Explained: NFTs And Their Working
With every passing day, blockchain, crypto, and other things around them are becoming mainstream topics for discussion. Every day something new is coming out and getting the eyes of the common people all around the world. One such topic that is quite popular among people these days is NFTs. So let's learn about what the hells are NFTs and how do they exactly working?.
What Are NFTs?
NFTs stands for Non-fungible tokens. Non-fungible tokens are the digital assets that represent different types of unique intangible and unique tangible items for example collectible sports cards, artworks, digital sneakers, etc.
Unlike regular cryptocurrencies, NFTs can not be exchanged with one another directly because no two NFTs are the same. One can think of NFTs as some flight tickets. Each ticket has specific information including the date of flight, passenger's name, etc which makes it impossible to be traded with one another.
The majority of the NFTs are built using one of the two Ethereum tokens standards called ERC-1155 and ERC-721. These standards help software developers deploy NFTs and make sure that they are compatible with crypto exchanges, wallet services, and other components of the ecosystem.
Key Characteristics Of NFTs
Indivisible: NFTs can not be divided into smaller parts like crypto assets. They exist exclusively as a whole item.
Verifiable: The ownership information for NFTs is stored on the blockchain which makes tracing back to the original creator easy and helps in the authentication of the NFTs without requiring any 3rd party.
Indestructible: NFTs can not be destroyed, replicated, or removed because all NFT data is stored on the blockchain via smart contracts. Ownership of these token is also immutable, which mean buyers actually own their NFTs, not the companies or individual that creates them.
Non-interoperable: As NFts follow the standard ERC-721, they are considered to be non-interoperable which simply means that the information stored in them can not be exchanged or used in any manner.
Working Of NFTs
As we discussed earlier, NFTs are unique crypto tokens that are managed on the blockchain. Blockchain keeps the decentralized ledger that traces the transaction and ownership history of each NFT, which has a unique ID, code, and other metadata which can't be duplicated. The process of creating NFTs can be done through contract-enabled blockchains with the help of appropriate tools and supports. The tokens along with their smart contract allow adding detailed information like the owner's identity, and other relevant information. This process provides NFTs the attributes of royalties and scarcity which makes it attractive when mixed with digital media.
In the context of NFTs, when we talk about scarcity, we mean that owner gets to decide the scarcity of their digital assets. When somebody creates an NFT, they are basically creating the smart agreement code that administers the NFT's characteristics, which are added to the blockchain where it is managed. Different blockchains can be used to handle NFTs like Ethereum, EOS, Flowchain, etc which uses very much similar processes.
Some Use Cases Of NFTs
# Identity Theft
The various domains which represent the identity of an individual and can be digitized for example medical reports etc can make use of NFTs to prevent identity theft. To extend further artists especially digital artists can also use NFTs to establish unique copyright for them which might be helpful in distinguishing between fake and original artwork.
# Digital Assets
NFTs perfectly fit the bill when it comes to the world of digital assets like mock-ups, domains, design plans, etc. The idea of purchasing digital assets in the virtual world is also getting popular these days and the addition of NFTs to it can make sure that the original creator can be traced for these items.
# Gaming
Many games nowadays have their own virtual currency within their gaming ecosystem that helps users in making progress. The demand for these types of commodities is increasing yearly in this market. NFTs can help here by allowing gamers to easily trade in-game collectible.
# Digital Collectibles
As we talked earlier that NFTs are scarce and they find their major use in collectible and art. With the addition of NFTs, the authenticity and ownership of a collectible can be verified easily. This will also allow artists to prevent their work from getting copied.
Future Of NFTs
At the moment, the future looks pretty promising for NFTs as the total market for them crossed $100 million by the mid of 2020, and with the decentralized finance industry crossing the value of $4 billion, it is pretty evident that the NFT space will keep on growing at a fast rate in the coming days.
We are still in the early stage of NFT development and we can expect a lot of new cutting-edge platforms based on NFTs in the coming years. The market is still raw in terms of experimentation and there are a lot of opportunities to explore in the space for new-age entrepreneurs.
We hope that this post has provided you with some interesting and useful information. Thank you so much for reading this post, please feel free to leave your feedback.
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