A Soft Introduction to NFT
The rise of blockchain technology in the last decade or so has introduced us to many new technologies. As if it wasn’t hard to wrap one’s head around digital currency, now we are introduced to other technologies like de-fi, flash loans, NFTs and so on.
Fungible vs Non-fungible: NFT stands for non-fungible token. The difference is that each NFT token is unique in itself, 1 NFT token is not the same as the another as opposed to cryptocurrency say bitcoin, where all the bitcoin are the same, 1 bitcoin will have same value as any other bitcoin, making them fungible. This uniqueness and non-fungibility is what makes NFTs collectable.
“Types” of NFT: An NFT can be anything, an image, a video, an audio. The most popular form is likely the image format. Animations in loop are also becoming more and more popular. However, an NFT can be any form of digital media, in fact, even tweets, as the first ever tweet on twitter once sold for 2.9 million USD as an NFT.
The Structure of an NFT: NFTs are digital in nature, coded into the blockchain network. The core of an NFT is a smart contract, basically the code that defines the properties of the NFT. Generally, NFT tokens are built over a certain blockchain, most popular is Ethereum but other networks are also supporting NFTs now. What this means that first a smart contract defining the NFTs are written and then it is deployed on the blockchain network. The contract contains information about how to generate an NFT (minting) and transfer it to a wallet. Generally, the contract will contain information about where the file containing the NFT data (the image, video or audio etc.) are located on the internet. The contract also defines the mechanism for price, withdrawing money from the contract etc. Once deployed to the network, you cannot change the contract. That does not mean your NFT is not flexible, if you code it into the contract, you can make changes by updating parameters. For example, some NFTs are not revealed until the whole collection in sold. The way it is done is that the contract first makes all the tokens point to an image representing the unrevealed NFT, however, either by coding it or by updating a certain parameter at a later point, the tokens then point to their respective images thus revealing the NFT. The data containing information about where media item is stored etc. is contained in a file called meta data file. Thus an NFT token will have the following components:
Smart contract defining the behavior on the network. It also contains the location of the metadata file.
A metadata file containing the name, collection it belongs to, traits or other features and the location of the item on the internet.
The actual item, the image/video/audio or any other item that’s the “face” of the NFT.
Storing of NFT Item: The item can be stored anywhere on the internet. Storing it on a blockchain is very expensive computationally therefore usually on the URL to the item is stored on the blockchain and the actual item is stored somewhere else. Now it is important that the item is stored at a location that is reliable and always available. A popular location is the interplanetary file system (IPFS). It is a peer to peer network of storage. What this means is that the data is not stored on one computer but distributed over many computers connected to the network, thus making sure it is available all the time. What makes an NFT expensive: NFTs have made a lot of people rich, however, contrary to what social media tells you, most NFT collections do not sell out. So before spending money over a collection, do your research. Just like cryptocurrency projects, NFTs also make people believe that it might be their shortcut to the riches. This exposes them to social media “influencers” or other online “promoters” who will not hesitate in “collaborating” with them, which means asking for money, and more money, for promotion. It is easy to get carried away and spend a lot of money on influencers which may not necessarily mean selling out your NFT collection. But a combination of promotion and have an actual purpose to your NFT will likely help you make some profit. One other way for NFTs to be on value to be a part of or have their own ecosystem. This is where metaverses and games come in. You have have avatars, virtual clothes, weapons and so on, sold as NFTs that the owner can import into the game and use them. Some metaverses also has virtual art galleries where you can import your NFT and sell them.