Despite exponential progress in our scientific understanding, there remain deeply impenetrable unknowns such as “How did life begin?”, “Are we alone in the universe?” and “What is a NFT?”.
This post will attempt to lift up a veil of secrecy and expose to the greater public a cabalistic knowledge that so far has revealed itself only to the crypto-initiated.
Our first postulate: “To understand NFTs is to understand blockchain.”
What is a “blockchain”?
A blockchain is a bit like a database. But instead of sitting on a computer or a server it is “decentralised”. Picture a network of computers that have each a copy of the “database”. They can store, validate and share data among each other so that the copies are always updated and identical. There is no central authority that decides what goes in the database but it has a program that makes sure that the information that it contains is valid and should be recorded.
When information is submitted onto a blockchain and is validated by the network, it will be aggregated with other information into a block of information. When the block is full, another block is created and automatically linked to the previous block, forming a chain. Hence the term “blockchain”.
When information is recorded in a block, it cannot be changed anymore.
All information that is recorded onto a blockchain can be publicly verified by anyone and we can see exactly what has been created, by whom, and by when.
If someone tries to tamper with information in a block, the other computers that are part of the network will automatically cross-reference the information they have about that block, and quickly notice that something is not right, thus preventing the tampered information to be validated and recorded.
There are many types of public or private blockchain such as Ethereum, Hyperledger Fabric or Tezos, each using different methods to create, store and validate information, but overall they use the same principles described above.
What is a “NFT”?
NFT stands for Non-Fungible Token.
A token is a set of information that can be aggregated into a block too. A token can contain instructions that are automatically executed when some conditions are met (known as a “smart contract”). More broadly, a token represent a digital asset and its ownership.
A fungible token is for assets that can be divided and exchanged for a similar asset of the same value in a transaction, and it does not matter which exact one is used. For example imagine that you want to send a dollar to a friend to buy an ice-cream. It does not matter which specific dollar from your account will be used in this transaction. A dollar is a dollar and a Bitcoin is a Bitcoin.
A Non-Fungible Token is for assets that are unique. They contain or represent a single asset that is different from the others. And this matters in a transaction. For example a video file, a picture or an item in a game such as a magical sword with special properties. The NFT will contain information about the digital asset, its creator and owner, a unique token ID as well as smart contract instructions. Often it will not contain the actual digital asset as the file would be too large, and the process of creating the token too costly. But it will contain a link that point to where the file is hosted.
A few words about “smart contracts” in the context of NFTs: A smart contract is a program that contains instructions that are automatically executed when the conditions are fulfilled. For example you could embed an instruction to give 10% royalty to the original creator of an NFT for all future sales. Automatically, when the NFT is sold and resold, the creator will receive in his crypto-wallet the equivalent of 10% of the sales price, in perpetuity. This is done without any need for human intervention.
Because of their properties: hard to tamper with, traceable, easy to verify, allocated to a single owner, able to execute instructions automatically… NFTs are used in a variety of applications. For example a NFT could replace a movie ticket, or be used as a certificate of authenticity for a digital or a physical artwork. Some people use NFTs to fractionalise ownership of a painting for example. They will create a hundred unique NFTs that represent 1/100th ownership of the painting. And these NFTs could be sold and traded on a market place, as “virtual shares” of the artwork.
Typically, when it comes to digital art, when you purchase a NFT you will become the official owner of a unique digital file that is linked to the NFT. The NFT will be automatically transferred to your wallet and you will be able to access the digital file to view it, download it and display it.
What is a wallet? This is where you will receive and store your crypto-currency and NFTs. It is a bit like a wallet for your cash and cards, except that these are digital wallets. You can easily set one up online or should you prefer, buy one as a hardware that looks like the USB key you used to store data. Interestingly, the wallet will not store the actual NFT you purchase (it is on the blockchain, remember?) but it will store the exact location of where your NFT is on the blockchain, and give you exclusive access to it so that you can transfer or sell it.
Display options for digital artwork range from projecting the artwork on a wall and using monitors, tablets, or smart TVs like the Samsung Frame or LG OLED Gallery Design TV that are optimised for the display of such artwork. There are a number of applications for you to display your artwork on these devices, whether you decide to stream it or download it. It is no more difficult that showing a picture or a movie on your laptop. Some NFT Artwork come as programs that will generate artwork or allow for interactivity. In that case you will be installing the program on your computer first then run it.
And that's all we will share at the moment. Congratulations: You are now initiated!
We hope that this post contributed to demystify NFTs. Unlike secret traditions passed on orally during exclusive and mysterious rituals, we would encourage you to share this post if you think it was enlightening enough.
If you have specific questions or feel we could have done a better job explaining some of these complex points in an even simpler manner, please contact us. And if you are interested in NFTs from an artistic perspective, you might find our short post on “Art that speaks the language of the time” worth a read.