NFT stands for Non-Fungible-Token. Having said that it doesn’t make it any easier to grasp. So let’s first understand simply what is a NFT and how does it work? In the digital world, there are two different types of tokens. One type of token can be easily copied or sent to multiple people, while the other type of token can only be sent once and cannot be copied.
This second type of token has value because it’s unique and therefore harder to counterfeit or copy than other types of digital tokens that is Non-fungible. These non-fungible tokens are used in blockchain applications like Ethereum to keep track of ownership rights and information about specific items. Here’s what you need to know about non-fungible tokens and how they work on the blockchain.
NFT’s can be anything literally anything! from digital art, music to a virtual baseball trading card.
An Overview of Blockchain and NFT
Blockchain is an expanding list of records, called blocks, which are linked using cryptography. Each block contains data and information regarding transactions that have occurred between two parties. Once a transaction occurs, it’s added to a chain of blocks using a complex cryptography. This process creates unique blocks that can be utilized by various companies and organizations to ensure transparency in their operations. As such, blockchain technology has numerous applications across several industries. In fact, nearly every industry—from finance to manufacturing to logistics—is incorporating blockchain into its daily operations in some way or another.
Now that you have understood what blockchain is, let’s now understand NFT and how it’s different from cryptocurrencies. Cryptocurrencies are fungible, isn’t it? Why? Because two cryptocurrencies can be exchanged seamlessly without any decrease in their worth (value) just like you exchange physical currency notes with your friends. Example one bitcoin is always equivalent to another bitcoin in their values. This is the fungible property of cryptocurrencies.
But NFT’s change this very fungible property concept of the system. In NFT’s every token is irreplaceable and unique so, naturally, one non-fungible token is impossible to exchange with another token because now they differ in values.
To understand it simply, consider we both have 10 dollar notes in hand, they are absolutely the same thing in values, worth and in every respect. So they can be exchanged without any issues. Now suppose I got my 10 dollar note signed by Christiano Ronaldo, now are they still exchangeable? No right because my note got some extra features in our case the signature which your note lacks. So obviously my note will have a higher value than yours. So my note now becomes non-fungible.
In NFT’s each token contains a unique, non-transferable identity to distinguish it from other tokens as discussed in the 10 dollar note. They are also extensible, meaning you can combine one NFT with another to “breed” a third, unique NFT.
The Beginnings of Crypto
Crypto was first conceived in 2009 by pseudonymous developer Satoshi Nakamoto, when he developed and released Bitcoin to the world. Cryptocurrency is an entirely digital form of currency that doesn’t exist physically; rather, it lives on computer servers around the world. Each cryptocurrency has its own unique blockchain—essentially a record of all transactions for that particular currency over time—which can be viewed publicly by anyone at any time.
They are also usually interchangeable with other currencies and are generally considered valuable due to their security, immutability, limited supply, and ease of transferability. The two most well-known cryptocurrencies are Bitcoin (BTC) and Ethereum (ETH).
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A Brief History of NFTs And How Does NFT Work
Before non-fungible tokens became their own thing, they were a subcategory of ERC721 tokens used for representing ownership of unique digital or physical assets. These could be anything from baseball cards to in-game items to Beanie Babies. However, it wasn’t until 2017 that NFTs began being used for decentralized exchanges and games.
It’s been a rollercoaster ride ever since, but as more developers begin using them, it’ll become easier for consumers to understand what these tokens do. Even still, there are several shortcomings in today’s implementations that have yet to be addressed by non-fungible token standards such as ERC998 and OpenZeppelin ERC1255.
An Introduction To Ethereum and How It Is Related To NFT’s
Most NFT’s on a very top-level belongs to the Ethereum blockchain. Ethereum is just the same cryptocurrency like bitcoin, dogecoin but in addition, the Ethereum blockchain supports storing some extra information which makes it unique and suitable for the handling of NFT’s.
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. The project was bootstrapped via an ether presale in August 2014 by fans all around the world. It is developed by ETHDEV with contributions from great minds across the globe. ERC20 token standard has helped make Ethereum well known since it’s used to develop many new coins and tokens; Ripple and Omni are other examples.
NFT Examples on Ethereum
CryptoKitties, CryptoPunks, and CryptoCelebrities. All of these projects use smart contracts to create unique tokens that have no value beyond being collectables. This can include digital art, gaming items or even ownership rights over real-world assets such as land or gold. As with ERC20 tokens, NFTs are built on top of Ethereum, but there are plans for new NFT protocols in development.
First among them is Wollo, a platform specifically designed for creating non-fungible token projects. Still, others include work by GameCredits Labs and Fuel Games to build games using NFTs based on ARK Blockchain technology. There are lots more information about non-fungible tokens out there — Google is your friend! Happy learning!
For more references visit NFT Wikipedia
List of 4 Popular NFT Marketplaces | NFT Art Website
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Why NFTs Are Selling For Millions Of Dollars
There are many reasons that non-fungible tokens are becoming increasingly popular. These ERC-721 tokens can be used for different purposes, and there’s one particular area where these tokens have been finding significant use: as collectables or art pieces. The high costs of buying original works of art have always been prohibitive for ordinary people. Additionally, every work of art is unique and has value in its own way. Collecting such pieces becomes even more valuable because no two items are alike.
However, with traditional methods of collecting art, it was difficult to determine whether an item was genuine and authentic without experts appraising it on your behalf. This leaves open a lot of opportunities for scammers. With NFTs you now have digital records created through blockchain technology that keeps track of all transactions related to any piece of art, making it easier to know exactly what you’re buying.
If someone tries to sell you a counterfeit painting, for example, you would immediately know about it and could ask for compensation from whoever is trying to cheat you. So in short, NFTs simplify recording ownership rights over various assets. It also simplifies tracking information such as the physical characteristics of each token so they cannot be duplicated by cheaters who try to sell fakes at lower prices than originals. And since they are built around decentralized systems they cannot be controlled by just one person either.
The Future of NFTs
Projects like CryptoKitties have demonstrated just how unique, special, and valuable digital assets can be. As more and more of our stuff becomes digitized, it will require new technologies to protect these assets as well as their ownership.
NFTs are an excellent solution for safeguarding digital assets because they are:
1) cryptographically unique,
2) easy to track,
3) transferable between users
4) verifiable by third parties and
5) immune to tampering by one or more parties.
So long as you retain control over your private key(s), no one else can take your NFT. It’s yours forever!
Here’s an awesome video by Johny Harris explaining the concept of NFT.
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