NFT Explained: How NFT Works?
NFT simply stands for Non-Fungible Token. Here, Non-fungible implies that it’s can’t be replaced with something else. Basically, it’s unique. NFTs can be any digital assets that are backed by blockchain, a storage technology dedicated to the transmission of information in a transparent, secure, and decentralized way.
An NFT can be anything that can be converted into a digital format. It can be paintings, sketches, music, any art, tweet or even which is something real like a concert seat. In simple terms, owning an NFT asset is like owning a unique work of art or collectibles.
There is a difference between owning an NFT and having a digital copy of the same art. There is only one owner of the famous ‘Monalisa painting’ but there are millions of copies out there in the market.
The NFT Hype
NFT’s went completely ballistic in Q1 2021. It saw a 26 times volume increase YOY as against Q1 2020, for $1.5B in sales. Basically, it’s all started when influential personalities collectively started promoting NFTs either by buying or selling. Jack Dorsey, founder of Twitter, sold his first tweet as NFT for $2.9M. NFT technology is revolutionizing digital ownership rights for a lot of things today and it actually has a lot of practical implementations. Alone in the first half of 2021, NFT sales already hit $2.5B. The phrase NFT has been made word of the year by Collins Dictionary given the abbreviation usage rose 11000% in 2021.
Understanding Blockchain Before NFT
In simple words, Blockchain is basically a digital ledger to store data and information in a decentralized manner. It means, there will not be any central authority to control these data sets. In the blockchain, the data is structured in block forms and each block is made up of three elements i.e. Data, Hash (unique identity of the block similar to fingerprint in humans) and Hash of the previous block. Simply put, a block contains data, its own identity and the identity of its previous block. When we link these blocks all together it forms a blockchain.
How NFT Works?
As we explained above, NFTs use the same blockchain technology that powers cryptocurrencies. Now, when a user buys an NFT from any marketplace, the information of ownership of a particular token is registered in the blockchain. This ownership right can be verified and people can make out who is the actual owner of the particular NFT.
Currently, most NFTs are part of the Ethereum blockchain. However, different blockchains can implement their own versions of NFTs too. For instance, in India, the WazirX NFT marketplace is powered by Binance Smart Chain.
Can NFT/Blockchain Be Hacked?
If someone tries to tamper with the data in any block, then the hash or unique identity of the block will change. And if this happens entire blockchain will be failed. For this reason, it is almost impossible to tamper with data in a blockchain. If someone wants to hack the blockchain, then it will require access to 51 per cent of the systems connected to the blockchain. It is very difficult for anyone to gain access to millions of systems located in a different part of the globe.
NFTs And Carbon Emissions
Everything comes with its own pros and cons, NFT is no different. According to website cryptoart.wtf, Space Cat’s (a popular NFT) carbon footprint is equivalent to an EU resident’s electricity usage for two months.
However, companies are working towards making it more eco-friendly. Ethereum is bringing the ‘Etherium 2.0’ which is claimed to reduce electricity consumption drastically.
