NFTs Explained
Move beyond the hype of digital art. Technologically, an NFT is a unique digital identifier that cannot be copied, substituted, or subdivided.
Fungible vs. Non-Fungible
Fungible Assets
Interchangeable
- One $10 bill is exactly the same as another $10 bill.
- 1 BTC = 1 BTC.
- Value is defined by quantity, not uniqueness.
Non-Fungible Tokens
Unique
- Like a house deed or a specific trading card.
- Token ID #1 is NOT the same as Token ID #2.
- Value is subjective and based on specific traits.
Technical Standards
ERC-721
The Gold StandardThe original NFT standard. It defines a system where each token is distinct. Perfect for 1/1 art, profile pictures, and real estate deeds.
ERC-1155
The Multi-Token StandardDesigned for efficiency (especially gaming). A single contract can manage mixed types (both fungible gold coins and non-fungible swords). Allows batch transfers to save gas.
The Lifecycle
1. Minting
The creation process. A file (image/metadata) is uploaded to decentralized storage (IPFS), and a new record is written to the blockchain linking that data to a Token ID.
2. The Wallet (Custody)
The NFT lives in your wallet address. You don't 'download' it; your wallet simply holds the private key that proves you own the slot on the blockchain ledger.
3. Marketplaces
Platforms like OpenSea or Blur act as front-ends. They read the blockchain data to display your items. 'Open' marketplaces allow anyone to list; 'Curated' ones gatekeep creators.
Beyond Digital Art
Critical Risks
Storage Risk
Where does the image live? If it's on a centralized server (AWS) and the company goes bankrupt, your NFT might point to a "404 Not Found" error.
Scams & Phishing
"Fake Mints" and phishing links are rampant. Malicious contracts can drain your wallet the moment you approve a transaction.
Common Questions
Can I just copy-paste the image?
Yes, you can copy the file. But you cannot copy the ownership record on the blockchain. It's the difference between taking a photo of the Mona Lisa and actually owning it.
What are 'Gas Fees'?
Minting or transferring an NFT requires computation on the network. You must pay a fee (in ETH) to the validators to process this transaction.
Are NFTs bad for the environment?
Historically, Proof-of-Work chains consumed immense energy. However, Ethereum's switch to Proof-of-Stake reduced its energy consumption by ~99.95%, making NFTs on Ethereum environmentally negligible.