Everything you need to know about NFTs. NFTs are a new type of file, whose encryption makes it possible to recognize the original version from the numerous copies that can be found on the Internet. It is thus possible, thanks to NFTs, to sell many digital works, from a simple tweet to very elaborate works of digital painting. However, NFTs are still not well understood, and it is necessary to be aware of how they work, by taking an interest in blockchain and cryptocurrencies.
What is an NFT?
A short lexical definition
Behind the acronym "NFT" is the term "Non fungible token". The concept of fungibility is not well known, however, and must be understood in order to understand how NFTs work. When we talk about non-fungible elements, we are describing elements, here presented in the form of digital tokens, which cannot be replaced by something else. We often talk about NFTs with works of art, although this can describe any type of digital file. Simply put, owning an NFT is like owning an original by Leonardo da Vinci or Picasso, for example. You can draw a digital sketch, or take a photo that will become a famous meme, but once these files are put on the Internet, anyone can save a copy, just as one could reproduce a Picasso painting to perfection. By protecting your file, by having it authenticated as an NFT, only one person will be able to hold the original, which will be recognizable thanks to an encryption generated by the blockchain. The holder of the NFT can then prove the authenticity of the work and give it a market value, as one would with a traditional painting.
A history of blockchain
Blockchain is a technology that allows the storage and transfer of data in a decentralized network. It allows to keep in memory, in blocks, all the details of the transactions carried out, without possibility of modifying the preceding block, and this, on several networks at the same time. To understand the decentralized functioning of the blockchain, one must imagine that the data of the blockchain are registered in an identical way in a large number of servers. Each action carried out by a user is added to the chain of information, and, the modification of a piece of information already present in the chain becomes impossible without an immense computing power, and thus an immense energy, this one having to be modified in an identical way on all the servers at the same time not to be located. Thus, a large number of transactions are recorded and secured, as decentralization does not allow hackers to make changes on all servers at the same time. This has several advantages. The traceability of the information is much more efficient, because it cannot be modified, the validation of the transactions does not need to go through intermediaries in order for them to be secure, as in traditional financial institutions, and in fact, the absence of this intermediary allows for the anonymity of the transactions, as the identity no longer needs to be stated in order to perform them. To date, this system is one of the most reliable, as no one has the electrical resources and computing power to break the blockchain. For this reason, many digital assets, such as NFTs, or virtual currency, use it to perform thousands of transactions in a secure way. Bitcoin, which uses the financial technology of the blockchain, has been a precursor in the virtual economy, and today represents one of the most developed chains, if not the chain, in terms of total number of transactions made in a decentralized way. We find a massive adoption of this process as a means of payment in art, but also in daily transactions, in e-commerce, stock market speculation, and more and more in all kinds of applications, from the transport of goods for a better management of the traceability of products, to the transport of individuals for a better flow of information in several places thanks to the speed of transactions and information, or in the public service or insurance for a secure management of databases for example.
NFTs and cryptocurrencies, what's the difference?
First of all, NFTs and crypto-currencies have some things in common. These types of assets are easy to buy, and the way the data is backed up works in a similar way. For both, the technique behind them is the blockchain system, so whether it's a virtual currency or an NFT, the decentralized nature of the system allows for fast and secure transactions without going through an intermediary. But the similarities end here. The big difference is whether or not these products are fungible. Electronic money is not unique, and if we take the example of bitcoin, one unit can be replaced by another, just as one dollar could be replaced by another dollar. Moreover, since virtual money is fungible, the price of bitcoin, for example, is subject to currency volatility. Buying Bitcoins, selling them for standard currencies, or mining them by helping to create a computing power via specific software (thanks to the proof-of-work system), results in the value of Bitcoin varying by as much as double in just a few days. This can be seen regularly with the steady rise in the price of Bitcoin, which is not subject to any central bank or other institution, unlike traditional currencies. The transactions involving all the virtual currencies currently on the market have the effect of greatly destabilizing them, with no regulation possible.
For NFTs, it is quite different. They are by definition non-fungible. Each unit is unique, and its value depends on the value given to it by the art market for example, as well as the fame of the work and the artist, and not on the economic fluctuations that crypto-currencies can suffer. Validated transactions are secured by a cryptographic code, derived from the blockchain, which proves the authenticity of the work, and which confirms the traceability of the exchanges for those who make transactions. One could compare NFTs to classic art, as copies have no impact on the value of the original. One can buy NFT with one of his virtual wallets composed of a crypto-currency, but also in dollars, the non-fungibility of the NFT giving it a value that is modelled on the real one.
How do NFTs work and how do you acquire them?
As we have seen, NFTs make it possible to make a digital object non-fungible by attaching a proof of authenticity based on blockchain technology. An investor who wants to buy an NFT, will most of the time have to go through a reseller, like any other object, via specialized buying websites. These Internet platforms allow private transactions to be carried out, by linking the seller and the buyer. These financial transactions are thus made in a decentralized way, and both parties will have to use digital means of payment, via a virtual wallet, quite often supplied with crypto-currencies, in order to be able to make their purchases. But increasingly, the means used to purchase a digital asset such as an NFT is through traditional currency, with these regularly appearing in auction houses, and on more conventional sites. In any case, whether it is via a digital wallet with digital currencies, such as bitcoin or ether, among others, or via standard currencies, such as the euro or the US dollar, the validation of the transaction of an NFT requires transaction fees due to the involvement of the blockchain in it.
NFTs in art
The NFT, a new way to consume art
For a long time, the sale of art, especially for original works in a single copy, was excluded from the predictions of experts in the development of digital. The way to buy art was governed by the uniqueness of the production, and getting one had to necessarily go through an auction house or traditional gallery sale. With the advent of blockchain technology, the way art is consumed has been able to change dramatically, as digital works can be recognized through near-invincible encryption, and sales history being embedded in it. Numerous NFT exchange platforms, allowing faster transactions, directly between the buyer and the seller thanks to crypto-currencies, have been created, and prestigious auction houses have also jumped into the breach by offering buyers to acquire a digital painting, a digital photo, a meme, a tweet, or other computer elements that can be considered as works of art in their own right, thanks to their fame on the Internet. Whether it is via digital interfaces with crypto currencies, or by a more classic infrastructure with cash, these types of transactions are growing, and all artists are getting involved, from the most famous like Banksy to the newcomers, like Beeple, whose fame has soared with NFTs. In any case, NFTs represent today a third of the online art sales, that is to say 2% of the global art market, and this only needs to increase, this technology boosting the art world thanks to the multiplicity of the works offered.
Protect and link your works with NFT
There are several platforms allowing the creation and the provision of NFT to buyers. The best known are SuperRare and Nifty Gateway for art, or Open Sea and Rarible for any type of NFT. The first thing to do will be to create a portfolio linked to a blockchain. You will have to choose your blockchain, the most present one for NFT being Ethereum, and once your digital wallet is created, add money to it in the form of cryptocurrency (here ether for the ethereum blockchain). Once done, you can then move on to the fun part, creating your artwork. In the context of digital painting, it is possible, like Banksy who sold a copy of one of his physical works in NFT format, to draw via a graphics tablet your drawing, but keep a physical copy of it. A drawing tablet like the ISKN Repaper, which allows you to draw on paper, with a live digital transcription, is ideal for those who want to have both formats, to sell them separately, or to keep a physical record of their digital drawing. Once your work is saved on your computer, all you have to do is transform it into NFT via the dedicated platform. If the platform does not always take a commission to perform this action, beware however, the transformation of your work into NFT on the blockchain will require transaction fees more or less important depending on the price of the crypto currency used. Moreover, if most NFT platforms are based on the Ethereum blockchain, others prefer to turn to other blockchains, such as Tezos, whose related cryptocurrency offers less expensive transaction fees, and whose ecological footprint is less important. It's up to you whether you want to see your work shared in the larger platforms using the Ethereum blockchain or in others that are less expensive but have less visibility. In any case, when your file is transformed into an NFT, it is automatically protected by the blockchain technology, and is recognizable among all possible copies of it. All you have to do is sell it to the highest bidder on the same platforms dedicated to NFT.
NFTs evolve in a complex world based on blockchain, cryptocurrencies, and dedicated platforms. However, as we have seen, creating an NFT is quite simple, and anyone can step into this market. Armed with a simple drawing tablet, it is possible to draw a digital work of art, and to put it on the market in a few clicks. The art world has not been mistaken, and NFTs are even entering traditional auction rooms, allowing anyone to buy these digital works and invest in the art world.
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