Understanding the technical side of NFT and Blockchain

Olivier BUREAU — Exclusible.com — Source : LinkedIn

The technology of NFT is backed by the same marvel behind cryptocurrency, which is blockchain technology. Blockchain technology operates as a public ledger that is accessible by every operating node on the network for validation. Every change in the blocks that makes up the blockchain is traceable via the ledger history.

The technical feature of blockchain

The key features of blockchain technology are what make it appealing and valuable to users, and they are reasons why the adoption rate keeps growing. These features are:

Cybersecurity: in the face of increasing cyber threats, the cryptographic validation that blockchain implements brings relief. The use of cryptography ensures that the identities of users are protected and transactions secured using hash functions and asymmetric-key algorithms. Therefore, ensuring data stored on the blockchain is secure and valid.

Zero-trust: the concept of zero-trust means every transaction or change to the block is checked and verified as nobody in the network is trusted.

Decentralization: through decentralization, blockchain ensures storage and processing of data is not centralized in one entity. Instead, it is distributed over various nodes in the blockchain network.

The latest offshoot of blockchain technology is what we call NFTs (Non-Fungible Tokens) and it has projected blockchain further into mainstream consciousness.

What are NFTs?

An NFT is a digital asset that uses the same blockchain technology as cryptocurrencies like Bitcoin and Ethereum. NFTs can be used to represent almost anything from digital collectibles, artworks, songs, images, videos to in-game items. They are also traded and mostly bought and sold using cryptocurrencies. Even though NFTs have been around for a while, they became mainstream recently as a means of selling digital arts. A famous example is Beeple selling his artwork as an NFT for a whopping $69.3M. NFT has a unique underlying code, which creates digital scarcity.

Most of the issued NFTs in the market are based on the Ethereum blockchain using the ERC-721 standard.

The technical difference between NFTs and Cryptos

Apart from the fact that both NFTs and cryptos are created using blockchain technology, there are no other similarities between the two types of tokens.

We do have technical differences between them. Cryptos on one hand are the fungible type of token, which is tradable for each other since they are equal in value. That means you can exchange one Ethereum for another Ethereum, which is why it is relied on as a reliable means of carrying out blockchain transactions.

On the other hand, NFT is different as each has a unique digital signature. This means one NFT is not equal to another NFT and it is impossible to exchange them. Hence, the reason NFTs are non-fungible. For example, one NFT art is not equal in value to another NFT art even though they are both NFT artworks.

On the Ethereum blockchain, the common token standard for fungible tokens (cryptocurrencies) is the ERC-20. For NFTs, the standards are different and that includes the ERC-721 and ERC-1155, which is the latest token standard upgrade being used. There are also other different standards based on other blockchains besides Ethereum.

As NFTs continue to evolve, we will get to see more use cases for the phenomenon. The potential it has to offer could well see the adoption rate continue to grow.