What is NFT Metadata & How Does It Work?

The word “meta” is all the rage lately since the Facebook name re-brand, but let’s get our crypto fundamentals in order before everything is referred to as metadata. 

A Non-Fungible Token (NFT) is a token that represents a single specific digital asset, whether that be a .JPEG file, .GIF, .MP4, or whatever else. That file itself can’t be hosted on the Ethereum blockchain, so it’s hosted off-chain. NFT metadata specifies what that data is and includes things like the visual or auditory asset and other information like transactional history. 

NFT metadata is essentially a workaround to avoid the technical and financial catastrophe (or, impossibility, rather) of hosting large files natively on-chain on Ethereum or other blockchain environments. 

For example, if you wanted to run a full Ethereum node, you’d have to download the full Ethereum blockchain of about 1,050 GB (the archival nodes, or the entirety of the Ethereum blockchain since it launched, is about 9,000 GB). 

That’s to run the entire Ethereum network– yes, all ETH-related matters, DeFi, NFTs, and dApps make up just under 1,100 GB. 

In comparison, a 1080 full-feature length movie is about 2 to 4 GB on its own, and most high-quality images can be around 2 to 20 MB. There simply isn’t a way to store these files on the Ethereum blockchain because it would make running the network prohibitively storage and data-consuming.

How expensive are we talking? Gemini estimates that simply storing 1 GB of data on the Ethereum blockchain costs about 17,500 ETH (or $75.75 million as of November 2021). The costs to simply just store a blockbuster movie like James Cameron’s Avatar on the Ethereum blockchain would be more than the costs of making the $237 million film. 

That’s where NFT metadata comes in. It’s a careful balance of utilizing the blockchain without burdening it with the data. 

But, NFT metadata existing off-chain creates a few other issues, which we’ll get into below. 

Let’s Get Technical: NFT Metadata

We’ll use the classic Ethereum ERC-721 token standard for the following NFT discussion.

Each ERC-721 contains a “metadata” string in its definition, which defines what the non-fungible token actually is. For example, this metadata could point to a specific .JPEG, which makes all the difference; although a CryptoPunk .JPEG and a DeadFellaz .JPEG are of comparable file size, they’re worth significantly different amounts. 

The crux of the matter that trips people up about NFT metadata is where exactly files are stored off-chain– is it a Google Drive of some sorts? Is it some Amazon Web Services file storage? Who runs the show of hosting NFT metadata online?

Each NFT references the visual or auditory (image, audio, etc) file that exists online somewhere. It makes a request for the content at a specific location, which returns the content for you to see or hear. NFTs usually point to an IPFS (InterPlanetary File System) hash or an HTTP URL somewhere on the Internet. 

This “somewhere” is generally hosted by the website that hosts the NFT. ERC-721s specify metadata in a standardized JSON (JavaScript Object Notation) format, that looks something like this

The information is stored as a URI (Universal Resource Identifier) inside the Ethereum contract, rather than a JSON; storing a JSON would be prohibitively expensive and resource-demanding. The URI string, however, points to a location where the user can find the token’s JSON description. 

The token’s metadata exists as a permanent, unalterable record on the blockchain, and this record describes what the token represents (its URI string to JSON), the token’s ownership and transaction history. The JSON file contains the image’s name, description, URL of where it’s hosted, and sometimes more granular information like the project’s total supply, type of encryption, and a unique signature. 

Limitations of NFTs 

This JSON metadata typically only identifies the asset, and doesn’t provide much in-depth information beyond the bare essentials. 

The data isn’t very searchable or readable by other smart contracts, which is a kink and limitation of the Ethereum network that multiple projects are attempting to address. 

The data is created by the token minters, who actually own the NFT contract. However, users can’t update the data, for better or for worse, which can be problematic for a few reasons.

For one, as we’ve seen in the evolving Internet ecosystem, links can break. Since the NFT metadata links you to somewhere else to view the art, if that link dies, you’ll essentially be pointing to a very expensive 404 error page. The JSON data can’t be updated by users, and neither can the links be fixed. 

The crux of the issue is that if the data were able to be updated, the inherent value of the NFT could be compromised. For example, let’s say a malicious third-party found an exploit to change all the Bored Ape Yacht Club image metadata with pictures of real-world apes found on Google; the market would respond, and likely negatively.

Hosting Mechanisms also have their fair share of limitations:

  1. HTTP server owners could theoretically change the content of a specific server to whatever they like.
  2. IPFS is designed for decentralized hosting, but is still operated by centralized entities like NFT marketplaces that serve the role of IPFS nodes that keep the gateway live. 

Final Thoughts: What is NFT Metadata Exactly?

As we’ve learned, NFT metadata is the second of the two key pieces to the NFT value proposition. 

The first is that NFTs have a unique ID that distinguishes each token as unique from every other token. The ERC-721 tokenization standard utilizes Ethereum smart contracts to record transfers and changes of ownership of each particular NFT, which is a fairly computation-heavy endeavor. This is why gas fees are generally much higher for trading or minting NFTs compared to simply sending ETH on the network. 

NFT metadata is baked into the second fundamental feature that makes NFTs tick. NFTs can link to data external to their smart contract, essentially allowing the network to reference data that exists off-chain. This keeps the computational costs of running NFTs on a network like Ethereum lower than they would be. 

The Non-Fungible Token that defines the provenance of an asset lives on the blockchain, whereas the asset itself typically lives off-chain. There are few exceptions; for example, OnChain Monkeys is a collection created entirely on chain with a single transaction.  There is no file storage solution needed since the entire collection is hosted on-chain. 

Non-Fungible Tokens (NFTs): The Complete Guide

Non-fungible tokens (NFTs) are blockchain-based tokens representing unique digital items such as digital art, collectibles, video game items, domain names, and more. 

The concept of NFTs is somewhat polarizing: one end of the spectrum raves about the creation of a financial infrastructure to trade and collect digital assets, and the other tends to view the value of NFTs and digital assets as dubious compared to their tangible real-world counterparts. 

Much of the static in the antagonist argument comes from a misunderstanding of how valuable the digital economy has grown to be. Understandably, the notion that completely digital items are being sold for thousands to millions of dollars sounds preposterous to a community used to buying physical art and trading cards. 

Epic Games, the creator of the popular video game Fortnite, sold $2.4 billion worth of costumes in 2018. Now, if the average person doesn’t know what Fortnite is, let alone why people are buying costumes for their character on it, they may be ideological odds with NFTs. 

Fortnite is a great example because, although none of the costumes or items are blockchain-based NFTs, it provides a great perspective of market value for purely digital assets. However, since those costumes aren’t NFTs, their value is entirely limited to existing within the NFT ecosystem. If one wants to buy a Fortnite skin (costume) from someone, they would have to go to a marketplace like eBay, pay money through the platform, and trust that the seller doesn’t scam them or that eBay is a fair intermediary if a dispute arises. 

Fortnite skins on eBay

NFT technology allows the owners of NFT-based digital assets to transact peer-to-peer and seamlessly trade NFTs for cryptocurrency. 

The benefits of the technology, however, don’t stop there. NFTs have enabled a deep variety of use-cases, from digital trading cards to video games to the representation of assets in the real world. 

Welcome to the complete guide on Non-Fungible Tokens (NFTs). This article isn’t investment advice. NFTs and all digital assets have very volatile prices and can be risky to own. 

What is “Fungibility”

Fungible (adjective): an item that can replace or be replaced by another identical item. Fungible items are mutually interchangeable.

For example, Bitcoin is a “fungible” asset because 1 BTC will always equal 1 BTC. A $20 bill is valued the same as another $20 bill, regardless of its serial number. You can replace a $20 bill with another $20 bill and still be completely whole. 

A non-fungible token is a representation of a digital asset that is unlike other assets. An NBA Top Shot highlight with a serial number of 1/1000 has a different value of the same highlight but with a serial number of, let’s say, 893/1000. 

Note: if you’re unfamiliar with NBA Top Shot, check out our guide. A “serial number” basically refers to the order assigned to each NFT moment. If there are 1000 “prints” of a moment, the serial number for an individual number will be X/1000.

Fungibility is a relative concept that tends to reflect on the market value of an item. For example, some assets are semi-fungible within a class. Two parties can swap tickets for NBA Finals nose-bleed seats without too sharp a change in value, but they can’t be swapped for courtside seats. 

NFTs and Digital Assets: A Dynamic Duo

Non-fungible assets precede the invention and popularization of the blockchain; domain names, social media handles, tickets to events, and in-game items are all examples of non-fungible digital assets. 

Traditional assets generally lack the ability to sell or trade outside of a particular ecosystem. For example, the popular MMORPG Runescape has an in-game economy with some rare items, such as Party Hats, attracting upwards of $5,000 in USD. However, trading this asset requires an enormous amount of trust between two parties, or the use of a third-party “escrow” intermediary. 

screenshot by Pavel Sorkin 04/feb/2020 from https://www.playerauctions.com/runescape-items/

The blockchain provides a “coordination layer” for digital assets. With blockchain-based assets, users get full ownership and management permission over their property. 

A blockchain allows developers to build and collaborate with common and reusable standards, allowing them to specify ownership criteria, transferability, and access. This is comparable to other facets of the digital space, such as PNG or JPEG image file formats, or HTML & CSS formats for displaying visual content on a website. 

In less techy words, think of the blockchain as the concrete foundation and plumbing for a house structure, and developers as the builders. 

The NFT token standard, introduced in late-2017, essentially dictates how digital assets can leverage a blockchain, provided they meet the standard criteria set out by the developers. 

NFTs standardized the trading, interoperability, liquidity, and ability to prove proprietorship across all digital asset classes. 

Since NFTs are interoperable, meaning they can exist in the same ecosystem together (unlike, let’s say, digital plane tickets and a RuneScape party hat), they can also be traded in open marketplaces.  

For the first time in digital history, people can list their digital assets in global 24-7 open marketplaces, creating liquidity. Think of NFTs as an evolution from a primitive inefficient bartering ecosystem to an eBay-like marketplace. 

However, unlike eBay, many of these marketplaces are completely decentralized. There is no need for escrow, and since the blockchain can automatically prove the legitimacy and ownership of an item, it’s almost impossible to scam or be scammed. 

The first NFT token standard,  ERC721, was launched by Dapper Labs in CryptoKitties. The ERC721 standard maps unique identifiers to address; these identifiers correspond to single assets. It also allows for a permission means of transferring those assets using the transferFrom method.

ERC-20 vs ERC-721 via ERC721.org

Another NFT token standard, ERC1155, was launched by Enjin, which brings the concept of semi-fungibility to the blockchain world. ERC1155 IDs can represent classes of assets, rather than single individual assets. 

The ERC-998 standard hasn’t been used much, but is still worth mentioning; it allows for a way for people to own both non-fungible and fungible assets.

To dive further into the technicalities of NFTs, we recommend browsing through popular NFT marketplace OpenSea

Common NFT Questions (and Answers!)

What’s stopping an NFT creator from just making more of the same NFT?

Through smart contracts, another innovation is made possible by the blockchain; developers can create “hard caps” on the supply of NFTs. If a smart contract says there will only be 10 of an asset, there is no way to reverse it. Further, these smart contracts can prevent NFTs from being modified after they have been released. 

In practice, a developer can specify that only 10 copies of a “rare” item can ever be created, while keeping the supply of common items infinite. 

What was the first NFT?

CryptoKitties launched in November 2017 and was an enormous driver of attention into the NFT and digital collectible ecosystem, but it was preceded by a few notable projects. 

Launched in June 2017, CryptoPunks by Larva Labs was the first NFT experiment on Ethereum: 10,000 unique collectible punks with unique characteristics were sold. These punks could be used with non-custodial wallets like MetaMask, making it easier for the average crypto-savvy individual to get involved with NFTs. 

CryptoPunks

Since there are only 10,000 collectible punks without any further creations, CryptoPunks are a glance at the role scarcity plays with digital collectibles. Some CryptoPunks have sold for over $5,000,000.

Prior to 2017, early NFTs include Rare Pepes (built on the Bitcoin counterparty system) and colored coins (on the Bitcoin network.) 

Where Can I Make NFTs?

A handful of NFT minting platforms do a great job at bridging the world of creatives with that of the blockchain. 

Popular platforms include OpenSea, Digital Art Chain (mint any digital image into an NFT), Marble Cards (create unique digital cards), Mintbase, Mintable, Kred platform (create business cards, coupons, and collectibles), Rarible, and Cargo.

What are the Most Exciting Uses of NFTs?

Traditional IP owners have jumped into the NFT space to better connect with their audiences and monetize their products. For example, there is MLB Crypto (on-chain baseball game for the MLB), F1DeltaTime (Formula 1 racing game on the blockchain),  CryptoSpaceCommanders (StarTrek ships inside the Lucid Sight game), Stryking and Sorare (soccer trading cards), and NBA Top Shot (NBA trading card NFTs).

Entire virtual worlds are being built on the blockchain, where NFTs represent characters and items. Decentraland, for example, is a virtual reality metaverse. Enjin has a “multiverse” platform. 

Naming services (think “.com” domain names on the blockchain) are also trendy. Unstoppable Domains, built initially on the Zilliqa blockchain released .crypto domains, each of which is an ERC721 asset. The Ethereum Name Service is also worth mentioning. 

Final Thoughts: Why are NFTs Valuable?

Beauty is in the eye of the beholder. NFTs have a market value because the market deems them so. 

However, beyond the pricing of an average NFT asset, the NFT technology itself is an enormous evolution in collecting and owning property, whether digital or not. 

Beyond the already great value proposition of utility, liquidity, and provenance, NFTs are based on decentralized technology. They can accomplish peer-to-peer and prove true, unrestricted ownership of a digital asset while also achieving centralized organizations’ primary value (trust, escrow, etc.).