NFT
Main terms
To avoid misunderstandings, let us first clarify a few terms associated with NFTs.
Cryptocurrency is any form of currency that exists digitally (or virtually) and uses cryptography to secure transactions. Cryptocurrencies don't have a central issuing or regulating authority; they use a decentralized system to record transactions and issue new units. Cryptocurrency is a peer-to-peer system enabling anyone anywhere to send and receive payments. Instead of physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets.
A blockchain is a distributed database shared among a computer network's nodes. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin or Ethereum, for maintaining a secure and decentralized record of transactions. Blockchain guarantees the fidelity and security of a data record and generates trust without needing a trusted third party. In other words, a blockchain is a digital record of information distributed across a computer system network. Because a system of recording information is entirely decentralized, infiltrating or changing maliciously is almost impossible.
We got the gist of some important concepts, so let's describe what NFT is.
What is NFT?
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Those unique data units on a blockchain are linked to digital and physical objects to provide an immutable proof of ownership. In other words, NFTs are individual tokens with valuable information stored in them.
Actually, fungibility is an economic term that describes the interchangeability of certain goods. For example, a dollar bill equals any other dollar bill, while a non-fungible token is unique and inimitable. For example, if you have a dollar bill signed by a famous artist, it becomes unique.
NFTs differ from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions (e.g., for buying goods).
Non-fungible tokens can digitally represent any asset, including online-only assets like digital artwork (music, pictures, videos) and real assets such as real estate. Other assets that NFTs can represent include in-game items like avatars, digital and non-digital collectibles, domain names, and event tickets.
Why NFTs are valuable?
NFTs are valuable because ownership of anything people want is, by nature, valuable. And people want NFTs. They want to own pieces of art and items of cultural significance. They want to own things they think will appreciate in value.
How NFTs are stored?
NFTs are made possible through the blockchain technology that supports cryptocurrencies. NFTs can be bought, sold, and secured through many blockchains, including Ethereum. Because NFTs hold a value primarily set by the market and demand, they can be bought and sold just like other physical types of art. The unique identifier associated with an NFT is stored across a secure and distributed network, making its ownership and history secure, verifiable, and part of the public record. Through NFTs, businesses, artists, and investors can prove ownership, create scarcity, earn royalties, and sell digital assets.
ERC-721 standard
Since the majority of NFTs reside on the Ethereum cryptocurrency's blockchain, it makes sense to mention the ERC-721 token standard for non-fungible tokens on Ethereum. ERC-721 is a free, open standard that describes how to build non-fungible or unique tokens on the Ethereum blockchain. The main characteristic of ERC-721 tokens is that each one is unique.
When an ERC-721 token is created, one and only one of those tokens exists. These tokens, as NFTs, have spread the idea and application of unique assets on Ethereum.