What is NFT? What are non-fungible tokens?

What is NFT?

NFT is the first letters of three English words, Non, Fungible, and Token (Non-Fungible Token), which is translated into Chinese as "Non-Fungible Token". So what are non-fungible tokens?

A simple example: today my colleague and I both have a 100-NT dollar bill, and the value of the bill is the same if we exchange it with each other. But if my colleague's 100-NT dollar bill has Teresa Teng's personal signature, and he thinks that the 100-NT dollar bill with Teresa Teng's signature is unique, then this 100-NT dollar bill may be worth 1 million, and he is unwilling to exchange it with me!

They look like the same thing, but their value is different, which is what non-fungible tokens mean.

Why is NFT beginning to gain attention from the startup and technology circles?

On March 11, 2021, Christie’s held an unprecedented digital art auction. The work was from an American artist Beeple (Mike Winkelmann), who spent 14 years uploading a digital art creation on his social networking site every day, and finally combined these works into a digital art called 5000 Days. The final auction closing price was US$69 million.

In the past, digital art could not enter physical auction houses because digital files can be easily copied and there is no way to verify its origin and authenticity. For example, if you save this picture today, even if you have this file on your mobile phone, it looks exactly the same as the 5000 Days worth 69 million US dollars, but no one will be willing to spend money to buy it because the value is different. Randomly reproduced pictures are not authenticated.

This is why digital art, with the help of NFT technology, can enter the auction house, because we can know the provenance and can regard it as a unique creation.

The core technology behind NFT

1. Issuer cooperates with the platform on the blockchain

NFT issuers must use the blockchain platform to mint products and issue smart contracts. For example, for the 5,000 days of art creation just mentioned, Christie's must complete the casting process of a product through the blockchain, and also issue a smart contract through the platform. This smart contract will record this digital artwork as a unique creation on the entire blockchain.

2. Use blockchain’s classified ledger to verify uniqueness

The blockchain has a feature called a classified ledger. Unlike traditional works or computers, which are not recorded in a centralized host, it is recorded by millions of computers on the entire blockchain. Each record on a different computer is called a node.

In each node, a record of each step will be written down, such as "there is a creation today", "a contract generated through a certain platform", "a block left inside". These blocks will be connected in series with the blocks of each subsequent transaction. When they are connected, it is called Blockchain, which is the origin of blockchain.

It is conceivable that if someone wants to tamper with or steal an NFT on the blockchain, it is impossible unless the node records on millions of different computers around the world can be modified at the same time.

3. Smart contracts enable NFT to automate execution

With the activation of smart contracts, the value and profit distribution of platforms, issuers, and sellers can be continuously created. For example, buyer A wants to buy an NFT for 1 million. In each transaction, he pays a 2.5% handling fee to the platform and a 10% royalty to the issuer. The remaining 875,000 will be the cost of purchasing the work. These three amounts constitute the total transaction amount of 1 million.

Traditional art paintings do not generate any income after the second-hand transaction, but smart contracts can allow issuers to obtain continuous royalty income while bringing a new value to all creators and artists. At the same time, the application of smart contracts is not only in artistic creation, but can also continue in different areas of our lives. It changes the form of the entire transaction value chain.

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