NFTs are basically digital assets like images or videos that are unique and have special identification codes, which can be verified by a distributed ledger technology. This technology represents the ownership and the authenticity of the associated tangible and intangible assets of the NFT under study.
This gives a brief answer to the million-dollar “what is NFT?” question.
NFT growth is powered by blockchain technology. As a result, it’s important to study what blockchain entails to understand NFTs.
Blockchain Technology Behind NFTS Growth
Blockchain is a new technology that is evolving fast in the financial market with its popularity rising from the launch of bitcoin cryptocurrency in 2009. Cryptocurrencies are in existence on public databases which are maintained by blockchains.
The database is distributed by the computer networks which are running on the blockchain software referred to as smart contracts.
There is no single entity that can claim ownership or control of the database, but anyone can access the database, prove identity, and be enabled to access the database to transfer cryptocurrency via private keys that are associated with their private crypto wallet.
The most popular blockchain protocol which is also first of its kind – Ethereum – is used to support virtual machines to execute a complete scripting language. The language powers blockchain developments.
With the continuous development of the global infrastructure, Ethereum was integrated into the Ethereum Request for Comments (ERCs). ERCs were fungible tokens that specified the interface with metadata that was used in the financial market.
Further integration of fungible tokens led to the development of a new class of token called non-fungible tokens, whose rise was due to market demand to have unique tokens that would enhance safety across business.
Fungible tokens were replaceable and couldn’t assure users the safety of the information on the market.
To truly answer the question “What is NFT?”, it’s important to explain the fundamentals that NFTs have, making them different from fungible tokens.
Fundamentals of NFTs
NFTs are non-fungible, hence each unit of the commodity cannot be interchanged with other units of the same commodity. As from other currencies, one bitcoin is equivalent to another bitcoin, however, two NFTs cannot be the same.
NFTs are uniquely tied to specific digital files where a media file is converted to non-fungible form through a minting process.
NFTs were specifically created for ownership purposes, hence they allow creators to specifically claim ownership of the token. This is greatly opening the existing opportunities for the digital commerce and engagement market.
As described earlier, NFTs are unique cryptographic non-interchangeable tokens that have metadata issued on a blockchain. To understand what does NFT stand for in details, we will explore the components that result in what are called the non-fungible tokens.
Components of NFTs
- Token is the first component which is thought of as a verifiable signature that is issued or recorded on a blockchain. It has unique details that allow one to view the address minted on the token and reveal the previous owner of the token.
- Associated metadata, which is the hyperlink to the digital content, forms the latter component which is a section of a computer code that can be used to create an image or a hyperlink to content that is hosted online. Such content could be a graphic, image, text, or audio recording.
- Smart contracts are basically a series of automatically executable computer instructions that are associated with a particular NFT. A smart contract is a set of guidelines that govern how a token can interact with the blockchain.
- Final component is the promise element which is not a technological issue but rather a contract by the issuer of the NFT which gives value to the token. It’s an important part since it determines the information that the owner will have concerning the NFT that he owns.
Conclusion
In this article, we have clearly answered the question – what is NFT?
NFTs are non-interchangeable tokens that have digital content harnessed in blockchain technology. Furthermore, the article explains each component of the issue what does NFT stand for, hence giving a better understanding of non-fungible tokens.
Non-fungible tokens fundamentals instill trust to users since they are unique and cannot be changed. These features have enabled the NFTs to be widely used in fan engagement, generation of revenue, and improving customer’s relationship in businesses.