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September 30, 2022

Understanding On-chain NFTs vs Off-chain NFTs

What are on-chain NFTs?

What is the difference between on-chain vs off-chain NFTs?

How do these types of NFTs compare on Cardano vs Ethereum? 

Ethereum and Cardano have bustling NFT communities and both chains pioneered the way NFTs are stored, whether they’re on-chain or off-chain. 

Generally, data stored on blockchains is permanent, and thus you might assume that NFTs are as well. While it might be more true for actual data, this is usually not the case when it comes to NFTs. 

While a token itself will live forever on the blockchain, the associated digital assets, such as images, videos, etc, are typically hosted on Web2 platforms such as the InterPlanetary File System (IPFS).

For this reason, a number of NFT projects and collectors prefer "100% on-chain" NFTs because they ensure immutability and permanence. 

Before we jump in, here are a few important concepts worth understanding:

On-chain vs Off-chain Storage: Cardano and Ethereum

Let’s first explore on-chain vs off-chain NFTs before we jump into the differences between the two blockchains. If you want a shortcut to the good stuff, here it is:

Off-chain NFTs Explored

Typically, NFTs on the blockchain - be it Cardano or Ethereum - reference an off-chain location. This could be a website or URL address where the content is stored. It can be reached by HTTP(S), IPFS, or Arweave, for example. 

This off-chain location is kept in the NFT's metadata. The NFT image and its metadata are referenced in a hash, which points to either a centralized or decentralized hosting provider. 

Centralized Hosting

Amazon and Google are examples of centralized hosting providers. Again, think of your everyday website situation. However, herein lies the rub. If the URL is no longer available, even though the NFT hash (stored in a token) continues to exist on the blockchain, the visual representation of the NFT will not be accessible.

The link is broken. The eagle has fallen. The image is lost. This poses a massive risk.

Decentralized Hosting: IPFS

Decentralized hosting solutions can be used to host NFTs off-chain. An example of this is the InterPlanetary File System (IPFS), a distributed peer-to-peer network where files are stored across multiple nodes. 

Essentially, it is another blockchain, but for bigger files. This mitigates the risk of single points of failure, such as down servers. So, in theory, this is a safer off-chain storage strategy, as it is censorship-resistant, and no single entity has the authority to shut it down.

On-Chain NFTs Explored

For on-chain NFTs, data URLs are used. These URLs do not point to external resources, but instead house the content directly on the blockchain. 

At the moment, the storage limitation combined with the minting transaction data on Cardano is 16 KB, so the code required to pack the NFT into that space needs to be very efficient. However, the longevity achieved makes the effort well worthwhile. As long as the blockchain is operational, the content of the NFT remains accessible on the blockchain, embedded inside the metadata.

Since most NFTs are jpegs and jpegs are heavy files, not many NFT projects choose on-chain storage. When seeing how pixelated a 16KB image is, you can understand why on-chain is mostly reserved for generative art which is code rendered. 

Cardano On-chain NFT Pablo
Pablo is an on-chain Cardano project. This is about as good as an image can look with a 16KB storage limitation.

Summary

The current trend is towards decentralized IPFS - kind of like a blockchain for big data - with the bulk of the remainder still seeming to trust centralized hosting sites. On-chain is starting to make its mark, but it is still early days. Recent studies of Ethereum’s blockchain show that around 10% of NFTs are stored on-chain, approximately 40% of NFTs are hosted on private servers (to their peril, we might add), and about 50% are on IPFS.

Understanding On-chain NFTs vs Off-chain NFTs
Table source

Cardano vs Ethereum Overview

While both blockchains share a similar objective of providing a multi-ledger platform that offers smart contract verification and deploys decentralized applications (DApps), are there differences between Cardano (ADA) and Ethereum (ETH) when it comes to NFTs? 

Transaction Fees

Transaction fees, gas fees, are what you have to pay to execute a transaction on the blockchain, such as sending an NFT. Whether on Cardano, or Ethereum, or any other blockchain network, you have to pay for the pleasure of transacting. The reason for this is that transactions take up a lot of computing power and resources to validate the transaction. Typically, the busier or more popular the network, the higher the fees.

So, when we compare Cardano and Ethereum, we find that transaction fees on Ethereum (starting at 0,0013 ETH or $1.71 but going up steadily during peak times) are typically more expensive than Cardano (0.16 ADA or $0.070)

Likewise, the cost to send a single NFT on Ethereum ranges from $0.50 to over $15.00, depending on how busy the network is. The busier, and more backlogged the network, the more you’ll pay to transfer an NFT. And Ethereum is pretty busy.

Counter that with the entire cost to transfer an NFT on Cardano coming in at a much lower sum of around 0.2 ADA; that’s about $0.09, and you’ll see the value that Cardano brings!


Smart Contracts

While Ethereum has long been the pioneering blockchain that made use of smart contracts first, Cardano offers something unique: the ability to create ‘native tokens’ on the blockchain. These custom tokens can be created without the need for smart contracts. 

Smart contracts also come into effect when it comes to comparing on and off-chain NFTs on both platforms.  Here, the difference revolves around how smart contracts work. 

On-chain NFTs have smart contracts that are built in, while with off-chain NFTs, smart contracts only exist to direct people to the location where the digital art is stored. So, whether on Cardano or Ethereum, if the off-chain storage system/network is offline, the “link” in the smart contract will direct to a ‘not available’ page. 

It is worth noting that Cardano’s recent Vasil hard fork upgrade is looking to dramatically improve the blockchain’s smart contract capabilities.

Examples of off-chain vs on-chain on both Ethereum & Cardano

Ethereum on-Chain NFTs

Autoglypths

Autoglypths is an experiment in generative art. Each autoglypth is unique and created by code that runs directly on the Ethereum blockchain.

Autoglypths
Image source

Other Ethereum on-chain NFTs worth exploring are:

 OnChain Monkey
OnChain Monkey

0xDEAFBEEF

‍Blitmap
Blitmap

CyberBrokers
CyberBrokers


Cardano On-Chain NFTs

Unsigs 

Unsigs 

Here’s a great example of on-chain NFTs on Cardano: Unsigs (Unsigned Algorithms). 

They create NFT art directly on the Cardano blockchain through lightweight algorithms and their own recreation environment. This makes the NFT storage independent of IPFS.

The creators even uploaded a YouTube vid and manual on how to go about recreating the NFT image you have stored from scratch.

Stellar Hood

Stellar Hood

In addition to Unsigs, the Stellar Hood project introduced NFTs that are interactive, and 100% on-chain. The point of interest is the larger section under files, with the attribute src. 

When you decode this massive base64 html string, you unearth top notch JavaScript engineering inside a HTML document. 

This has been utilized to construct each individual interactive token, which is fed by various inputs and attributes. 

Essentially, it is a microsite with the code required to build the interactive token. Through the use of the base64 standard, everything was encoded, and all the contents were put in one single minting transaction. They also had to ensure it didn’t exceed the maximum file size of a transaction: 16KB. Impressive!

Other on-chain NFTs on Cardano worth noting are:

Prototype Cadence
Prototype Cadence


Cardano Trees

Off-Chain Ethereum NFTs

Examples include many well-known NFT projects like:

CryptoPunks
CryptoPunks


Bored Ape Yacht Club
Bored Ape Yacht Club


Off-Chain Cardano NFTs

Examples include top Cardano NFT projects like:

Spacebudz
Spacebudz

‍Yummi Universe
Yummi Universe

Clay Mates

Final thoughts

On-chain or off-chain - what should you choose? 

While on-chain storage of NFT data may be ideal, the storage restrictions make it impossible for most media-based projects. When it comes to HTTP/S or centralized off-chain hosting, there is no guarantee that NFT data will remain online or unchanged, as servers are vulnerable to a single point of failure. 

Decentralized data storage with IPFS is cost-effective and can be managed with minimal oversight. Plus, in the event that your NFT content on IPFS becomes inaccessible, an appropriate backup can be used to reload it.

We hope we have given you enough information to make your own informed decision on how you want to host your digital assets. Happy creating! Happy collecting!