NFT Series

You do not completely own your NFTs

Recognise the difference between NFT and ETH ownership.

Paolo Servillo

Published in

Coinmonks

4 min readAug 22, 2022

Photo by Jose Antonio Gallego Vázquez on Unsplash

Consider purchasing a very costly NFT on OpenSea, such as Bored Ape #8585, which is now selling for 777,7 ETH ($1.217.971,52) at the time of writing.

Source: https://img.seadn.io/files/f5e46e461e5b1769b29cc30d8bc2191d.png

Are you confident that this precious NFT is completely in your hands and that it is under your full control, just as your Ethers?

We need to grasp the following concepts to comprehend why the two types of ownership are so dissimilar:

Ethereum account
– Smart Contract
– Externally Owned Account (EOA)
Wallet
NFT

Ethereum account

An Ethereum account is an entity identified by a unique address that can hold Ethers and send transactions on Ethereum. Accounts can be user-controlled or deployed as smart contracts.

Smart Contract

A “smart contract” account is simply a program with some functions and data (its state).

Smart contracts accounts are not controlled by a user, instead, they are deployed to the network and run according to their programming. User accounts (later referred to as Externally Owned Accounts) can then interact with a smart contract by submitting transactions that execute a function defined on the smart contract.

The status of a smart contract is stored on the Ethereum ledger and is essentially associated with four pieces of information:

nonce: a counter that indicates the number of transactions sent from the account
balance: the number of wei owned by the account (1 ETH is 1e+18 wei)
codeHash: represents the programming code of the smart contract
storageHash: represents the storage contents of the smart contract

If you are curious about how an account status is stored on the blockchain, I suggest two exciting but challenging readings:

Externally Owned Account

An EOA is essentially composed of a public and private cryptographic key pair.

A user holds a private key that is used to sign transactions to receive and send ETH or interact with deployed smart contracts. The signing mechanism prevents malicious actors from broadcasting fake transactions.

The status of each EOA is stored on the Ethereum ledger and has two relevant information associated with it:

nonce
balance

Wallet

A wallet is nothing more than an interface or software program that allows you to interact with your Ethereum Externally Owned Account.

NFT

A non-fungible token (NFT) is a uniquely identifiable digital asset stored in a blockchain. Unlike cryptocurrencies, which are fungible, an NFT is unique.

The ownership of an NFT is registered in the blockchain, but not in the same way as your Ethers balance.

The following image shows where the amount of Ethers owned by an EOA is stored on the blockchain (the red square).

While an EOA’s Ethers balance is directly related to the account status, things are different for NFTs.

The difference is that an NFT lives in a Smart contract.

This is clear if we look at an ERC721 implementation. Let’s take for example a snippet from the OpenZeppelin implementation.

At line 30 there is a mapping from NFT unique identifier to the owner, so the Smart Contract keeps track of who owns which token.

This means that the ownership of an NFT is stored in the Smart Contract storage space and is subject to the rules implemented by that smart contract.

Conclusions

You should be aware that you do not fully own an NFT even after purchasing it. The original owner could still have some control over it, this is because the ownership of “your” NFT is based on a blockchain-based smart contract registry.

Therefore, depending on how the smart contract has been implemented, the original owner may be able to deny you access to it, take it away from you, or even burn it without your permission.

So, if you’re considering purchasing an NFT, bear these aspects in mind. Make sure you comprehend how the ownership works for that NFT, and make sure you’re at ease with the limitations that come with it.

Thank you for reading, I hope you enjoyed the article. Let me know what you think about it.