There is no greater nightmare scenario in the crypto world than the sudden fall of a major cryptocurrency exchange or NFT marketplace. For crypto exchanges, investors have to worry about losing access to their assets and liquidity if their exchange shuts down overnight. The NFT space comes with its own unique set of risks. What happens to investors if an NFT marketplace shuts down depends entirely on how it was built and where its data is stored.

The Blockchain vs. The Marketplace – NFTs

The first thing to understand here is that an NFT is basically a “pointer” or a certificate of ownership. The smart contract that says the digital asset belongs to you can be found on a decentralized blockchain like Polygon, Solana, or Ethereum. In the event that an NFT marketplace shuts down, your token will remain intact on the blockchain, and you can still see it on your wallet or other marketplaces. This means you still have the receipt for your digital asset.

The Vulnerability: Metadata and Media

While your actual certificate of ownership is safe in the event of a marketplace shutdown, the asset itself might be more fragile. Most NFTs do not store the actual asset directly on the blockchain since storing large files on the blockchain is expensive. Instead, the NFTs’ smart contracts contain a URL to a server where the asset is hosted. If the asset is hosted on the marketplace’s own private server, you will lose access to your art if the marketplace shuts down. However, if the marketplace stores it on a decentralized storage like IPFS, you will be able to access your file as long as there is still one working node in the network hosting it. 

Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.