How to Protect Your NFTs
Last month a crypto Twitter influencer accidentally destroyed their $129K CryptoPunk NFT. Here are some best practices to protect your NFTs from losses to technical mishaps with your crypto.
“This is truly a devastating mistake for me.💔 But I did this myself, and it is no one’s fault but my own. Both the beauty and the curse of self-custody,” tweeted crypto investor Brandon Riley, “Stay safe out there, everyone, and please be way more careful than I was. Thank you to so many of you for the kind words. 🙏🏼”
NFT Collector Loses $129K CryptoPunk
Riley reported on March 24 that he had “accidentally burned” a non-fungible token, CryptoPunk #685. The health, fitness, and finance influencer was trying to wrap his CryptoPunk NFT.
Wrapping extends the smart contract functionality of the NFT so that it can be listed to trade on Ethereum NFT markets. That includes popular NFT exchanges such as OpenSea and Rarible.
But the NFT collector made a tragic mistake, entering an incorrect address while following the instructions to wrap his NFT for the first time. As a result, he irretrievably sent his NFT to nowhere, destroying a third of his net worth from investing in cryptocurrency:
“I was so focused on following the instructions exactly, that I slipped up, destroying a third of of my net worth in a single transaction.”
“To those wondering how this happened…
In trying to create a proxy wallet, something went wrong.
Following instructions on the website, Step 1. I accessed the contract on Etherscan.
Step 2. I entered my own wallet address and attempted to get my proxy wallet address.
Step 3 reads: “Skip to step 2 if the address IS NOT 0x00…0000”
I understood that to mean that because the address was exactly that, that it must be correct and I could move onto the next step. I thought that was the proxy address I was supposed to use.
I followed step 4 to ‘write contract’ and ‘register proxy’ then Step 5 to copy proxy address…
I should have known something was wrong and realized that this was a mistake, but I didn’t. It wasn’t until I went to mint my wrapped punk, that the astronomical gas gave it away.”
Unfortunately, Riley went out on a limb by himself with $129,000 in tow and did what developers call “lone wolfing” it. He executed code to wrap his NFT without having done this before and without any advice or peer review from anyone else in the NFT community before going headlong into the doomed operation.
How To Watch For Yourself Out There in DeFi
If it were a corporate, centralized app Riley were dealing with, he could have emailed customer support. For an account with a $129,000 asset on their platform, the company would certainly have fixed the issue and restored the user’s property.
But in such a scenario, with centralized corporate oversight, would the NFT have been worth so much in the first place? It’s unlikely.
Yet, Ethereum’s total market cap is well over $200 billion in this tepid market. During bull markets, it has a higher market cap. On November 21, 2021 Ethereum was worth nearly $600 billion. So why is it so valuable despite these hazards?
Investors are willing to take the risks of these tradeoffs for the freedom from centralized control that DeFi offers. With fiat-denominated assets, investors can wake up tomorrow and find the value of their holdings diminished. But with DeFi, investors can rest assured that their assets are valued by the market.
For this tradeoff, however, there’s a higher requirement of due diligence from Ethereum investors. The NFT collector who lost $129,000 should have been more cautious when trying a new technique on a P2P platform.
Before trying something new with a valuable digital asset, try wrapping another NFT first that’s worth a nickel. Maybe try wrapping several penny NFTs to find these problems and troubleshoot on the cheap.
This is expandable to just about any foray into cryptocurrency for beginners.
Whoever is doing something new for the first time is a beginner at that, whether they’re a total crypto newb setting up their first Coinbase account or a division of Binance launching a new product.
Binance Free $100 (Exclusive): Use this link to register and receive $100 free and 10% off fees on Binance Futures first month (terms).
PrimeXBT Special Offer: Use this link to register & enter CRYPTOPOTATO50 code to receive up to $7,000 on your deposits.