When you decide to purchase a non-fungible token or NFT, that is only the first step in the purchasing process. On top of selecting and spending the money, you need to be able to learn the steps that are a part of keeping these digital assets away from the eyes and hands of a person who may want to steal them. In today’s blog post from the Law Office of Bryan Fagan, we are going to discuss how to secure NFT assets and how to store them online. This is and growing area of concern for many people who are attempting to plan their estates and we want to provide you with information that we have gathered over our years of helping southeast Texans.
For the most part, you can put on your cowboy hat and boots because, in the world of NFTs, it’s the wild, wild west. NFTs are still relatively new and our area of the digital economy that deals with NFTs has not yet caught up in terms of self-regulation. Any regulations that do exist may be either unclear or completely lacking at all. Therefore, you should be intentional about how you handle matters related to the security of your nonfungible token. There is no shortage of hackers and people who would otherwise attempt to scam you out of the property you have paid good money for. Whether you are an experienced investor in nonfungible tokens or you are just trying to learn more about the process today’s blog post is a great place for you to learn some of the basics surrounding the safety of digital assets.
All of us are familiar with phishing scams. Two generations ago if you had talked to someone on the street about a phishing scam, the person would likely have been confused about what sort of scam could be perpetrated regarding a rod and a reel. However, in recent years phishing scams have come to take on a meaning entirely different than that. If a hacker can access your online accounts by tricking you into clicking on a link or performing any other action which may be compromised then you are in trouble. There is no reason to think that the hacker would not drain the entirety of your online accounts.
Another issue that people have experienced in non-fungible tokens is advertising fake or nonexistent nonfungible token opportunities online. These folks will promote their “business venture” as being reputable and a proven path towards financial prosperity. However, once you or any other unsuspecting person makes an investment or spends money on their scheme the person and the entire process surrounding the investment will disappear into thin air. One of the major draws of digital assets and non-fungible tokens is that there is no regulating body surrounding these topics. However, this is also one of the downsides from a security perspective. Once a hacker gets their hands on your money or your non-fungible token account you may be in line to lose thousands of dollars if not more.
The basics of NFT security
To us, there are three, basic, pieces of information that you need to be able to have some degree of knowledge regarding to keep your online digital investments safe. First, you need to understand what an NFT is, what blockchain is, and how it works as well as how NFTs can be stolen in the first place.
A non-fungible token is a unique digital asset that exists on a blockchain and serves as proof that you own that digital asset in question. A non-fungible token is not limited to a specific type of property or idea. Rather, things like social media posts, art, images, videos, and things related to video games and streaming have all been sold as non-fungible tokens. To anyone reading this blog post who does not spend a fair amount of time online this may sound like hocus pocus or something out of a science fiction novel. On the other hand, those of you who are very attuned to the internet and who spend a great deal of time online can attest to what we are talking about here. However, no matter how “online” you are the reality of the situation is that you can be sure that nonfungible tokens are an ever-increasing percentage of online investments made by people around the world.
We have used the term “non-fungible” numerous times so far in today’s blog post without defining it. I think the best way to be able to put this term into context is to consider a dime. Any dime can be swapped out with another meaning that it is interchangeable. You could go to your neighbor’s house and ask him to trade his dime for yours and you could do so without any problem down the road. This is the same for any denomination of currency in our money system. All the coins and all the bills are interchangeable so long as the amount on the face of the coin or bill is the same as the coin or bill you are trading it for.
On the other hand, a piece of artwork or any similar asset is not fungible. A drawing that you created cannot be exchanged for one of Michelangelo’s without someone noticing or without there being a tremendous decrease in value in that trade. Non-fungible token records are maintained on a blockchain to ensure that any trades or purchases made can be verified in the future. This is where you hear about the Ethereum blockchain from time to time since it is the most prominent blockchain utilized in the sale in trading of non-fungible tokens. Ethereum is not the only blockchain utilized to support non-fungible tokens, but it is the largest.
What is blockchain?
A blockchain is an online accounting ledger that allows parties to make transactions securely. Blockchains are public in terms of being available for viewing across different networks and venues where transactions are made. These blockchains cannot be hacked or otherwise altered unless a person were to own over half of the blocks or nodes. This is one of the most important reasons why blockchains have been the main way to secure cryptocurrency and non-fungible token transactions.
Here is how a typical blockchain works in the real world. First, if you are an authorized user in a system, you could begin a transaction. The blockchain in that system would verify the transaction and would create a notation known as a block which represents the transaction that you are making. Your block would be added to the chain which already existed showing prior transactions in that system.
The transaction will be double-checked by any computer in that network and once it is verified it will be added to the blockchain. Once this is accomplished the update will be distributed across the entire blockchain and would be verifiable moving forward. This is a somewhat unique way of conducting the sale of an asset. In the non-digital world, this is not at all how we organize commerce and secured transactions. The main difference is that there are physical objects involved when you go to the store to buy a gallon of milk. Even if you are purchasing the item with a debit or credit card there is at least the physical object of the gallon of milk that is being transferred from the store to you as well as the store being able to keep track of one unit of milk being sold in exchange for a certain amount of money. However, when we are talking about non-fungible tokens there is no luxury of having any physical object which could be kept track of or accounted for.
Can your non-fungible token be stolen?
Your non-fungible token can be stolen if you are not diligent about protecting it. There are security steps involved in protecting non-fungible tokens just like there are in protecting physical assets in your home or at your place of business. We have already talked about how hackers can attempt to gain access to your assets using various phishing techniques. Some links can be advertised to you which may trick you into disclosing your login information to access something else. Once your login information has been provided the hacker can steal anything contained in your non-fungible token wallet.
In such a quickly evolving world like that of non-fungible tokens, hackers are frequently able to deceive well-meaning individuals like us by creating non-fungible tokens and investment schemes that otherwise appear to be legitimate. Promoters of these schemes do so through social media and can create a buzz about these opportunities. When the scammer takes in legitimate investment dollars, he or she can close the advertisements and disappear into the internet with their money. This general concept is not anything new but the way it is done by using social media and the internet certainly is.
What are the most common methods to store non-fungible tokens securely?
The location where digital assets and non-fungible tokens are stored is typically called a wallet. One of the tried-and-true methods of storing non-fungible tokens is known as a cold storage hardware wallet. This is a device that you can hold in your hands, like a thumb drive or USB stick, which allows you to store your non-fungible tokens off the Internet. The benefit of doing this is that unless the scammer gains access to that thumb drive then he or she cannot access your digital asset or any of your passwords. This is the safest way that exists today to be able to store non-fungible tokens.
You need to assess your level of concern regarding hackers or scammers. For instance, if you are someone that plans to hold on to your non-fungible token for an extended period then a cold storage hardware wallet may be best for you and your investment. Situations that may lead to a cold storage hardware wallet being the best plan of action for you to take would be if your non-fungible token is particularly valuable. Just like in the art world or any other particular area, if you own a non-fungible token that is of particular interest or has recently been advertised a great deal then the reality of the situation is hackers or scammers may be more interested in stealing your asset than others. For that reason, a cold storage hardware wallet may also make sense for you.
Hardware wallets should be purchased directly from the company which produces them. This way you can ensure that your wallet has not already been compromised or preowned. It would not be a good idea, for example, to try and purchase a refurbished or already used wallet from a third party. This would defeat the purpose of securing your asset and would potentially put you in a position where you have spent good money to purchase a wallet that may compromise your online security rather than enhance it.
If you are not a person who plans on keeping your non-fungible tokens, but rather plans and does buy and sell these tokens with great frequency then a software wallet may make sense for you. Depending upon the marketplace where you will be buying and selling your non-fungible tokens, these software wallets may be required to conduct business. These software wallets can be made available to you through desktop applications, cell phone apps, and browser extensions.
There are benefits to using a software wallet as compared to a hardware wallet as far as ease of use and convenience are concerned. Just like storing information on the Cloud is more convenient than storing information on a thumb drive, it also means that your information in the Cloud is more susceptible to being hacked than your information that was once stored on the thumb drive. Also, cell phone apps and desktop extensions are notorious for tracking your data and movements online. This aspect of the conversation may make you even more susceptible to other online harms like data breaches.
What are some basic safety guidelines that you could follow to secure your non-fungible tokens?
As we have seen, there are multiple ways for you to store your non-fungible tokens. At the end of the day, your goal in storing these tokens is to keep them safe and protected. One of the best ways to do this is to use a virtual private network or VPN to encrypt and make your web surfing anonymous. There are numerous virtual private networks that you can utilize. These VPNs can be especially helpful if you are someone who finds themself using public wireless internet frequently.
Next, you should be suspicious about links that are provided to you online. If you do not recognize the user who is providing you access to the link or do not recognize the company being advertised within the link, then you may want to avoid clicking. The last thing you want to do is compromise the non-fungible token that you just purchased to click on something susceptible to malware.
Not sharing your login information with anyone or saving it on any site is another good practice to begin engaging in. 0vDo not take a friend’s word for it when it comes to investing in a non-fungible token or business venture associated with non-fungible tokens. You should conduct some basic research on this potential business venture just like you would when it comes to any other business that you seek to invest in. Many times, there is public information about the persons involved in the project and you should be diligent about researching him or her before deciding to invest in any kind.
Having a cryptocurrency wallet is essential if you want to keep your digital assets secure. For those of you who are frequent traders of non-fungible tokens and other cryptocurrencies then having a software wallet makes the most sense. However, if you are more of a buy-and-hold person when it comes to non-fungible tokens then a hardware wallet makes a lot of sense. Performing basic due diligence before entering any kind of transaction is the best rule of thumb that we can leave you with. If something seems too good to be true it probably is. Listen to your instincts and rely upon your planning when engaging in this ever-changing world of digital asset trading.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning as well as about how your family may be impacted by the filing of a probate case. Thank you for joining us today on our blog.
Bryan Fagan, a native of Atascocita, Texas, is a dedicated family law attorney inspired by John Grisham’s “The Pelican Brief.” He is the first lawyer in his family, which includes two adopted brothers. Bryan’s commitment to family is personal and professional; he cared for his grandmother with Alzheimer’s while completing his degree and attended the South Texas College of Law at night.
Married with three children, Bryan’s personal experiences enrich his understanding of family dynamics, which is central to his legal practice. He specializes in family law, offering innovative and efficient legal services. A certified member of the College of the State Bar of Texas, Bryan is part of an elite group of legal professionals committed to ongoing education and high-level expertise.
His legal practice covers divorce, custody disputes, property disputes, adoption, paternity, and mediation. Bryan is also experienced in drafting marital property agreements. He leads a team dedicated to complex family law cases and protecting families from false CPS allegations.
Based in Houston, Bryan is active in the Houston Family Law Sector of the Houston Bar Association and various family law groups in Texas. His deep understanding of family values and his professional dedication make him a compassionate advocate for families navigating Texas family law.
