Fungibility refers to interchangeability. Fiat money and most cryptocurrency are designed to be fungible. One dollar bill has exactly the same value as another, so they’re completely interchangeable. The same is true of Bitcoin, Ether, etc.
Non-fungible tokens (NFTs) are designed to be unique. This enables them to be used to denote ownership. If ownership of a particular NFT maps to ownership of an asset, that ownership can be tracked and traded on the blockchain.
This use of NFTs is behind the Beeple art auction making headlines recently. On March 11 2021, a piece of digital art by Beeple was auctioned off by Christie’s for $69,346,250, making Beeple the third-richest living artist.
NFTs and Blockchain Security
With near-constant news regarding hacks of cryptocurrency exchanges and DeFi, storing ownership of high-value assets like Beeple’s art on the blockchain may seem risky. However, NFTs do not rely on smart contracts or require cryptocurrency exchanges to transfer them. There are a few blockchain security threats that can have an impact on the security of an NFT though:
The Importance of Private Key Security
From an ownership perspective, an NFT is like any other cryptocurrency token. Ownership is recorded on the blockchain and secured in a digital wallet.
For high-value assets like Beeple’s art, this makes strong private key security essential. If an attacker can gain access to the owner’s private key, they can perform a transaction that transfers the asset from the owner’s account to another on the blockchain.
With blockchain’s immutability, such a transaction would be irreversible. Additionally, with digital art like Beeple’s copies of the art are freely available online. The NFT denotes ownership of the piece, meaning that a malicious transfer could cause loss of ownership forever.
51% Attacks and Ownership on the Blockchain
The transfer of the Beeple NFT to the new owner’s account is recorded on the blockchain. Blockchain immutability should protect this transaction and the buyer’s ownership of the digital asset.
Blockchain immutability has been broken on numerous occasions. 51% attacks are common on smaller blockchains, enabling the ledger to be rewritten and reorganized into a new version of the blockchain created by the attacker. Such an attack could cause the transaction transferring the Beeple NFT to be removed from the digital ledger, “revoking” its ownership.
However, a 51% attack can only accomplish this temporarily. As long as Beeple’s private key (which is used to sign the transaction), remains secure, the attacker cannot forge a transaction that transfers ownership of the piece to anyone else.
And, even with a blockchain reorganization forced by an attacker, the original transaction will still be valid and included in a block eventually. An attacker may be able to delay the transfer ownership of the piece, but it cannot be stolen via a 51% attack.
Securing Art Ownership on the Blockchain
Ownership of digital art has always been complex because the art is stored in image files that can be easily copied. The emergence of blockchain and NFTs has changed this. The auction of Beeple’s NFT art is a historic moment, demonstrating that ability of blockchain technology to secure ownership of extremely high-value assets.
If you’re in the business of selling or auctioning high-value NFTs, you'll require a third party security audit. Contact Halborn today at [email protected] to see how we can help.