Cryptocurrency

What exactly is an NFT and how does it work?

What exactly is an NFT and how does it work?

Yes, what in the world is a so-called NFT (Non-Fungible Token) and why do people pay millions of kronor for them? Here we sort out the details.

If you visited any part of Internet In recent months, you have probably come across the term NFT. The letters in the acronym NFT stands for as said Non Fungible Token. Something that does not directly make it clearer what it is really about. And how can one tweet, a small drawing or a song all of a sudden become one NFT and why are horrible sums paid for some of them?

A digital proof that something is unique

Let’s start by looking at the expression itself NFT is translated ”Non” directly to “Non”. Fungible is translated (unfortunately) not to “spongy”, but is actually Swedishized as the word fungibel. The word itself roughly means “things that are so similar to each other that they are directly interchangeable”. For example, two identical pencils. If we exchange pens with each other, we still each have a pen. The nearest correct translation for “Token“Is”token“Or possibly”evidence”.

So one NFT is thus a “Not fungible token“Or a”non-exchangeable proof”. In short, something that is unique and cannot be copied.

But a tweet or lyrics can’t be unique, can it?

Yes, in fact. At least nowadays and if the creator himself wants it. Let’s say I would like to create one NFT of this article. So a data file (which technically is exactly what one NTF is) which apart from the text and images also contains information that this is the only original copy of this particular text. An original copy that is also created and signed by the person who owns the text (in this case me). How do I proceed then?

Well, putting text and image in a file and saving on my computer is not very difficult. But for the specific file to be impossible to both copy and change, it needs to be stored in a way that enables just that. And it’s here NFTthe concept comes in.

The text and images in the article I want to make into one NFT will of course be able to be copied and distributed just any way. However, none of those who make copies of the article will actually be able to prove that they also own the copy I (the creator) has chosen to call the original of it.

An NFT is saved in a blockchain

And here it’s starting to get tricky. To be able to make my article one NFT as I said, it needs to be saved in a way that makes it impossible to copy and change. It also needs to be possible to verify that it is the original and that it is I who approved that it should also be the original.

Smooth enough, this function is found naturally in the (somewhat messy) world of cryptocurrencies, e.g. Bitcoin. Or more precisely, the function is in that technology Bitcoin and other cryptocurrencies are based on. So-called blockchains.

Block Chain - Block Chain - Worldwide
Cryptocurrencies exist in various so-called blockchains. Which is basically large self-controlling, databases where all parts of the information are spread over lots of computers and servers.

To go through exactly how blockchains and cryptocurrencies work, I leave in a future article. But in short, it works so that my data file (containing this article) is placed in a so-called blockchain where it is encrypted, divided and spread over computers and data centers around the world. The blockchain then keeps track of the file never changing in an unauthorized way.

In this way, the file becomes virtually impossible to copy and modify. The only way to access it is to have access to the correct login information. Something that makes it unique. One NFT simply.

But this does not sound safe or serious, does it?

Technically, the security is the same as for cryptocurrencies. Which is basically extremely safe if you look at the system itself as it is built. If I choose to save, for example, a text in a blockchain compared to placing it in a cash vault, there is always the possibility that someone bursts into the cash vault and steals the text. Likewise, the cash vault can be exposed to other stresses that cause the text to be destroyed. If I instead place the text in a blockchain, there is, without the correct login information, no possibility to access or delete it (something which, however, can be problematic in itself).

In order for a blockchain to stop working, it is required in principle that all computers and servers connected to it are destroyed. Something that in the case of the larger blockchains is extremely unlikely. On the other hand, it is of course important to be terribly careful with just passwords and other login information to the accounts that are used to handle the NFTyou actually own.

Why should you own an NFT if the content itself can be copied anyway?

For the same reason it would be fun to have Mona Lisa or Scream at home on the wall and not just copies of them. The copies may look, feel and be otherwise exactly like the originals. But it’s not the originals. The same goes for stamps, Pokémoncard or whatever. The object does not have to have a value in itself either, but is instead assigned one when someone actually wants to own the original.

The same is true for NFT: er. A digital image has no value in itself. If, on the other hand, there is sufficient interest in owning something the creator has designated for the original, the image will have a value. The more people who want to own the image, the higher the value.

Buy - Sell - Create - NFT - OpenSea
There are a number of sites that allow one to create, buy and sell NFTs. OpenSea is one of the more well known.

Can you do what you want with an NFT you bought?

No. All conditions for exactly what applies to which NFT listed on the sale of it. As a rule, you get neither ownership nor control over copyright for NFT: n to buy. You are also rarely allowed to make new copies of or sell the actual work, the actual tweet, song or whatever NFT: n now refers to. The only thing you really own is the creator of the actual work behind it NFT: n in question chosen to include in just that NFT to buy.

Are there any risks with NFT?

As with all other art and similar works, there are always risks. Not so much technically. As long as you are careful with your passwords and logins. However, there are some concerns when it comes to how others treat the opportunities to create NFT: er. For example, there is nothing to stop me from taking the first best picture Internet, create an NFT and try to sell it as an original.

However, this is a problem even in the real world where pirated copies of everything possible circulate well. As with everything else, it is important to be source-critical and vigilant about what you buy and by whom.

Another risk with NFT: er is that they can contain just about any digital material. Due to the extremely unforgivable security of the blockchain system, this means that one is charged NFT, without the correct login details, can in principle never be deleted. Neither by the police, government nor private individuals. Something that could potentially give rise to images, movies and other things that should not be on Internet recharged and in the worst case can never be removed.

Why did NFTs become so popular all of a sudden?

NFT is actually not a new phenomenon. Already in 2012, something called was created Colored Coins in Bitcoinblockchain. These were a type of Bitcoins which could also be associated with values ​​other than pure currencies. The very idea behind the concept NFT was minted, however as early as 1991, but then for the purpose of time-stamping digital documents in such a way that they could not be forged.

In 2017 was launched Cryptokitties. Which is just as sweet as it sounds. Digital cats that can be bought and sold. Each cat is unique and the right of ownership is stored in one NFT. The project started as an experiment to investigate the possibilities NFT and “smart contracts”.

Cryptokitties - Take care of NFT cats
Can it be cuter than digital cats that cannot be destroyed? Image from cryptokitties.co

However, it was not until this year (2021) that the phenomenon completely exploded when a number of famous people began to create and, above all, sell NFT: er. This is where it mainly stands out Mike Winkelmann (more known as Beeple) ut. He is a digital artist who in March managed to sell one NFT via the auction house Christie´s for a staggering $ 69 million.

The artist Claire Boucher (Elon Musks partner, better known as Grimes) sold digital art for $ 6 million at the beginning of the year. While Twitters founder, Jack Dorsey, sold one NFT of his first tweet for $ 2.9 million.

Many musicians have also just seen NFT: er as an alternative income when the concert scene in principle completely died out during the pandemic. The band Kings of Leon was, for example, the first to launch NFTs related to an album. A feat that has so far raised nearly $ 2 million, of which $ 500,000 has been donated Live Nations fund to support stage workers during the pandemic (fine).

Other companies and agencies have also started to jump on NFTtrend. For example. has got the classic photo frame an upswing where new variants specifically designed to display art from NFT: er started to see the light of day.

So are NFTs here to stay? Personally, I absolutely believe so. And if I have millions of kronor and nothing to spend on a beautiful day, it would be fun to own the original of the source code for the first Zelda game. If Nintendo were to enter the NFT scene. Fingers crossed.

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