What are non-fungible tokens? | Pen today

For the uninitiated, what are NFTs?

NFTs are units of data stored on a blockchain. NFTs can be associated with digital files, such as images, videos and audio. Because each non-fungible token is uniquely identifiable, NFTs differ from cryptocurrencies, which are fungible. Common use cases for NFTs are art, music, games and film.

Once an NFT is minted or created, each sale of the NFT is recorded on a blockchain. This creates a ledger with information about ownership and price history. This record is known as provenance. Provenance is a core concept also known as custody history within archival science.

Provenance can be used to authenticate items. It provides contextual and circumstantial evidence of the manufacture or history of an item. It also makes it easier to own and sell digital content. In some ways, ancestry is akin to the legal concept of chain of custody.

In the world of art, antiques and antiques, provenance is very important. It establishes the subject of the artwork, the artist and the time period. Provenance can therefore establish that a work of art is not a forgery, reproduction or stolen. This can make a huge difference in the value of an asset.

What are the steps to create an NFT?

The creation of an NFT is referred to as “minting”, and it involves turning a digital file into a digital resource on the blockchain. The most common way to create an NFT is on an NFT marketplace. There are many marketplaces where an NFT can be minted, verified, exchanged or burned (destroyed). One of the most common platforms is OpenSea, but there are many others as well.

One thing to note, to make NFTs, you need a wallet. Wallets are the applications used to store cryptocurrencies and NFTs. Your wallet must be compatible with the blockchain on which your NFT is minted. MetaMask and Coinbase are two popular wallets, but there are others as well.

The creator uploads a file to the marketplace, assigns a title and subtitle, adds a description, sets up royalties (paid to the creator) and lists the NFT for sale. Once the NFT is minted, the token is transferred to the wallet. The process has now turned the digital file into a crypto-asset that can be traded on a digital marketplace.

How to create an NFT for free?

There are transaction fees associated with NFTs. When users create an NFT, they pay minting fees, called “gas fees”, which refer to the cost of the computational effort to create the NFT on the blockchain network. On some platforms, users only pay coining fees or gas fees once, at the time they create the NFTs. Buyers then offset the gas charges.

What is the best platform for NFT?

There are many factors that go into choosing an NFT platform. From the creators’ point of view, there are “open theme” platforms where anyone can register as a creator, such as OpenSea and Rarible. There are also “exclusive open theme” platforms that require application and approval to become a creator, such as Nifty Gateway and Foundation. Finally, there are “exclusive theme-specific platforms”, where creators are integrated with platform owners and only pre-approved collections can be exchanged. Examples here include Dapper Labs (for NBA Top Shot) and Larva Labs (for Crypto Punks).

From the consumer’s point of view, other considerations may include the ability to pay with fiat currency and the overall user experience.

Anything to add?

More importantly, not all data is stored on the blockchain because storing data is labor intensive and expensive. Therefore, a typical NFT is divided into two separate entities, the “smart contract” stored on the blockchain, and the digital artwork itself. The smart contract only references the artwork with a URL pointing to it. The Inter Planetary Filing System hosts every URL on other computers connected to the global network.

Technically, any digital file can be used to create an NFT on a marketplace. However, if you use an NFT marketplace, you are limited to the file formats supported by that marketplace, such as JPEG. Another option if you are very technical is to write your own smart contract and deploy it to a blockchain, then create your own tokens. Of course, this option is for very technical creators.

It is also important to know that NFTs do not convey intellectual property rights or copyright to the digital files. NFT is proof of ownership that is separate from copyright. But a license can potentially be conveyed with NFT. In addition, the smart contract associated with the NFT can be written to include royalties. Royalties are set at the time the NFT is minted and entitle the creator to a percentage of subsequent sales.