NFT (non-fungible token) is a unique non-fungible token based on cryptocurrency. The NFT cannot be destroyed or replaced with another such token. It is a kind of certificate of the uniqueness and originality of any digital object. The non-fungible token has no effect on file copying. It only confirms that a particular user has a particular digital object.
With the help of NFT technology, you can sell or buy any digital object - music, image, 3D-model, text, game object, etc. Its essence consists in registering a certain ownership right to a specific virtual object in the blockchain. Owner information cannot be replaced or deleted.
In other words, it is like buying an expensive painting. That is, it belongs to you, but at the same time it can be exhibited in some famous gallery for everyone to see for lovers of fine art. It is also worth noting that anyone can take pictures of this picture or use a copy of it on the Internet, but only one person has ownership. In the case of NFT, this right is stored in the crypto wallet of the sole owner.
The person who purchased a digital object based on NFT received not only the image itself, but also a unique token that contains the digital signature of the artist, the time the artwork was created, records of all previous sales and owners, and other information.
Currently, digital art objects can be sold and bought on such large platforms as OpenSea, Rarible, Mintable, etc. To create an NFT of a virtual object, you need to create an Ethereum wallet and load your lot into it. The token can be created immediately or after the buyer decides to acquire ownership of the digital object.
WHAT IS NFT REALLY
NFT as a term means that every digital token on the network is unique. Each token contains a small amount of data that is unique to a given token. That's all. They are just small containers of data that move around the blockchain between addresses.
Now NFTs on the Ethereum blockchain have a number of features that make them very popular. It is also likely that other networks will implement some or all of these features if they have not already been implemented.
1. The address of the creator of the NFT is stored as part of the NFT. Thus, information about the current owner of the NFT is public.
2. A percentage of the reward can be set in the NFT token. When an NFT is sold between any two ETH addresses, the reward from that “sale” will be redirected to the address of the token creator.
NFTs are very, very small. Storing real data on the blockchain, even as small as a 64x64 jpg, is prohibitively expensive. Most NFTs will only store a few bytes of data. For example, serial number or URL.
In short, an NFT is essentially a unique piece of paper with a serial number, password, or web address.
Technically, NFT is no different from other crypto tokens. It also involves blockchain, smart contracts, coding and addresses. Most often, NFT relies on smart contracts in its work, therefore it mainly works on the Ethereum network and all transactions take place in the ETH currency. If someone claims to own an NFT-based intellectual property, they essentially own the original portion of the hexadecimal values signed by the creator. Others are free to copy the raw data, but cannot claim ownership. Based on this, we can notice that NFT-related actions (buy, sale, trade, auction) should be processed in accordance with a similar basic procedure for processing smart contracts.
The creation of an NFT requires an underlying distributed ledger for records and transactions. The NFT system includes two nodes that act as owner and purchaser. The process of creating an NFT can be described by the following algorithm:
Digitization of data. The owner verifies that the file, title, and description match. Then it brings the raw data into the proper format.
Storage. The owner stores data in an external database outside the blockchain. He also has access to storage in the blockchain, but gas is usually charged for this, so few people use this opportunity.
Data signature. The owner signs the transaction, including the hash. After that, the transaction is sent to the smart contract.
NFT minting and trading. After the smart contract receives the transaction, NFT is minted and traded.
NFT confirmation. Every time an NFT is minted or sold, a new transaction must be sent to invoke the smart contract. Once the NFT transaction is confirmed, the metadata and owner information is added to the new block, thereby ensuring that the NFT history remains unchanged and ownership is retained.
If you try to visualize the entire NFT system, you get a diagram:
During its short history, NFT managed to acquire standards describing the rules for using tokens in decentralized applications. At the moment, there are three such standards: ERC-20, ERC-721, ERC-1155. The standards differ in the distribution schemes of tokens and the level of their interchangeability. ERC - 20 assumes that all tokens are fungible. ERC-721 assumes that all tokens are non-fungible. This is the legacy standard for solidity smart contracts. Its users can create new ERC-721 compliant contracts. ERC - 1155 is semi-fungible and represents a variety of customizable token types. Implementation diagrams of these standards:
Decentralized applications implementing an NFT system must meet the following requirements:
Verifiability. The NFT, with its token metadata and owner, can be verified by anyone from outside.
Transparency. Data on the sale, minting and purchase of NFTs is publicly available.
Availability. The NFT system never fails. Alternatively, all tokens issued by the NFT are always available for sale and purchase.
Security. NFT metadata and their trade records are permanently stored and cannot be changed after the transactions have been deemed confirmed.
Atomicity. An NFT trade can be completed in a single atomic, consistent, isolated and resilient transaction. NFTs can operate in the same general execution state.
In addition to trading in art objects, NFT is beginning to be used in other fields. Since Nike patented the CryptoKiks system designed to verify the authenticity of sneakers, nike sneakers are the most counterfeit in the world. Another example is the Austrian postal service and their Crypto Stamp project. These are postage stamps tied to tokens. They are used to mark real postal items. At the same time, each brand is preserved and can be part of the digital collection.
APPLICATION OF NFT
The most real NFT success story so far is the CryptoKitties, CryptoPunks, TopShot projects, etc. That is, where a website / application can interact with the NFT to show you content as proof of ownership of that content within the site / game. NFTs have great potential for in-game item trading projects as a game development company can release in-game items at a specific rate of reward (e.g. 1%) and always make a profit if the game and trading picks up steam.
NFTs can also serve as souvenirs at events, meaning you can be issued a token for attending a concert as proof that you were there. NFTs are suitable for selling digital tickets. They cannot be directly copied / cloned, and even if they are resold on the secondary market, you will receive a reward (until people start bypassing royalties and just start selling the ETH address where the token is located or accepting cash as payment and then transfer the token for free). When it comes to owning self-contained digital assets or physical objects, there is certainly potential, but right now NFTs are legally useless in this area. Yes, NFTs are also great for money laundering, because if you buy some nonsense, like a collectible photo of a hat on the Internet, it is impossible to say that you overpaid, as the range of prices for NFTs is huge and the prices themselves are arbitrary.
NFT tokens are sold in online marketplaces that work like AliExpress or Wildberries. The creators of non-fungible tokens put them on trading platforms and wait for offers from buyers.
You can even create an NFT token yourself. To do this, you need to take a digital object (picture, music track, photograph, etc.), register in a special marketplace (for example, on the Rarible or OpenSea sites) and upload the object there with a description and price. On many services, you will have to pay a commission for creating a record in the blockchain, that is, a unique token.
HOW TO CREATE AND SELL NFT TOKEN
To work with NFT, you definitely need a MetaMask wallet. It installs as a browser extension and allows you to interact with various platforms within the Ethereum network. You need to send ETH to this wallet, which will be spent to register your account on the OpenSea platform. With the current gas price of 172 gwi, we spent 0.0726 ETH. Gas can rise in price and fall in price at any time, therefore, for successful registration and no problems, we recommend that you immediately put at least 0.1 ETH on your wallet. Please note that these funds will be enough to sell any number of items on the platform. The commission is debited from the account only when the very first object is placed.
Go to the OpenSea platform and click the Create -> My Collections button. Next, select Create New Collection.
Specify the name and description of the token, then select Create. That's all - our collection has been created.
Select Add Items to add items to our collection. Click Edit and edit the collection details. If necessary, you can select the pencil icon at the top and change the background image for our collection.
We select the size of the commission that will be due to you for each further resale of the picture. You can leave it at zero. Below we indicate the address of the wallet where the commission will come.
This address may be different from the Metamask wallet address that was used to create the collection. Thus, it will turn out to send a commission, for example, to your cold storage, which ensures greater security of funds.
Now that the collection is ready, it's time to add the first item. Click Add New Item.
Add our element - it can be almost any media file up to 100 megabytes in size. We write a description, you can also add a link to the page that describes your work.
If you wish, you can add the so-called Unlockable Content: this is additional information that will be available to the buyer. Please note that this is only textual information, however, of course, you can link to any file, article, and so on. Click Create.
Add all the other elements. From time to time, when adding or editing elements on the right, Metamask can “crawl out” and ask to agree to the actions, that is, “sign”. Feel free to sign - no money is withdrawn at this stage.
Our collection is ready. To evaluate our efforts and purchase unique images, follow the link.
Now is the time to put our work on sale. Click on the picture and click Sell in the upper right corner. There are three selling options:
Fixed price or Dutch auction, that is, with a decrease in price.
Up-price auction.
Selling several objects together, only selling through an auction with an increase in price works for them.
You can choose the currency - ETH / DAI / USDC are initially available. Please note that there is a so-called Reserve Price in the settings, which cannot be set less than 1 ETH, and this option cannot be disabled.
This means that if 1 ETH or more was not offered for your work, then the auction will end without the sale of the object. This is done so that the platform does not lose money on gas needed to sell the object and does not remain in the red. Click Post Your Listing.
For the first placement, the platform asks to interact with a smart contract, which requires 395 317 GAS. Even though you are not transferring ETH itself, you are spending your funds to execute this smart contract. Depending on the current congestion of the network, this can cost you a pretty penny. The current gas price can be viewed, as always, on EthGasStation.
In this video, we will walk together through the process of creating and listing our non-fungible digital token (NFT) for sale on one of the largest trading platforms - OpenSea.
Like cryptocurrency, NFT is created on the blockchain, which acts as a database for recording all transactions. The blockchain guarantees the authenticity of non-fungible tokens. Thanks to this system, any user can check the original and history of a specific NFT through the blockchain.