In recent years, the popularity of NFTs has skyrocketed due to their unique features for valuing physical or digital assets. Essentially, NFTs are tokens that represent physical or digital assets over a blockchain network. They represent ownership of assets on the network. Meanwhile, the creation of exclusive communities related to specific assets has fueled the growth of NFTs.
Although they are still in their infancy, NFTs are transforming the domain of crypto in numerous ways. As with any project that involves technology, humans, and money, NFT security issues are inevitable. Because of this, it is necessary to analyze the negative aspects of NFTs to determine the pitfalls of this emerging technology.
Here is a brief overview of some of the potential risks that come with NFTs:
- Ownership of assets
Among the most egregious vulnerabilities in NFTs is their inability to support true ownership. At the time of the creation of NFTs, the biggest challenge was a lack of storage capacity. This made it impossible to store images in blockchains.
An identifier of the image would be stored in the blockchain, which can either be the hash of the image or its URL. For third-party platforms, you need to use the NFT identifier. Therefore, when purchasing an NFT, an individual will not be purchasing an image. In truth, they are buying an identifier that takes them to an online URL. There is also the possibility of identifying the Interplanetary File System (IPFS).
- Marketplace threats
Despite relying on blockchain technology, NFTs rely on centralized platforms to interact with digital assets. For buying and selling NFTs, you can use centralized platforms such as Nifty Gateway and Open Sea. These centralized platforms, however, are one of the biggest NFT vulnerabilities and security concerns.
Private keys associated with all assets on centralized platforms like Nifty Gateway and Open Sea are stored there. Due to this, any compromise of the platform translates directly into the loss of NFTs. Based on the attack on Nifty Gateway, we can see how attackers were able to exploit this vulnerability. Despite recovering the money of the victims, they were unable to retrieve the NFTs.
- Identity frauds and cyber hacks
Concerns about cyber security and the possibility of identity fraud are among the next formidable NFT security concerns. Cryptocurrency scams are one of the most serious cyber security issues with NFTs, and a high-volume email scam is an example of such a threat.
Upon opening the attachment in the email, users are asked for their password for login and account verification. These scams can compromise a user’s credentials on an NFT platform. It is also possible for malicious actors to exploit such NFT vulnerabilities to implant malware in a user’s computer, such as remote access Trojan viruses.
- Smart Contracts threats
Smart contracts are also an important aspect for NFTs that can be a target of potential security threats. As an example, even the popular DeFi protocol and Poly Network were victims of a security breach, and hackers were able to still over 600 million dollars, thanks to the drawbacks of smart contracts security.
NFTs (Non-Fungible Tokens) are an inevitable force in the new digitalized world. They come with countless benefits and unique features for their users. However, the potential vulnerabilities and security risks are a huge drawback to their acceptance.
NFTs are not likely to go away any time soon since the benefits far outweigh the risks. It’s not like traditional financial platforms are riskless, and they have been present for quite some time. On the plus side, developers are working around the hour to come up with the best solutions to improve this security issue and create a safer environment for modern Fintechs.