How do NFTs work?
NFTs are different from ERC-20 tokens, such as DAI or LINK, in that each token is unique and is not divisible. NFTs gives the ability to assign or claim ownership of any unique piece of digital data, trackable by using Ethereum's blockchain as a public ledger. An NFT is minted from digital objects as a representation of digital or non-digital assets. For example, an NFT could represent:
Digital Art:
GIFs
Collectibles
Music
Videos
Real-World Items:
Deeds to a car
Tickets to a real-world event
Tokenized invoices
Legal documents
Signatures
Lots and lots more options to get creative with!
At any given time, an NFT can only have one owner. The unique metadata that no other token can replicate is used to manage ownership. Smart contracts that assign ownership and govern the transferability of NFTs are used to create them. When someone generates or mints an NFT, they are executing code from smart contracts that follow various standards, such as ERC-721. This data is stored on the blockchain, which is where the NFT is handled. From a high level, the minting process includes the following steps:
.Adding a new block to the game
.Information verification
.Incorporating data onto the blockchain
NFTs have a few unique characteristics:
Each token has a distinct identity that is tied to a single Ethereum address.
They are not replaceable 1:1 with other tokens. One ETH, for example, is identical to another ETH. With NFTs, this isn't the case.
Each token has a unique owner, whose identity can be easily verified.
They are based on Ethereum and may be purchased and traded on any Ethereum-based NFT exchange.
To put it another way, if you own an NFT:
It's simple to show that you own it.
Demonstrating that you hold an NFT is equivalent to demonstrating that you have ETH in your account.
Let's imagine you buy an NFT and have the ownership of the one-of-a-kind token transferred to your wallet via your public address.
The token verifies that your digital file copy is the original.
Your private key serves as verification that you hold the original.
The public key of the content producer serves as a certificate of authenticity for that specific digital product.
The public key of the originator is inextricably linked to the token's history. The creator's public key can be used to prove that the token you own was generated by a certain person, increasing its market worth (vs a counterfeit).
Signing messages to confirm you possess the private key behind the address is another technique to prove you own the NFT.
Your private key, as previously stated, is proof of ownership of the original. This indicates that the NFT is controlled by the private keys behind that address.
A signed message can be used to prove that you own your private keys without disclosing them to others, as well as proving that you own the NFT!
It cannot be manipulated in any way.
You can sell it, and in some situations, resale royalties will be paid to the original inventor.
Alternatively, you can keep it indefinitely, safe in the knowledge that your Ethereum wallet will protect your investment.
Also, if you make an NFT:
You may easily establish that you are the creator.
The scarcity is determined by you.
Every time it is sold, you can receive royalties.
You can sell it on any NFT or peer-to-peer exchange. You're not tied to any particular platform, and you don't require anyone to act as an intermediary.