There is nothing than seeing the word NFT trending a couple of days a week to get you curious about what it means. The founder of Twitter even recently put an autographed tweet for sale as an NFT, and as crazy as it sounds, there are many people who were willing to buy it.
Which brings us to the all-important question; what is NFT?
NFT, or Non-Fungible Token, is one of the latest fads in the crypto-space. It is also often described as a non-fungible digital asset and it's considered to be a unique representative of some sort on the blockchain. We can further define them as such: "a unit that cannot be interchangeable with other units".
To put it into a real life example, think of your car. In the tech world, this would be considered as an NFT since there are no two cars that are identical.
Examples of NFTs are digital and non-digital items such as:
• Designer sneakers
• Videos and sports highlights
• Virtual avatars and video game skins
In this article we'll go through what NFT's actually are and how they work!
NFTs came around as a result of blockchain technology. In 2008 Satoshi Nakamoto published a paper called Bitcoin: A Peer-to-Peer Electronic Cash System which was the first to introduce the concept of tokens/cryptocurrencies on a decentralized ledger, commonly known as 'the blockchain'.
In 2009 he also explained the idea behind NFT's within his white paper:
"The problem of course is the payee can't verify that one of the owner's has sent it. A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double spending. After each transaction, the coin must be returned to the mint to issue a new coin, and only coins issued directly from the mint are trusted not to be double-spent. The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank."
He was talking about the fact that transactions between peers can't be easily verified and would require a 3rd party such as a bank to process them. With NFT, cryptography isn't needed for tracking the transfers since no tokens are truly fungible which means they all carry their unique history and whoever owns them can easily be tracked through blockchain technology.
It didn't take too long before Vitalik Buterin and his team came up with a new idea for tokens which were to be based on the Ethereum blockchain. These tokens would resemble cryptocurrencies but they wouldn't represent digital currencies, but rather assets that are unique and non-fungible.
This was done in order to allow players of video games to take ownership over their digital assets, such as game items or collectibles (NFT's), and stop the company that made the game from taking ownership over them.
This is because, by using Ethereum's infrastructure and tools, blockchain technology can provide users with a decentralized platform where they will be able to keep their digital assets as well as manage them - all through the use of smart contracts.
Are NFTs Cryptocurrencies?
NFTs aren't considered cryptocurrencies since they aren't designed to replace fiat currencies. They are, however, designed to be used on the Ethereum blockchain through the use of ERC-721 tokens.
At their very core, NFT's are made up of two distinct parts: metadata and data string. The custom metadata that is attached to each token acts as a sort of a title of the item and it's needed in order to track ownership of each token. The metadata can be used to describe the band on a certain drumstick or the year on a bottle of wine, etc.
The string data is another important part since it contains information about the individual token such as its unique ID which allows for tracking and verifying transactions. In some cases, NFT's also have a decoded component so they can be more easily parsed on the backend of any application or service that makes use of them.
The metadata and data string are joined together to create a unique ID which is generated based on a random number generator seed. The generated randomness is important since it makes it impossible to predetermine the hash of a token before its creation.
This, in turn, makes it impossible for anyone to transfer a token from one user to another without having access to the original user's NFT wallet since every single transaction is publicly available on Ethereum's blockchain and can be verified with their associated nonce.
NFT's can't be split and can only be transferred in their entirety. The reason for this is because they are indivisible - also known as atomic units - which make them very difficult to counterfeit.
The Present and Future of NFTs
The NFT economy has grown exponentially over the past few years especially within the blockchain gaming space where it has been used by multiple companies, such as Wax, for obtaining in-game items.
The use of NFT's has allowed players to take ownership over their digital assets by using decentralized apps (Dapps) that run on the Ethereum blockchain. This is possible through smart contracts which essentially automate a lot of processes and allows users to maintain full control over their items while ensuring that they are always protected from any sort of fraud.
How do NFTs work?
NFTs have been around in various forms for a while, but it's in the last year that they've really gathered mainstream attention. This is due to two big reasons: CryptoKitties and Etheremon.
CryptoKitties was one of the first games to appear on the blockchain and brought with it a new era of digital collectibles. It became so popular that some kitties were selling for over $100,000! The game's success prompted Ethereum developers to find solutions in order to avoid scalability problems and high transaction fees.
Etheremon was the first NFT game title to launch on the Tron blockchain at the beginning of this year. In Etheremon, players can buy and sell monsters that they capture in virtual reality and build their own teams.
In addition to video games, NFT's have been used for various other purposes such as art trading and storing digital documents. They may not appeal to everyone but don't underestimate them! They're a major trend and we're bound to see more games like these appearing. Maybe one day we'll see a franchise like Game of Thrones with NFTs for every character. NFT's truly paved the way for blockchain technology adoption and they will continue to do so in the years to come, especially since they provide users with a new way of trading digital items.
There are a lot of potential use cases for these tokens and it will be interesting to see how companies will use them in the future.