NFT (Part 1): Are they simply artwork on steroids?

3 mins read

Most of the things we see about Non Fungible Tokens (NFTs) are often artworks sold for a high price. It’s also looking like a new digital society. But why is NFT a thing? Why is it a thing to buy artwork created by a celebrity?

Understanding NFT is easier when we understand the blockchain and the difference between fungible and non-fungible things. You can read NFT: Could This Be The Next Generation Side Hustle? For an overview.

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The Blockchain

Blockchain is essentially a database of verified transactions. Unlike a traditional database that can be edited or faked, a blockchain uses cryptography to make a block (records on the database) trustworthy.

With blockchain, we create records that are verified by multiple parties that have no vested interest in the record order than verifying it. It is considered a source of ultimate truth. We can trace records back and see what’s happening. With this, imagine the possibilities when our schools can upload our school certificates or the government can upload the birth certificates. NFTs are blockchain tokens that allows storing extra information. Hence, an NFT can be a collection of media files with unique identification numbers.

With blockchain, we can verify a certificate by going back in time to see who uploaded (produced) it and the parties that verified them.

Fungible token

We can exchange them and nothing will be lost. Fungible tokens are interchangeable and can be exchanged with any other token of the equivalent kind. They are built in such a way that each fraction of a token is equivalent to the next. For instance, one Bitcoin is equal to one Bitcoin, and it’s equal to all other Bitcoins. As such they are assumed to be interchangeable and divisible too. Fungibility is the fundamental feature of any currency. Another example, fiat currencies are fungible. $100 notes are interchangeable with other $100 notes. Similarly, one Bitcoin value can be exchanged with another, which makes no difference for holders.

Non fungible token (NFT)

ownership is the key to NFT

A non-fungible token is a unique and non-interchangeable unit of data stored on a blockchain. We cannot replace them since each token is unique. And ‘Unique’ creates scarcity which, in turn, increases the They cannot be replaced with the non-fungible token of the same type, and they cannot be divided in any sense. All tokens of each type are identical in specification, and each token is identical to each other.

NFT is also seen as a certificate of authenticity, or a deed or proof confirming you own the right to display an item on your wall or in your digital wallet. NFT might give you the right of ownership of the copy you bought (for your private use) but not necessarily over the ownership of the original item. The copyright and production right are automatically retained by the publisher/producer unless otherwise specified in the contract.

Back to the school certificate example. When a reputable educational institution uploads your certificate to the blockchain as an NFT, the public can verify it. It becomes easily.

Few use cases

Non-fungible tokens have numerous use cases across various domains beyond art. They can be used to create entirely new types of collectibles. NFTs can also be applied in ticketing, medical data, academic certificates, KYC (know your customer) procedures, real-world assets, voting, loyalty programs, virtual assets, copyright, supply chain tracking, and more.

Conclusion

NFTs allow suitable digitization of real-world assets. Thus, NFTs are going to gain more popularity very soon. In part 2, we will be looking at how NFT is being used in the entertainment industry.

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Sam Iso

Sam is a Solution Architect and Software Engineer with a deep interest in finance, data, community, mental health, and education. Connecting the dot is his superpower. Sam is exploring his curiosity and creativity to match that with what the world needs.

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