Everything you need to know about NFTs
NFT (Non-Fungible Tokens) Basics
A Non-Fungible-Token is a special type of cryptographic token that represents something unique. Unlike cryptocurrencies such as Bitcoin or other utility tokens, NFTs are not mutually interchangeable and thus are not fungible.
It all started with CryptoPunks, as the first digital art marketplace in the world. No one in the traditional finance sector could imagine that NFTs will become a serious deal in just a few years.
NFT comes from a token standard of Ethereum which is called ERC-721. The first introduction of NFT happened in EIP-721 (Ethereum Improvement Proposals).
Unlike the fungible tokens which are interchangeable, NFTs are unique. There are some statistics websites such as DappRadar, Coingecko & Nonfungible which provide valuable data about NFTs. For trading NFTs you should create an account on one of the trading platforms such as Opensea, Rarible or SuperRare.
NFT technical Components
Blockchain technology and the smart contracts create the foundation of non-fungible tokens. With the emergence of Blockchain technology, we have entered the second era of the internet. It is the internet of value or the trust protocol. In a blockchain, software protocols make it possible for the users to operate securely without trusting each other.
Smart Contracts are computer programs which can create and transform information in the Blockchains. They can automatically execute instructions and allow peers to interact indirectly. With the use of smart contracts; there will be no need for a central clearing house anymore. The use cases of smart contracts are so diverse. They can be used in business agreements, in the Gaming industry, for data stewardship, in providing supply chain data and so much more.
Another vital component in the NFTs would be address and transactions. The wallet addresses represent ownership of a digital asset and are a vital concept in the crypto world. A blockchain address is considered an identifier for the holder and can be used to send and receive assets. The public keys are for data encryption and the private keys are for decryption. Another technical component of the NFTs is data encoding. It refers to converting data from one form to a new one. Encoding is usually used to create more efficient formats of data.
NFT Protocols
There are two design patterns for the paradigm of the non-fungible tokens. One protocol is from top to the bottom and the other is in reverse. The classic protocol consists of a simple path. The NFTs will be created and then sold. First, the NFT will be digitized. The owner will check if all the information is correct and then the raw data will be stored in an external database. The transaction will be signed, and the minting process will start. NFTs will always be linked to a particular blockchain address.
In the later format, an NFT template will be created using the smart contracts. Additional features of the NFT will be randomly selected. In the second protocol All the users can create their own NFT.
NFT Properties
NFTs have some characteristics which make them appealing in the market. Just like their underlying blockchain, they have the privilege of being decentralized. The data of the token and the ownership can be publicly verified. All the functions of selling, minting etc, are publicly done. the ecosystem of NTFs never goes down. No one can manipulate the transactions and every token contains the most recent ownership.
Conclusion
This prevailing technology can reshape the way we deal with the virtual assets market. Few academic studies have been done in this area and it is a necessity for the pioneers to contribute by examining new use cases of NFTs in different industries as well as producing educational content for the mass population to get prepared for the adoption.
Check out my other articles about NFTs:
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Source: Wang, Qin, and Rujia Li. “Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges.” arXiv, 16 May 2021, https://arxiv.org/abs/2105.07447. Accessed 11 June 2022.