what is a nft?
How do we define NFTs?
So, I am hoping you understand the fundamentals of a blockchain. If not, do read or watch my video on blockchains. It should provide a decent base to know about this topic. Non-Fungible tokens or NFTs are tokens that represent ownership. A tokenized item can only have one owner at a time and they can represent digital collectibles, digital art, or even virtual real estate. Just like a transaction on a blockchain, no one can duplicate or alter the details of ownership.
The word fungible or non-fungible are economic terms. Fungible items can be bought and traded among themselves. Their value defines them, for example, 1 bitcoin is worth another bitcoin just as any ether unit is equal to another Ether unit. The same is true for fiat currencies like USD, CAD, or any other. Non-fungible items have unique properties and are not interchangeable. They have no physicality associated with them and exist only in the digital form, just like cryptocurrencies. NFTs started on the Ethereum blockchain and were created as a result of the ERC-721 specification.
What is ERC-721 specification?
ERC-721 is a free, open standard that describes how to build non-fungible or unique tokens on the Ethereum blockchain (erc721.org). It specifies the minimum interface for sharing and distributing tokens, including ownership histories, authorization, and metadata. Metadata refers to the unique properties of an asset that gives the asset identity in the digital space (coingape.com).
What can be represented by NFTs?
1. Digital Art:
GIFs
Collectables
Music
Videos
2. Real Word Items:
Deeds to a car
Tickets to real-world event
Legal documents
Signature
3. Rest is for you to discover
What are the issues with digital data faces on the internet today?
Counterfeiting!, It's just hard to retain the value of the original product. The ownership records are stored on servers and controlled by the organization owning those servers. One can just rely on the word of the organization for authenticity. Again, we face the same issues as we discussed in the episode of blockchains that centralized data is prone to malicious activities like leaks and attacks. In the end, platforms offering distribution and storage of data land up retaining the majority of the profit.
So, what is different about NFTs?
I don't have to elaborate on the obvious benefits of blockchains to prevent counterfeiting. Besides tackling all the problems of conventional data management and distribution, the interesting part of an NFT token is that the creator’s public key is made a permanent part of the token's history. As authenticity is guaranteed by being on the blockchain, you can further sell the token at a profit, especially if that collection or your particular token rises in popularity. Moreover, the resale royalties are provided to the original creator.
