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Nazar Maksymchuk
Nazar Maksymchuk

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The Gist: Non-Fungible Tokens

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It took me a few articles to find out what NFTs are. I wrote this to make it easier for you to learn what NFTs(Non-Fungible Tokens) are.

NFTs are consist of two components: smart contracts and blockchain. The idea behind NFTs is a certificate of authenticity, proof of ownership, etc. Sure you can right-click and download the JPEG but that doesn't mean you own the rights to it. With a NFT, anyone who understands how to look up the owners of a particular digital file—audio, images, etc—can find the owner of the JPEG, media file, etc. A contract, in the traditional sense, is just an agreement between two parties—people, companies, organizations, etc. Smart contracts are contracts except that they are automated. They can automatically expire, digitally be transferred, etc. without any intermediary—well the blockchain network acts like one. A blockchain is just a spreadsheet/database. It contains purchases made by addresses—like house addresses but in the computers way of storing addresses.

A blockchain network also implies a system exists around the network. A network is a collection of blockchains. Think of BTC, Etheremeum, etc. miners as networks or hosts for the databases because they can't exist without a host. It's open to the public—anyone who understands how to find it and navigate it. The tools can be definitely improved for the masses to understand. It's built on the concept of P2P(Peer To Peer) networks, you know torrents and the whole pirating scandal in the early 2000s.

NFTs such as the images we see on the open sea have some use however, 99% of it is just hype and a bubble. A more realistic example is media licensing, ownership, etc. of digital assets. Let's say I want to buy complete rights from a video posted online. Once it's listed and I make the transaction it happens on the network and the blockchain network verifies it through cryptography and once there is a network consensus that I have indeed bought it—usually happens instantly—the ownership on the blockchain transfers to me.

The blockchain network has some interesting properties. Because it's decentralized its redundant and participants in the network get rewarded with the currency the blockchain is powered by, etc.

Blockchains build on the interesting paradigm of P2P. Although in the early 2000s P2P has gained a notorious negative reputation due to piracy, the reward model in Blockchain—mining—incentivizes people to host data.

What's so revolutionary about Cryptos and Blockchains? There are a few elements to it, one is lack of government control—absolute anarchy/freedom. A second reason is the automation element of the transaction process. The mining network verifies transactions instead of having a network of humans verify the transactions.

Let me know down in the comments on whether my analogy of comparing smart contracts and blockchain as the next iteration of torrents. It's because blockchains can be reverified and built into the system where as torrents need to be hashed and that hash has to be shared somewhere to be compared and md5 has a duplicate probability issue.

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