How Are NFTs Authenticated?

The NFT concept is new to most; the term “non-fungible token” skyrocketed into the mainstream from relative obscurity within an esoteric group of cryptocurrency aficionados. 

The script changed in early 2021: NFT collectors suddenly started spending thousands to sometimes millions of dollars to buy various JPEGs and GIFs on the Internet. 

With so much money flowing into the evolving NFT marketplace, there is a dire need for NFT verification services. 

How do I know that the NFT I’m buying is legit, instead of some shoddy reproduction created by some scammer? 

The following guide explores how NFTs are authenticated.  We’ll talk about a handful of mechanisms being implemented to protect NFT collectors. We’ll debate the question of which of these schemes will see mass adoption as the NFT market matures.

The NFT space is still in its infancy and a variety of NFT authentication methods are being used, each of which offers specific advantages to the end-user. 

What Aspects of an NFT Need to be Authenticated?

The first question we need to ask is what exactly is it that we need to authenticate about an NFT

There are basically two factors to consider:

  1. Authenticity — Who created the NFT and who currently owns it?
  2. Originality/rarity — Is the work the first of its kind and unique or are there similar/derivative works?

First, and most importantly, collectors need to verify the source of the NFT and its rightful owner. 

Next, because the value of an NFT is partially based on rarity, we need to verify that the artwork being minted is not a copy or derivative of previously existing work. If the artist is minting several copies or slightly revised versions of a work, then its value is questionable. 

Moreover, since anyone can copy an image file and mint it as an NFT, one must be able to prove the creation is tied to a particular creator, or the most valuable component of NFTs, the provable scarcity and provenance, goes out the window.

In the case of physical art, there is a master and there are often prints (or copies) of the original work. 

The master holds the most value. 

Next, artist-signed prints have value to some collectors. 

However, unsigned prints have very little value. They can easily be copied so they have no inherent rarity.

The same might be true for digital art. The master NFT holds the most value. Limited edition copies minted by the artist might also have value to some collectors. Copies not minted by the artist floating around the internet are essentially valueless since they can be replicated an infinite number of times.

How is the Authenticity of an NFT Verified?

In the case of verifying that an NFT was minted by the original artist and not a scammer, we rely on the public record. Records of NFTs minted on decentralized blockchains are immutable, which means the record can’t be changed by anyone– at least not without a prohibitively expensive effort, but that’s a rabbit hole we’ll jump into another time. 

Thus we need only look at the record for a particular NFT to determine when it was minted as well as its ownership history. 

This is easier said than done, however; many art collectors will outsource this step to a trusted third party. 

For example, an artist by the pseudonym “Beeple” sold a work of art called “Everydays – The First 5000 Days,” for $69 million. The NFT was offered by Christie’s auction house. Collectors can rest assured that high-end auctioneers such as Christie’s have done their due diligence to be sure that the NFT being auctioned is authentic– a sort of authentication by proxy.

Most NFTs, however, are sold on centralized NFT marketplaces such as OpenSea, Rarible, Mintable, and others. 

Each NFT marketplace handles NFT authentication differently.

NFT Marketplaces and NFT Authentication 

Many NFT marketplaces offer some level of NFT authentication service, but not all of them. 

Marketplaces that do offer this service approach NFT authentication from a variety of angles: 

  • OpenSea, the largest NFT marketplace, offers no assurances that an NFT is original. The buyer must do their own research. 
  • Mintable, SuperRare, and Foundation only sell work by hand-curated artists. 
  • Nifty Gateway offers both hand-curated and post-verified NFTs. 
  • Rarible vets artists and performs what is known as a “reverse image search” to identify copies and near copies of the work. 

This list represents a small handful of NFT marketplaces and their NFT verification protocol; new NFT marketplaces are popping up daily and each has its own system for verifying (or not) the NFTs being sold or auctioned on their sites.

How is the Rarity of an NFT Authenticated?

Verifying the uniqueness of an image is far more difficult than identifying the authenticity and owner of an NFT. 

A human being should be able to easily identify a copy or modified version of an image merely by looking at it. When comparing a handful of images, it would be tricky to fool a diligent human. However, it would be impossible for a human to search for every copy or near copy of an image manually. 

Computer algorithms can help us with due diligence. 

Rarible, for example, performs a reverse search on images to identify copies and similar works. 

What is a Reverse Search?

With a traditional image search, the user searches for images labeled or tagged with a particular keyword or phrase. Google Images is the most commonly used example of this. 

However, Google also lets users do a reverse search to find images that are similar to the NFT in question. Search results also include information such as the date each image was posted online. Stock image sites such as Adobe Stock also use this reverse search method to identify similar images.

So how does a reverse image search for NFTs work? 

Perceptual Hashing for NFT authentication

In identifying similar images via computer, a technique known as perceptual hashing is employed. 

Humans perceive colors and shapes, not pixels. We can compare images instantaneously. However, computers can’t determine that two images are similar just by comparing the pixel data. An image can be slightly modified — resized, cropped, or adjusted in other ways — and we end up with a completely different list of pixels.

We can solve this problem with the process of perceptual hashing. 

Perceptual hashing 101

Hashing is the act of reducing a data set to a much smaller set of data that can more easily be compared. Perceptual hashing breaks an image down into perceivable traits such as shapes and colors. 

The hash file can then be compared with other hashed files to find similar patterns. 

A computer algorithm can identify similar images using perceptual hashing. However, the computer isn’t able to make the final call on originality. It can only bring similarities to the attention of a human. The human can then make the final call. 

It’s not a perfect process, but it does streamline the authentication process for the end decision maker greatly.

Pastel is pioneering a near-duplicate NFT detection strategy using a mix of deep learning models using Tensorflow with Keras Applications, which transform each NFT into a fixed list of over 10,000 numbers (the ‘NFT fingerprint vector’). Then, it assesses the correlation between an NFT fingerprint vector and all other existing fingerprints on Pastel and marketplaces like OpenSea, and open databases like Google. Finally, it churns out a relative rareness score between 0% (the NFT is identical to another) or 100% (it’s completely unique.)  

Final Thoughts On How NFTs are authenticated

As you might imagine, NFT verification services are invaluable to serious collectors. Presently, a variety of NFT verification schemes are being used by NFT marketplaces and art auction houses. 

The NFT authentication process may involve humans and computers.  

While humans are great at vetting artists, they’re not so great at manually searching for images that might be similar. And computer algorithms alone can’t make a final determination on an image’s rarity. 

The rarity of an NFT is relatively simple to verify by using a combination of perceptual hashing and human verification. 

However, for the casual collector of NFTs, simply going by a blue checkmark and the proper link on a popular marketplace like OpenSea might be enough– but as you can imagine, this exposes one to a great deal of risk. 

When it comes to peer-to-peer NFT trades, the ecosystem still has a long way to go to ensure a trustless, fair, and fool-proof system.

NFT Copyright: What Artists and Collectors Should Know

NFT art is soaring in popularity due to the blockchain’s ability to offer a multitude of features that appeal to both creators and collectors. 

Artists continue earning royalties for the same artwork from the sales in the secondary market, which isn’t possible in the traditional art scene. 

Collectors enjoy advantages that weren’t possible before blockchain technology, such as an undisputable artwork’s transaction history and provenance, scarcity, and liquidity. 

However, the NFT ownership concept is more complicated than meets the eye, and it often trips up many.

But what do I actually own? 

What if someone just screenshots your art? 

Can I sue someone if they print my NFT on a shirt?

The answer to all of these questions is a nebulous “it depends.”

When someone buys an art NFT, they don’t purchase the artwork itself but the token that represents it. 

Owning the token isn’t necessarily the same thing as owning the copyrights of the underlying asset, unless it was specified in the underlying contract. 

The following guide explores what NFT copyright is, and what both creators and collectors should know about their NFTs. 

Copyrights and intellectual property rights

Copyright is a bundle of rights that specify what’s ok and what isn’t, regarding things like reproducing and distributing copies of the work, preparing derivatives based on the original work, displaying the work in public, and performing the work publicly, as regulated by 17 U.S. Code § 106.

Purchasing an NFT doesn’t transfer these rights to the buyer automatically. Unless an external agreement (17 U.S. Code § 204) is made between the artist and the purchaser,  the artist who created the original artwork remains the copyright holder.

The artist can transfer the copyright, grant a license for specific purposes, or limit the NFT’s use in some way. Agreements used for transferring rights must be coded in the smart contracts or expressed in written terms elsewhere.

Intellectual property (IP) is a broader concept that can refer to any product of the human intellect that the law protects from unauthorized use by others. Patents, copyrights, trademarks, and trade secrets all fall into the realm of IP.

Again, the only way an NFT buyer can retain IP rights is through an explicit agreement signed by the creator of the original artwork.

Standard license agreements for NFT ownership confer the rights to use, copy, display, resale, and gift NFTs. Granting a license of copyright and IP to the buyer through smart contracts or external agreements is also common. Some NFT projects permit commercial use, like CryptoKitties. 

CryptoKitty owners can use them to commercialize their own merchandise, given that they don’t earn more than $100K per year. Another well-known NFT project, Bored Ape Yacht Club, has generous IP terms similar to CryptoKitties. For example, owners are allowed to create characters around their apes or print them on their personal belongings.

Copyright Terms of NFT Marketplaces 

Although there’ll always be exceptions, we can say that in open marketplaces like Opensea and Rarible, artists license the NFTs to the buyer and not to the marketplace.

In marketplaces where only exclusive NFT collections are sold, the marketplace usually owns the NFTs and the related IP rights, like in the case of NBA Top Shot.

Curated marketplaces like Superrare, MakersPlace, and Nifty Gateway, artists are expected to grant licenses for display, distribution, and derivative rights, for promotional activities. Some marketplaces require artists not to mint multiple NFTs for the same artwork.

On Rarible and MakersPlace, artists can apply a custom license to their NFTs, in addition to platforms’ own standard agreements.

When an NFT is resold, the general practice is that any resale activity terminates the former owner’s rights and the current owner of that NFT becomes the new license holder.

NFT Copyright: What You Should Know as a Collector 

As a rule of thumb, NFT owners generally only have the copyrights to resale and gift their NFTs. Please don’t assume you can create derivatives of the underlying artworks and sell them for commercial purposes by default. 

Some projects may be cool with it, others may not. 

Some projects may give holders every possible right under the sun with their NFT, whereas others insist on keeping the project’s branding, and every NFT, held close. 

Always research the related platform’s license terms and conditions yourself if your intentions are beyond reselling the artwork in the secondary market. Otherwise, copyright infringement issues may arise.

It would help if you also bought only on platforms you trust. Always double-check if the artist verifies the related artwork as theirs. In May 2021, artist Xcopy, a famous figure in the crypto art community, tweeted about a fraud regarding his art on a new platform called Hen. 

This isn’t a rare event in the NFT world; always check if you’re buying an original work of art.

NFT Copyright: What you Should Know as an Artist

Artists should only mint their own creations. If the work is done in collaboration with others, their authorization is necessary.

It seems obvious, but in the Wild West vibe of early NFT marketplaces, it seems that you can get away with minting shoddy reproductions of other works. 

Remember how the blockchain tracks every transaction ever? While NFT copyright law is in its wobbly baby deer leg phases now, it’s not difficult to algorithmically track financial and copyright crimes. 

In the NFT world, many frauds take place. If you happen to discover your art is being sold as an NFT by someone else without your consent, you can claim copyright infringement against the sellers.

As stated above, unless you transfer the copyrights to buyers with an external agreement, you hold the copyrights of your work. However, if you did the NFT artwork initially under an employment contract, it might be regarded as work for hire, according to 17 U.S. Code § 101. In this case, the employer might hold the copyrights.

As a precaution against people with bad intentions, you can release your artwork as an NFT before sharing it with someone else.

Finally, like collectors, artists should also be wary of the platform they sell their art and terms and conditions regarding copyrights.  

Final Thoughts: Expect NFT Copyright Law to Evolve

Both collectors and artists should be aware that NFT technology is very new and many issues regarding IP rights are not completely clear. 

Understanding the underlying technology is necessary for both parties, along with the legal aspects. In case of conflicts, consulting lawyers for legal advice is inevitable.

A Guide to Purpose-Built Blockchains

As blockchains exploded in adoption and use cases over the last decade, the number of challenges blockchains face has increased to meet the divergent and growing applications of the technology across various industries.

As cryptocurrencies and token offerings expand to more use cases and specific functions, their underlying infrastructure must specialize in creating a better developer and user experience. Programmatically different blockchains are being deployed for specific use cases, such as shipping, supply chains, financial infrastructure, and NFTs. 

Bitcoin and Ethereum are the original “catch-all” general-purpose blockchains; their purpose is to be the public blockchain network for all types of activity for all network participants. However, as adoption and usage have soared, catering to the network activity for the masses hasn’t been without problems.

While blockchain thus far has been most famous for its role in the rise of digital currencies, there is plenty of non-cryptocurrency uses for the technology. Purpose-built blockchains may make trade-offs with the core blockchain trilemma factors of centralization, security, and scalability to meet different industries’ needs with greater efficiency.

Challenges with Catch-All Blockchains

Most of the major public blockchains, like Ethereum, tend to face immense challenges with filling niche needs.

The first significant challenge in question is that of speed and throughput. Compared to Visa’s 65,000 transaction per second (tps) throughput, Bitcoin can only process 7 transactions per second, while Ethereum can do about 15-25 tps. Both are more decentralized than Visa, and permissionless, but specific use-cases might not need these advantages. 

Both the BTC and ETH networks have become busier than ever, especially with the NFT activity in 2021, and more adoption is on the horizon. As a result, the cost of sending a transaction has skyrocketed, regardless of what’s being sent. 

In Aug. 2021, Eth gas fees reached as high as $30 on average for a simple transaction, with smart contract transaction fees like for using dApps and NFTs being much higher, often in the range of $100-200 or more, which is a trend that had been increasing throughout 2021. 

“Catch-all” blockchains are like highways that don’t always differentiate the types of traffic to the extent that niche purpose blockchains can. Blockchain networks like Bitcoin and Ethereum are too slow and too expensive for the vast majority of smaller-scale, everyday transactions. 

Ethereum’s architecture isn’t customizable, but it does allow for a large array of different use cases including data recording data, supply chain management, insurance, tokenization of assets, and more. Moreover, Bitcoin and Ethereum were built with the principles of pseudonymity, censorship resistance, and transparency in mind.

This poses issues for some industries. For example, legacy regulated capital markets and financial services often have regulatory needs for identity, compliance, confidentiality, governance, and settlement, which aren’t fulfilled by Bitcoin’s and Ethereum’s functionality. 

What are Purpose-Built Blockchains?

These issues have led to blockchain projects building distributed ledgers that target specific use cases. 

Blockchains are diversifying to become more specialized to specific tasks and. For example, they can enable higher throughput activities, faster settlement time, and less fees. These three features can make supply chains more efficient, help move and store different types of information, or capture a higher volume of transactions than major public blockchains today. 

Specific purpose blockchains can be built solely around the efficient and cost-effective exchange of tokens, execution of smart contracts, or other enterprise functions.

With purpose-built blockchains, large-scale complex applications can solve their unique problems without compromising or bending to problems inherited by catch-all blockchain architecture.

Examples of Purpose-Built Blockchains

Acala is a DeFi-focused blockchain that builds a set of financial primitives including the ACA stablecoin, a DEX with unified liquidity provisioning, and staking derivatives. Acala aims to become a parachain on the Polkadot network and is fully EVM-compatible, meaning Ethereum developers can migrate their smart contracts without significant changes to the code. 

Acala is essentially a niche blockchain optimized for use case of DeFi, created with the goal of reducing public network congestion and creating a more efficient and robust ecosystem.

Solana is a high-performance public base-layer blockchain created to track historical events (using proof-of-history) and transactions in a specific sequence, optimizing scalability over decentralization, and enabling scalable apps for developers and users, with low transaction fees and high throughput.

Algorand created a highly scalable, low fee network, decentralized digital currency, and smart contract platform specifically for the financial services industry to use. 

Flow is dedicated to serving NFTs at a much more efficient scale than Ethereum.

Enterprise blockchains can be used to streamline business processes at scale and serve the needs of corporations in a permissioned and centralized manner. For the corporate use case, ledger data visibility can be restricted to a select group of people. 

A nation-state creating and using its own blockchain for central bank digital currencies is another example of a purpose-built blockchain with different parameters of centralization, security, and visibility of transactions.

Ant Group launched AntChain, its own in-house productivity blockchain platform, that it claims offers an “all-in-one workstation that reduces the deployment time of the company’s blockchain-based solutions by as much as 90 percent.” Today, AntChain handles over 100M digital assets on its blockchains daily, and affiliate AliPay handles 1B transactions per day.

Final Thoughts: 

Blockchain technology is expected to expand global GDP by nearly $1.8 trillion in the next decade. The technology of purpose-built blockchains can be used for specific and optimized use cases to serve large-scale and complex applications while meeting both the growing needs of enterprise and consumers. 

Without any updates to the core networks, catch-all blockchains would continue to experience immense challenges if they were used for every niche need: think more cars and trucks funneling into a bustling highway. 

Purpose-built blockchains solve for speed, throughput, and other architectural limitations to meet the global needs of varied industries, spanning public, private, and enterprise needs. 

What Privacy Coins Are and the Four Best Privacy Coins?

A privacy coin is a category of cryptocurrency asset that keeps user data private. Each privacy coin hides or “obscures” a specific type of user data, whether that be a user identity, transaction amount, or anything and everything else. 

How Do Privacy Coins Work?

Contrary to popular belief, all cryptocurrency assets aren’t inherently private or anonymous. The majority of the blockchain networks, such as Bitcoin, publicly broadcast transactions and wallet balances on the blockchain; hence the value of an immutable, transparent blockchain. In most cases, it’s easier to trace someone’s Bitcoin financial activity than it is to trace their physical fiat activity. 

Even if the digital public ledger didn’t provide this information on a silver platter, someone with a sound knowledge of digital forensics and a penchant for deductive reasoning could efficiently track peer-to-peer cryptocurrency transactions– all they would need to do is skillfully connect the nodes and uncover the transactions. 

The last nail in the coffin for digital anonymity with traditional digital assets such as Bitcoin is the “Know Your Customer” KYC policies of exchanges. To trade Bitcoin on an exchange like Coinbase, Gemini, or Kraken, you’ll need to provide an abundance of personal identifiable information. This makes tracing a transaction to its origin a piece of digital cake. 

Privacy coins address and resolve these issues by deploying a diverse set of tactics to keep the data hidden. They usually leverage a mix of multiple strategies to accomplish their goal, such as: 

Stealth Addresses: Creating stealth addresses implies the creation of a new address each time you are to receive cryptocurrency. It ensures that external parties don’t get to link future payments to a permanent wallet address. Monero is the prime example of a privacy coin that deploys this technique. Monero deploys a dual-key stealth address protocol or DKSAP strategy to offer each wallet owner a new private view key, recipient address, and a private spend key. 

Ring Signatures: Blockchain transactions require your digital signature to verify that you’re the sender. Since each user’s signature is unique, it’s not difficult to trace back a transaction to you with your signature. The Ring Signature strategy combines your signature with other signers in the ring– the higher the number of signatures in a ring, the more difficult it is to directly connect you with your transaction. 

CoinJoin: The CoinJoin technique takes the coins from different senders and combines them into a single transaction. Then, a third party mixes the coins and sends them to the recipients. At the user end, each recipient gets his/her coin in a never-used-before address. This reduces the likelihood of a transaction being traced to a very low probability.  

zk-SNARKS: zK-SNARKS, or “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” is a form of cryptography that allows one to prove it possesses specific information without having to reveal the contents of the information. Privacy coins using zK-SNARKS can prove a transaction’s validity without sending critical pieces of information, such as the sender or receiver’s identity or the number of funds trading hands. 

MimbleWimble: MimbleWimble is an entire blockchain protocol that doesn’t even have addresses. MimbleWimble uses a type of elliptical-curve cryptography and is incredibly efficient at storing data. It only needs about 105 as much data storage as the Bitcoin network, making it a very low-weight highly-scalable solution for storing information. 

The Top Four Privacy Coins

The most successful privacy coins deploy one or multiple strategies from the above list to provide users near or complete transactional anonymity. 

With over 83 privacy coins holding a total market cap of more than $10 billion, privacy coins still make up a very small percentage of the digital asset ecosystem– they occupy less than 1%. 

The following top four privacy coins have gained their reputation due to usage, longevity, and overall investor sentiments. 

Monero

Monero is the largest privacy coin in terms of market capitalization at nearly 4 billion US dollars. The project usually trades between a high of $240 and a low of $216. 

Unlike many other privacy coins, Monero isn’t built on the Ethereum protocol– it runs on its own blockchain. 

Monero (XMR) aims to achieve the maximum possible standard of decentralization where a user does not need to trust anyone else on the network. It’s a completely fungible token that obscures every detail about senders, recipients, and the amount of cryptocurrency transferred. Unlike privacy coin competitors like Zcash, Monero is not selectively transparent. It leverages Ring Signatures to achieve complete privacy. 

ZCash

ZCash has a market capitalization of around $1.5 billion US dollars and it usually trades around the $130 to $150 price range.  Like Monero, ZCash runs on its blockchain and does not use the Ethereum protocol. While Monero is known for offering complete anonymity, ZCash’s advantage is in its feature of optional anonymity. 

You can choose to send ZCash (ZEC) funds in two ways. The transparent method of fund transfer happens similarly to Bitcoin: funds are transferred between public addresses and are recorded on an immutable public ledger. Users and participants of the network can see the addresses and the amount involved. 

Shielded transactions, on the other hand, leverage the zK-SNARKS method and are completely anonymous. 

Zcash is unique in its privacy coin family in that it gives users the option for privacy. 

Horizen

With market capitalization crossing half a billion dollars, Horizen (ZEN) is priced around $48 and $54. Operating on its blockchain, Horizen is unique in its use of a sidechain architecture that opens up possibilities for a host of diverse use cases. It allows for decentralized sidechains by which separate blockchains can run simultaneously while remaining pegged to the parent blockchain. 

Horizen has a mission of making cryptocurrency as inclusive as possible and making an ecosystem where every participant will get rewards proportionate to their contribution. ZEN follows the Equihash consensus mechanism, uses secure nodes, and has TLS encryption to ensure secure inter-node communication.

DASH

With a market capitalization of over 2 billion dollars, Dash is currently priced between $211 and $226. The currency derives its name from Digital Cash.  It runs on an open-source blockchain and aims to offer a fast and cheap decentralized network of global payments. 

One of the most enticing aspects of DASH is that it offers a wide range of usage-mechanism to its participants. For instance, its InstantSend decentralized project governance mechanism allows for payments to settle instantly.  With its Chainlocks feature, the DASH blockchain becomes instantly immutable, and its PrivateSend functionality offers optional privacy for users to choose during transactions. 

The long-term vision of DASH is to become “the most user-friendly” and “scalable payments-focused cryptocurrency in the world.” DASH offers its services to both individuals and institutions. It caters to the international remittance needs of merchants, traders, and institutional users.

Final Thoughts: Honorable Mentions 

Apart from these four top-ranking assets, the list of top ten privacy coins includes Verge (XVG), Private Instant Verified Transaction Cryptocurrency (PIVX), NuCypher (NU), Secret (SCRT), Phala. Network (PHA), Counos X (CCXX), Keep Network (KEEP), and the MimbleWimbleCoin (MWC.)

Privacy coins are an integral part of the crypto-economy because they can benefit otherwise legitimate users who don’t wish to make their transactions to be made public. For example, businesses often want to keep their clients, or the set of vendors they work with, a secret.  Privacy coins enable businesses to leverage the blockchain while preserving their competitive advantage. 

Although public wallets are viewable by anyone, privacy coins ensure that every transaction is mapped with a stealth address that can’t be traced back to the originator. Resultantly, the user feels empowered and gets to exercise his right to privacy in the fullest meaning of the term.

However, privacy coins also have a controversial bend. Outside of legitimate concerns for financial privacy, privacy coins also enable malicious actors to transact in silence. This is one of the primary reasons privacy coins are a focal point for regulatory agencies around the world.