It’s anyhow difficult to understand crypto and bitcoin, and now we have NFTs. The magical rise of NFTs in the last few months has left the world surprised. For the crypto community, it’s yet another feather in the cap of the many abilities of blockchain. The most welcome contribution of NFT markets like Digital Art Chain is for today’s artists, many of whom are also into digital creations. The rise of NFTs will allow digital artists to create and put up digital artworks for bidding and auction and earn revenue. In fact, anyone can do so.
The first NFTs
The first NFT standard emerged in late 2017, the same year that bitcoin was going to make history with a steep climb to above $19K. Like all new ideas, NFTs began as a curiosity and a little game, with a small, dedicated group that included developers, players and entrepreneurs. These were the early adopters. Before launching into the evolution, let’s take a look at what they are and how it all works.
What’s a bitcoin: In figurative terms, a small chunk of a block in the Bitcoin blockchain that can be owned and transferred.
What’s the difference between a bitcoin and an NFT token: All bitcoins are the same bitcoin. But all NFT tokens are unique. One token can’t be replaced with another it’s information or metadata contains link to the digital asset or item it represents. So it’s non-fungible.
Examples of fungible and non-fungible:
Fungible: T-shirt from Nike. If one is lost, you can buy another Nike T-shirt.
Semi-Fungible: White T-shirt from Nike. If one is lost, buy another White Tshirt from Nike.
Non-Fungible: White Nike T-shirt signed by Michael Jordan. There is no other such piece.
Fungible: Rs 1 coin
Semi Fungible: Rs 1 coin of the 1970s
Non-Fungible: Rs coin with portrait of King George. Very few and rare.
As a rule of thumb, anything rare, valuable or one of its kind is non-fungible. Like all antique or auction objects. Today new items include domain names, digital event tickets, digital game characters or insignia, all either unique or semi-fungible.
Which blockchain or protocol is used by NFTs?
For minting an NFT, the ERC-721 protocol is used. It’s is a free, open standard that describes how to build non-fungible or unique tokens on the Ethereum blockchain, and unlike other protocols like http or jpeg, it can hold information in metadata.
Digital content is everywhere, but how to sell it?
There are digital items all over the internet, on computers and mobiles and other devices. We are flooded with memes, animations, gifs, videos and more. This digital content also includes unique, rare and collectible items, viral content of historical value, cultural icons and celebrities of economic value, and more.
Enter Blockchain. A blockchain like Ethereum can help “sell” digital content, making it very easy to transfer the ownership rights as well as create a royalty earning avenue. So whenever that item is sold again, the owner/s earn royalty as well.
But to sell a digital item, we should be able to “show” it on the blockchain, and then “move” it around, especially transfer it to the new buyers.
ERC-721 allows this facility.
So we are going to represent the digital item on the blockchain, thus moving it outside our computer or laptop or mobile. Once on the blockchain, it can be moved among buyers and sellers anywhere and traded.
From the desktop to the blockchain’s open market
Ethereum is a blockchain where any code can be executed. So two users can buy and sell an item and record it on the ERC blockchain. That’s what makes NFTs reside on the ETH chain, which serves as a marketplace, or rather, the trading channel. Once can access this channel using ERC20 wallets like Metamask, which will hold the NFT.
Minting the NFT
One need not be a coder to do so, and that’s why marketplaces like Open Sea or other NFT platforms exist. They use the ERC721 protocol, and allow users to mint their NFT using various different properties of digital items, like ownership, transfer, access, description of the item and the link to where it is stored. Other features like animations, colors, etc., can also be added to the protocol.
So a digital item or asset gets a token, whose ID is linked to the owner’s wallet address on the ethereum blockchain.
NFT: [Digital Asset Link, Description, Other Features, Owner wallet address, Token ID]
On Sale: owner’s wallet address updated
Once a digital item has been converted to an NFT, a token, it can be transferred and traded like any other token. It can be put on an auction as well, since most of the NFTs are art and rare items.
So digital items that were once “closed” and shut inside a computer, laptop or mobile can be taken out into the open and put on the blockchain by converting them to an NF token.
A picture of a cat can be represented in an NFT using data like: name, image location (on the internet), description (any information). For event tickets, one can add date of event, etc.
Storage of NFT digital assets
Ethereum has limited storage abilities. So most NFTs are storing the digital item off-chain. Some items are better stored along with the token, like digital paintings so that they can be accessed as long as the blockchain exists and not depend on external websites. ERC721 has a function called tokenURI(), which returns the location where the item is stored or the metadata with the location link.
Comparing a normal crypto token with NFT
In cryptocurrency, an address holds a given number of coins or tokens:
0xayi12kyt… [address] –> holds 0.5 ETH
In NFT, the token id is assigned to an owning address:
Token ID 14521 –> 0xayi12kyt…[address]
So to find out the owner of a digital asset on the blockchain, one has to just query its id: ownerOf(1624253). This will give us the wallet address of the owner.
Will NFTs remain forever?
The blockchain is immutable and its decentralized nature makes it almost forever. But digital assets are stored on other websites, cloud and servers. Though backup copies are made, the NFT, like all other things in the world, is not forever.
Programming an NFT
A digital asset can be converted to just 1 NFT or more. Since the NFT has a smart contract feature, programs can be coded to create either one or a specific number of NFTs connected to a digital item. One can even allow creation of infinite tokens for a given digital item so everyone can have one.
There are other features that can be programmed into the NFT: breeding (crypto kitties), forging, crafting, random generation, redemption.
More about ERC721
This was developed by CryptoKitties and can be reused and adapted. The standard is simple and allows two features – the address of the owner of a tokenID, and transferring it from one address to another.
ERC1155: for semi-fungible classes of digital assets
A better protocol, as it allows creating semi-fungible tokens – entire class of a type of token. For example, coffee mugs token will contain many types of rare coffee mugs. The standard specifies the number as well. So owning one of these tokens means owning more than one digital item. The standard can be used to create just one token as well, thus working like the 721 standard.
ERC-998: Mixing both fungible and non-fungible tokens
Like physical goods come with accessories, a digital asset can also include some other assets as part of the package to be sold.
Are there other blockchains doing NFT other than Ethereum?
Some projects are deploying the concept on their blockchains: EOS and Cosmos
Reference: https://opensea.io/blog/guides/non-fungible-tokens/Share & like