NFTs (Non-Fungible Tokens) act as blockchain-based digital ownership and authenticity records tied to media works. An NFT goes beyond being just a multimedia file (e.g., .gif or .jpeg); it essentially functions as a public record containing historical information related to the associated media work. In this sense, NFTs are more comparable to ownership and authenticity certificates for a painting rather than the canvas itself.
Diverging from fungible assets like $20 bills or stock shares, where the value of one is the same as another, NFTs possess unique and verifiable characteristics setting each one apart.
Why are NFTs Important?
NFTs serve as proof of ownership, providing a highly tamper-resistant way to mathematically verify whether a blockchain address possesses a particular item. They also function as certificates of authenticity, ensuring that any form of media (artwork, documents, or digital files) can be traced back to its origin, thereby proving it has not been tampered with.
History of NFTs:
Although NFTs have gained recent prominence, their roots can be traced back to the early years of blockchain technology. The concept of NFTs can be linked to "Colored Coins" in 2012, stored on the Bitcoin blockchain to represent ownership of real-world assets like real estate or stock shares. Years later, digital artist Kevin McCoy's work "Quantum" – a hypnotic loop of continuously changing colors in an octagonal shape – was minted on the Namecoin blockchain and widely regarded as one of the first NFTs.
After collectibles like Rare Pepes quickly spread on the Bitcoin-based Counterparty platform, Ethereum played a crucial role in advancing NFT feasibility in 2018 through CryptoKitties and the ERC-721 standard. This paved the way for other blockchain networks supporting smart contracts, such as Solana, Polygon, and Tezos, contributing to NFT adoption and circulation.
To date, NFTs have been widely used to track ownership and authenticity of digital art and collectibles. Early NFTs like CryptoPunks represent artifacts from the initial cultural shift in ownership concepts. NFTs continue expanding into decentralized ownership use cases beyond the art field, ranging from verifying sensitive financial documents to gaining exclusive pop culture experiences.
How to Create NFTs:
On most blockchains, NFTs are created through interactions with smart contracts. Templates for smart contracts used to create NFTs can be obtained from various open-source sources, including blockchain platforms supporting NFTs, prominent creators in the field, and NFT marketplaces.
NFTs are created and registered on the blockchain through a process called minting. Almost any form of media, from a line of text to an entire virtual reality experience, can be minted as an NFT. During the minting process, the creator's cryptographic address and crucial identifying information called metadata are added to the blockchain. Once created, the digital media file represented by the NFT is typically uploaded to an external location (which will be detailed in the next section).
Creating an NFT smart contract requires paying gas fees to network participants known as validators who maintain the authenticity of the NFT's ownership status. Gas fees incentivize validators to act honestly and stay in sync with others on the network.
Protecting and Storing NFTs:
The protection and maintenance of NFTs mirror practices for well-known cryptocurrencies like Bitcoin, Polkadot, and Algorand. A complete record of the NFT's transaction history and ownership sequence is duplicated and shared among participating nodes, ensuring security. Consensus algorithms ensure that all participating nodes on the network remain in agreement. Consensus algorithms such as Proof of Work and Proof of Stake practically eliminate the possibility of tampering with the network or its contents, ensuring that new transactions are accurately recorded and stored.
While NFT metadata, provenance chains, and authenticity records are stored on the blockchain, the media represented by the NFT usually isn't. Because storing large image files directly on the blockchain can be costly, many people choose to store the media files represented by NFTs off-chain and link to them through a URL stored within the NFT on the blockchain.
Understanding the storage and maintenance location of the media associated with an NFT is essential. This is defined in the smart contract that powers the NFT, rather than being determined by an individual's choice of where to host the NFT. While centralized media storage solutions offer convenience, they may make the media more vulnerable to alteration or deletion. Decentralized alternatives, such as Arweave or the InterPlanetary File System (IPFS), have become potential solutions to address many of the vulnerabilities associated with centralized media storage services.
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BITOY Team
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