well its underlying data may be preserved.
Other collectible assets, whether they be art, autographed baseballs or trading cards, require diligent care. You’re not home-free when you buy your NFTs; you must consider whether they are also stored externally and reliably. In the case of HEN, luckily, these assets were well preserved and could be displayed on a new site.
The Problem with Centralized Platforms
The other troubling aspect of the HEN situation is the idea of a centralized platform to purchase decentralized assets. If a single person or central organization bears the entire responsibility for a marketplace, they can also shut it down on a whim. The person or central authority that set up the marketplace has no incentive to continue running as is, nor are they incentivized to provide clear and transparent communication about the platform. There isn’t an easy solution for this problem.
Evidenced by its quick growth and use, HEN provided a valuable service that eventually burdened its creator. The contract lived on, and interested parties could continue running a similar service. But what happens with larger centralized authorities making the rules and controlling the platform?
One of OpenSea’s employees had advanced knowledge of the NFTs that would be promoted in the future. They bought these NFTs prior to the promotion and listed them for sale thereafter. The employee later resigned, but this belies the risk of “insider trading” with larger centralized platforms. OpenSea has also done a less-than-stellar job of protecting artists from having their pieces stolen and monetized without their permission.
How do we solve these problems? There isn’t an easy answer, but if you’re buying or investing in NFTs, it must be taken into consideration. With Coinbase and FTX opening up their own NFT exchanges, we may be moving towards a more centralized marketplace model for NFTs, especially on Ethereum.
While HEN going down is a more visible problem, it is inherently less problematic than the other centralization issues that will continue to plague a space dedicated to a decentralized blockchain.
Takeaways
Diamonds are forever, but that .JPEG associated with your NFT might not be. The sudden shutdown and resurrection of the HEN marketplace accentuate several important issues within the NFT space. The developer behind the Tezos-based marketplace became overwhelmed and shut down the site without any advanced notice or official explanation.
Panic ensued as some believed that they had lost access to their NFTs.
But marketplaces like HEN don’t store any of the NFTs on the website.
They simply read the metadata to render the asset on the marketplace. Paying for an NFT is buying the ownership of a token, created through a smart contract that points towards a metadata file stored elsewhere. Since many of these metadata files and associated assets were stored on decentralized peer-to-peer servers. The site was quickly rebuilt and mirrored, restoring HEN to all its glory.
However, some using poor storage practices are not all NFTs are made equal. As already evidenced, even the original data for expensive NFTs can be lost. Your NFTs aren’t forever if they aren’t reliably stored somewhere with a permanent web identifier. URLs change, but IPFS can be incentivized to store your data.
Finally, the fact that many of these marketplaces are easily taken down by one person or one centralized authority is problematic. Larger platforms like OpenSea have had their own scandals attributed to insider trading. With Coinbase and FTX opening their own marketplaces, the space will continue to become more centralized.
That means that these companies will have the final say on what you can and can’t do on a marketplace that sells decentralized assets.