HI GIORGI, THANK YOU FOR TAKING THE TIME TO SHARE YOUR KNOWLEDGE WITH US. FIRST OF ALL, WHAT EXACTLY ARE NFTS?
To understand NFTs, one should first understand the blockchain and how it works, because NFTs are based on the blockchain.
In very simple terms, think of the blockchain as a database that stores data in blocks. This database is public and decentralized. What does that mean? Anyone can view and read the data because it is publicly available. Banks, for example, are centralized and you cannot easily check the databases.
On the blockchain, you can view wallets, the number of coins they contain, and transaction history. Instead of first and last names, each wallet has a unique access key, similar to an IBAN that we use with our bank accounts. All of this information is spread across the world and stored on different computers, also known as nodes, so there is no central authority to act as a gatekeeper.
This is important for transparency and security reasons. Imagine I made a transaction. Thanks to the nodes, the system can double-check and compare the data and then either validate or reject it. Breaking through a blockchain and manipulating data requires gaining control over the majority of nodes, making manipulation almost impossible. When I make a transaction, the system asks the nodes to validate the transaction. The nodes involved in this process are called miners, and they have to solve complex mathematical problems. This takes time and a lot of computing power. In return for this work, they are rewarded with a cryptocurrency. For example, with the Bitcoin blockchain, the miners receive Bitcoins.
For this reason, a blockchain is public, decentralized and the miners validate the transactions. But why is it called blockchain?
Each time a transaction is validated, the data is stored in chunks, one chunk at a time. This creates a chain, as each transaction is linked to the previous one and can therefore be traced back. This makes it even more difficult to change the data of past transactions.
WHAT ARE NFTS AND HOW DO THEY WORK?
NFT stands for Non-Fungible Tokens stored on the blockchain. First of all, what is “fungible”?
Money is interchangeable. I can exchange a 5 euro note for five 1 euro coins. A painting, on the other hand, cannot be split into pieces of exactly the same value, so it is not fungible. The second part is the “token”. Tokens are present everywhere. For example, a gym ticket or a concert ticket are also tokens in the real world. One owns something associated with a product or service. When the tokens are stored on the blockchain, they represent something that is either digital or physical. Before the advent of NFTs, it wasn’t possible to own anything on the internet. For example, we know the Mona Lisa and the location of the original. On the Internet, however, it is difficult to determine the authenticity of an item. Voices are raised about a possible solution saying: “Blockchains cannot be changed, so these things should be stored in the blockchain as tokens”. NFT is part of a code/token that simply says a person owns it. It can link to an image, a video, or anything else, and anyone can see that information saying, “This asset belongs to this wallet.” With NFTs it is obvious that I am the owner and bought this. One can download it, but it will not be of equal value. It’s akin to downloading a picture of the Mona Lisa from the internet or wearing fake Gucci shoes. The original asset has a different value.
HOW ARE NFTS DIFFERENT FROM OTHER CRYPTOCURRENCIES?
Giorgi: The transferability. Cryptocurrencies are substitutable, while each NFT is unique in its own way.