NFT (Non-Fungible Token): What it is and how it works

NFTs are “digital certificates” based on blockchain technology that aim to identify ownership of a digital product in a unique, irreplaceable and non-repeatable manner.

A new paradigm in property rights management

Short for Non-Fungible Tokens, NFTs are an application of decentralized finance: a set of automated services and processes with the help of smart contracts and without intermediaries. So it is a new paradigm in property rights management.

Purchasing an NFT does not require taking ownership of the work but the possibility to prove the right to that work, through a smart contract that automatically executes a contract that is indelibly recorded on the blockchain.

How to use NFTs

The coding process of a digital asset allows you to replace data, assets, and rights with a single digital asset. There are many sectors and areas of application of this technology.

  • Intellectual property: NFTs represent a painting, patent, song, or other intellectual property right
  • the games: NFTs become digital collectibles or tools that can be used in virtual games
  • Certificates: NFTs can be used to validate a person’s identity, birth certificates, academic credentials, licenses, etc.
  • financial documentsInvoices and orders can be converted to NFT
  • Real estateReal estate and other valuable properties can be coded to improve the liquidity of the property or to speed up financing

NFT owner rights

When someone buys an NFT, they own a non-fungible token that indicates a digital asset (artwork, GIF, song…). However, defining rights from a legal point of view becomes more complex, as there can be fundamental differences between one NFT and another.

For example, in the case of NFTs that transfer ownership of the work, ownership of a copy of the work is transferred and not the original which may therefore be the subject of other sales. NFT which is Jack Dorsey’s first “tweet”, sold for about $3 million, does not grant the owner any rights to the “tweet”. Without prejudice to the external legal agreements on the blockchain between Jack Dorsey and the platform that hosted the NFT sale, the author of the tweet could in fact decide to sell the same tweet on another competing platform.

On the basis of NFTs, there is a trust mechanism between the author and the buyer that is independent of the blockchain technology.

Examples of NFT

NFTs can represent artwork, creative or entertainment content (music or games), and collectibles whose ownership and authenticity is verified via the blockchain.

Here are some examples of the most expensive NFTs in the world:

  1. The Merge was sold to artist Buck on Nifty for $91 million
  2. Beeple’s Everyday, First 5,000 Days, Sold for $69.3 Million at Christie’s Auction
  3. The watch, an NFT watch created by Buck and Julian Assange (a watch that counts the days of imprisonment of Assange, founder of WikiLeaks) sold for $52.7 million
  4. Beeple’s Huma One sold for $28.985 million
  5. CryptoPunk #5822 Purchased for $23.7 Million
  6. CryptoPunk #7523 Sold for $11.75 Million
  7. CryptoPunk #3100 Sold For $7.67 Million
  8. CryptoPunk #7804 Sold For $7.6 Million

How to create an NFT file

The starting point is to create a digital version of the artwork, which is defined in computer language by a series of binary numbers (0-1). This sequence is compressed into another sequence called a “hash” (digital fingerprint) that uniquely identifies this file: the hash process makes it impossible to reconstruct the original digital document. This BIT sequence is unique and is transcribed into a decentralized ledger: the blockchain.

Since most NFTs are built on the Ethereum blockchain, a digital wallet must be opened to deposit and hold the cryptocurrencies needed for transactions.

The most popular wallet opening applications include:

  • Metamsk
  • Queen Piece
  • Binance Trust Wallet
  • Math Wallet with high security standards

Once you have created your wallet containing cryptocurrencies, you will need to choose a market (virtual store) where you can buy or sell NFT. If the cost of the NFT is too cheap or it is free, a variable gas fee will likely apply.

The most common markets where NFTs can be traded are:

  • open sea,
  • rare
  • NiftyGateway,
  • Foundation cream, used by artists,
  • MakersPlace is accessible by invitation only
  • Mintable is among the most comprehensive marketplaces and also provides an AI-based scarcity metric.

Shows available NFTs within the markets. Interested buyers can bid at the auction, after which the seller receives a notification of the buyers’ best bids.

Once the offer is accepted, the platform manages the transfer of the digital asset funds, and the sale process ends.

Leave a Comment