NFT (Non-Fungible Tokens) are tokens that are not exchangeable or replaceable. In the context of cryptocurrencies, they exist on the blockchain only once, in contrast to the fungible currency tokens. Confused? We explain how NFT works.
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In blockchain technology, tokens enable the digital mapping of assets. These can be, for example, real estate, accounts, precious metals or art. The advantages of the digital representation of assets (“assets”) go far: With the help of tokens, ownership or obligations and claims rights can also be secured on the blockchain.
- NFT – just like crypto tokens, which serve as a means of payment, for example – are based on blockchain technology. Both types of tokens are thus publicly secured on a blockchain. However, non-fungible tokens refer to a specific asset and thus exist only once worldwide. Crypto currencies, such as Bitcoins, on the other hand, are numerous.
- In contrast to fungible tokens such as Bitcoin, non-fungible tokens are based on a cryptographic protocol of a blockchain that is unique in the world. Therefore, NPTS cannot be replaced, duplicated, shared or destroyed.
- An NFT thus represents the digital ownership of something unique. This can be, for example, the possession of a painting, the vaccination certificate of a certain person or even a unique trading card.
- In contrast, you can exchange fungible goodness such as Bitcoin or Euros with another person. If you lend another person a 10-euro note, you will probably never see this one special note again. For this you get another 10-euro note or two five-euro notes back – for you this will not matter as long as you get back the original monetary value.
NFT, non-fungible tokens, represent unique digital assets.imago images / ZUMA WireNFT and Blockchain
In general, a blockchain is a public database that, in the context of cryptocurrencies, is used to manage monetary transactions and the rights and obligations associated with them. NFT take advantage of this system and the fact that the blockchain is almost tamper-proof and forgery-proof.
- A blockchain is constantly being expanded by stringing together data blocks on this “chain” chronologically. These are cryptographically signed, so they are considered very secure. In principle, they can therefore neither be falsified nor changed.
- This security comes from the fact that a block not only stores the entered data itself, but also the unique hash value associated with this record. This hash converts the data set into a one-time sequence of bytes with a fixed length and structure, thus enabling the exact identification of a data content.
- Each block contains both its own and the hash value of the previous block on the blockchain. If an attempt is made to change a hash, in principle the entire chain breaks off – a change of a data record is therefore hardly possible, as it would immediately be publicly visible as subsequent manipulation.
- NFT stored on a blockchain therefore work on the basis of this security: Since they refer to a specific asset, any ownership rights, debt obligations and other important documentation to this asset are also determined and secured.
NFT (Non-Fungible Tokens) are used in these areas
NFT are therefore less suitable for everyday shopping, but are primarily used for assets that require a certificate of authenticity. These include crypto art and digital trading cards, but also animations, videos or tweets. But important personal documents such as a passport or certificates could also be secured using blockchain in the future.
- So far, NFT have been used primarily in the field of crypto art and digital collecting.
- For this purpose, an artist can upload his work on various platforms and independently create an associated NFT. The artwork itself is therefore not stored in the blockchain, but only the unique signature by means of a hash function.
- Exactly one person can have this signature in their wallet. If this person wants to sell or give away his NFT, he sells this digital signature, but not the NFT or even the artwork or the asset itself.
- One platform on which digital NFT can be sold is, for example, “NBA Top Shot”. In principle, digital trading cards from the NBA Players Association are sold here – but these cards consist of short clips that represent a highlight of a player. These clips represent a specific “moment” of the player and are sold in a limited number. For example, about 49 copies of basketball player Lebron James’ dunk were sold for $3800 at a game against the Sacramento Kings.
- This digital art is also actively traded outside the basketball world: Twitter founder Jack Dorsey created an NFT for his first tweet and auctioned it off for the equivalent of over two million dollars.
- In addition, crypto art is now also establishing itself in the traditional art and music market: Especially for artists, NFT can offer a lucrative perspective, as they can offer their works worldwide and directly without having to take the detour via gallery owners. In addition, automatic bonuses can be integrated into NFT: If an NFT is resold, the artist automatically receives a certain percentage of the sales price. The singer Grimes or the band Kings of Leon have already sold their NFTs lucratively.
- More valuable than Picasso and van Gogh: JPEG image to be auctioned for 58 million euros
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Many NFT are sold through Ethereum. You will learn more about this cryptocurrency and how its mining works in the next post.