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On-Chain Data: What Belongs There
Data that belongs on-chain has one or more of these properties:
- Multiple parties must verify it without trusting a central custodian
- It is part of the financial state of the system (token balances, ownership records)
- Its immutability is the specific value it provides
- It triggers contractual conditions (smart contract inputs and state)
Examples: Token ownership and transfer history, smart contract state (DeFi positions, escrow conditions, voting records), event logs from contract execution, cryptographic hashes of off-chain documents (proving they existed at a point in time without revealing contents).
Off-Chain Data: What Does NOT Belong On-Chain
- Large media files (images, videos, documents): storing 1MB on Ethereum costs $5,000–$50,000 in gas
- Personal data subject to GDPR or CCPA right-to-erasure requirements
- Frequently updated operational data (inventory, session state, user activity)
- Data that only one party needs to verify
- Private business data (contracts, financials) where public transparency is not desired
The correct approach for NFT metadata: Store the image and attributes on IPFS or Arweave (decentralized, content-addressed storage). Store the IPFS hash in the on-chain token metadata. The blockchain provides provenance; IPFS provides persistence.
The correct approach for document authenticity: Store the document in encrypted off-chain storage. Store the document's SHA-256 hash on-chain with a timestamp. Any party can verify the document has not been altered since the timestamp by recomputing the hash.
Cost Comparison
| Data Type | On-Chain (Ethereum L1) | IPFS | Arweave (permanent) | AWS S3 |
|---|---|---|---|---|
1KB text | $0.05–$5.00 | Free (with pinning: $0.0001) | ~$0.0000001 | $0.000000025 |
1MB file | $50–$5,000 | $0.0001 | ~$0.0001 | $0.000025 |
10MB file | $500–$50,000 | $0.001 | ~$0.001 | $0.00025 |
Ongoing cost | None | Pinning: $0.00001/GB/month | None (permanent) | $0.023/GB/month |
The GDPR and CCPA Problem
Blockchain data is permanent. GDPR Article 17 (right to erasure) and CCPA Section 1798.105 (right to delete) require businesses to delete personal data on request. If you store personal data directly on a public blockchain, you cannot comply with these requirements. The solution: store personal data off-chain, store only a hash or encrypted reference on-chain. If erasure is required, delete the off-chain data. The on-chain hash becomes meaningless without the original data.