Hey everybody and welcome to my short presentation: NFT-WTF, a shortcut on NFTs.
So, today I’ll talk about NFTs and first of all we’ll take a bit of a closer look at the term „NFT“ and what it actually stands for, then we’ll dive into some of the technical concepts around NFTs and in the end we’ll talk about some of the interesting used cases.
So, what do NBA video short clips, Nyan cat and this huge jpeg of jpegs have in common? They have all sold for millions of USD as NFTs.
So, what are NFTs and how do they work? I will try to explain that over the next couple of minutes. NFT stands for non-fungible token. Easy, right? I’m sure all of you know what that means. Well, no. At least when I first heard that term, I had no idea what it meant.
And so let’s take a closer look especially at the word: Fungible. And it turns out, it’s an term from Economics and we will just take that and replace it with: interchangeable. So we have non interchangeable token. And I’ll try to illustrate this a bit further with the help of an example. So, a couple of years ago my son was born, and I went to the store, and I bought a teddy bear and in this store, there were twenty of the same teddy bears, so I don’t care which one specifically I took, so one was just like the other, they were fungible. So, four years later my son – you can see him here – he played a lot with his teddy bear, teddy’s gotten some wear and tear and it has gotten unique, has gotten non fungible and unlike all the other teddy bear in the store.
So, to give you an example it’s a bit closer to the crypto world. One bitcoin is fungible, it does not matter whether you own this specific bitcoin or another bitcoin, it’s all the same – that is not the case for NFTs. And also, something like the Mona Lisa, non-fungible, not interchangeable. So, we’ve got the first two letters covered – N,F – I hope that’s clear. So what does the T stand for? It stands for Token, but what exactly does that mean in this context? So, to explain this, I will have to dive into some of the technical concepts that surround NFTs.
So, a token exists on a blockchain and its core, a blockchain is just the public lists of all transactions that have happened with tokens. And by doing this it keeps track of who owns how many tokens, and tokens can be any Crypto currency, bitcoin or Ethereum – those are the fungible ones – or it can also be NFT, and those are the non-fungible tokens. So, you might think ok, why do I need a fancy blockchain to keep track of my transactions? My bank does that every day or I can do it in an excel spreadsheet, right? Well no, the core value of a blockchain is that it is decentralized, the history is immutable, so nobody can change it after the fact, and by doing that, it becomes trustless, you don’t have to trust a central authority like a bank or government to do your accounting correctly. And this is also where a lot of the value of NFTs and crypto currency essentially comes from.
So, another concept regarding block chains is the smart contract. A smart contract is a public script which lives on the blockchain and it just consists on a bunch of methods that users and other smart contracts can interact with to either read states from the block chain or to mutate, manipulate states. For instance if you do a transaction, you manipulate the state, if you transfer tokens from owner A to owner B. An interesting fact about smart contracts is that they are the code is immutable once you deploy it to the block chain, so that means you have to get the code right the first time, so good luck with that.
And regarding the blockchain and NFTs and smart contracts, for Ethereum there is a token standard, it’s called the ERC721 token standard and it’s just a set of agreed upon methods that a smart contract has to have to qualify as an NFT smart contract. And those methods are things like ownerOf-method, where you can get the owner of a specific token or a mint method, which creates new tokens or a transfer method, which transfers tokens from owner A to owner B. And there a different token standards for different blockchains and they don’t have to be compatible – often they are not, actually.
So NFTs are tokens on a block chain, and they hold information. They hold information about its owner, they have a unique token ID, and they have information about the issuing smart contract which is the smart contract that created the token and they have a token URI. And this token URI and the non-fungibility of these NFTs, they give rise to many very interesting used cases and applications. For instance, you could have ownership of digital assets. So, if you own an NFT and that token URI points to a digital asset on the web, then this NFT can represent ownership of that asset and that can be an image, audio, code, whatever you like really. Same goes with physical assets. If you have a physical asset, they can be represented by unique ID, and you can mint this ID as the token URI into the token, then it’s fixed on the blockchain and the NFT can represent ownership. It can be transferred, it can be sold, you can really do anything, whatever you like. Other usecases are ticket systems for instance, you can have NFTs as tickets, so if you own an NFT, you get access to an online event or even offline event – doesn’t really matter – or really any type of key that you can imagine, NFTs can be used for that.
Ok, so because at beyond mars art, we work on an art marketplace and its closely related to digital asset ownership, I want to take a bit of a closer look at that topic. So as I explained, NFTs hold the URI to a digital asset. However, there is a problem. If this URI is a regular url, the actual content behind this url can easily be replaced by the server admin. So for instance you have a url that goes: https://mywebsite.com/cat.jpg, however at some point in the future, this might be replaced with a very different cat – an excavator. And this is not what you want with NFTs, you want to have it immutable and you always want your NFT to point to the exact same thing that you initially did.
And there is a solution for that, it’s called IPFS, aka the permanent web. Oh my God, another one of those NFT, IPFS – just stick here with me for a second. So, IPFS stands for inter-planetary file system and it is a content address peer-to-peer storage network. And what exactly does that mean – content addressed? The IPFS URI contains a hash of the content of a file, and as you might know, a hash is always exactly the same with the same input. So, you can’t have a different URI for the exact same image or you can’t have the same URI for different files. So this guarantees that the NFT really always points to the exact same digital asset. And no more confusing cats for excavators – that’s a bonus.
Okay, so in summary: NFTs are unique, they are non fungible, they are decentralized, and they can hold a token URI which can point to digital assets, physical assets, really anything you like. By this non-fungibility and this token URI there arise many interesting usecases and I hope that you will agree. Thank you for your attention! And if you like to talk about this topic a bit further, you can hit me up at this email and thanks!