Understand what an NFT is in 14 questions

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Tired of listening to your friends talking about NFT without really understanding what it is? The drafting of Digital describes to you in 14 questions what these digital assets are which are sometimes exchanged at gold prices.

What is an NFT?

NFT is short for Non-Fungible Token. These are unique digital goods whose transactions are made in cryptocurrencies and which are exchanged using a blockchain protocol (blockchain). A non-fungible token is often presented as a title deed, recorded in a public, decentralized digital ledger.

Why “non-fungible”?

A non-fungible item is a single item that is not interchangeable. For example, money is fungible: you can exchange a €10 note for two €5 notes or cryptocurrencies between them; but not a work of art against a piece of land, because the nature of their value is not the same.

What is the difference compared to a cryptocurrency?

The answer to this question largely follows from the previous one. Although NFT transactions are mostly done in cryptocurrencies (bitcoin, ethereum, etc.), they are not cryptocurrencies themselves. Technically, it is possible to exchange an NFT for one or more NFTs in a decentralized way, but the estimation of the value will be very subjective between the two parties, like in a barter system.

Before an item becomes an NFT and is offered for sale, it must be listed on the blockchain. We then speak of “minting an NFT”, which means registering the digital asset on the blockchain through a smart contract (smart contract, autonomous contract). Platforms are specialized in this process, which is a paid service.

Yes, but what is a smart contract ?

The smart contracts are contracts that rely on technology blockchain to make their terms and the conditions of their execution unfalsifiable. These are computer programs that automatically execute a set of predefined instructions.

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What can an NFT be?

Almost everything. Obviously, it’s the art market that seems the quickest to take hold of the subject, but metaverse specialists also sell virtual land, for example. Jack Dorsey has sold his first tweet in NFT format. On Sorarea game halfway between the Panini album and the concept of My Little Lawn, NFTs are football player cards. Recently, a 1.2 kg truffle was even offered in NFT format. In this particular case, the buyer gets nothing but a certificate of ownership and not the truffle itself.

Ok, but what kind of files?

It can be an image, a video, a sound file, an animated file, a 3D object… On OpenSea, the maximum size of downloadable files is 100 MB. CryptoPunks, which is worth millions of dollars, is nothing more than a collection of jpeg files that have become NFTs. Often, the NFTs are moreover only the certificates of ownership of a link returning to a server storing the image or video in question.

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© Getty Images

Where do you buy an NFT?

There are several platforms. The best known, and the most used, is OpenSea. It allows you to sell and buy NFTs, and it is compatible with blockchains Ethereum, Polygon and Solana. There are tens of millions of NFTs.

Can we buy in a few clicks?

No. You must first have cryptocurrencies, regardless of the platform used, but also have a wallet (for example a Metamask) connected to the platform. This portfolio will allow you to carry out the purchase operation with the NFT platform. This therefore requires mastering a little, or even a lot, the various tools related to cryptocurrencies.

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Finally, what do we have?

This is a somewhat special point with NFTs. When you “own” one, you ultimately only own what proves the purchase of the underlying asset. It’s a bit like buying an item in a store and only leaving with the invoice or a customer reference. As for the digitized object, it remains stored by the issuer of the token… on a highly centralized server.

What is wrong with NFTs?

Many things. NFTs are criticized — and we will leave everyone free to think what they want on this subject — for their speculative aspect. Cases of plagiarism and reuse for commercial purposes without authorization of famous brands have also been identified.

© Getty Images

And the ecological footprint then?

This is certainly the point that has caused the most ink to flow. The majority of use “proof of work” to operate, requiring high computing power. And who says high computing power says high power consumption, which notably fuels the bitcoin debate. However, the consumption of these blockchains is broadly the same whether or not NFTs are issued. Many blockchains, such as Flow or Tezos, attempt to respond to this ecological challenge with the “proof of stake” method to validate exchanges. These exchanges are secured by computers or servers that operate and consume more conventionally, like other networks of computers or conventional computer servers. The Ethereum Foundation has also announced that it intends to eventually switch to this system.

Proof of work? Proof of stake?

Proof of work is aptly named. To control the exchanges within a blockchain and thus constitute new blocks, certain nodes of the network seek to solve a cryptographic enigma, by using the computing power of their computer equipment. The first to bring the right solution (the proof of work), win the right to create a new block and are paid with the crypto of the network in thanks for the effort made.

Without going into too much technical detail, proof of stake replaces the mechanism based on computing power with another, based on the active use of its capital: it is enough to escrow a certain amount of the cryptocurrency of the network to participate in its validation, and be paid for it.

What is the most expensive NFT ever sold?

The work The Merge was sold on the Nifty Gateway website for the tidy sum of 91.8 million dollars. This work is composed of 266,445 digital units shared between 28,983 buyers. Technically, it therefore does not represent a single NFT. In this case, it would rather be Everyday: The First Five Thousand Daysa collage of 5,000 photos, sold for $69.3 million.

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Understand what an NFT is in 14 questions


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