Best explained: NFT and CryptoArt

Powered by Blockchain technology, everything from digital art to music is being sold on online trading auctions. NFT’s represents one’s ownership of these items.

Blockchain technology is a digital ledger to keep track of transactions. Blockchain’s transactions are immutable. This makes it a resourceful tool in tracking the ownership of valuable things.

Not all Blockchain implementations are the same — the elder and most applied one is cryptocurrency. In this Blockchain type, peers compete to solve ‘difficulty target’ to reap the rewards.

The blockchain technology was written in an incomplete Turing programming language. It has limited commands and abilities. Cryptocurrency Blockchain application uses Turing to store monetary transaction details. NFT Blockchain application uses Turing to create executable smart contracts.

To know more about Bitcoin Blockchain, check out this article: Cryptocurrency and Bitcoin explained.

NFT — Non Fungible Token

In the economic context, the word fungible means — something that trades for an object of identical value.
Example: Currency is fungible. In physical space, we can exchange a $10 bill for two $5 bills as they have identical values. Similarly, in the digital space, we can exchange a bitcoin for another bitcoin as they all are of the same value.
The complete opposite of fungible is Non-fungible. An item is Non-fungible when it is unique and cannot be traded for an identical value. The famous painting Mona Lisa or the first tweet from the founder of Twitter are good examples of Non-fungible.

NFT or Non-fungible tokens are non-replicable, digital certificates of genuineness. They are used to representing ownership of unique items. Blockchain network is used to track NFTs and, thanks to the secured nature of blockchain technology, the information of ownership is always available, unmodifiable, and it also ensures that there can be only one owner at a point in time.

There are several emerging Blockchains implementing their token system. The Ethereum Blockchain is most used for NFT creation and use.

Creator of NFT : Ethereum

Colored coins in 2012, implemented a token system over bitcoin blockchain. But it didn’t work due to design and technical limitations.

In 2014, Counterparty — a P2P financial system, launched a modified token system built on Bitcoin Blockchain. The modifications led to the foundation of the modern NFT system.

In 2016, a meme trading community started using Counterparty’s tokenized asset system to trade Pepe the frog meme. This was the first sighting of NFT’s being used to represent sole ownership of a digital image.

Pepe the frog meme.

In 2017, Ethereum rightly implemented the NFT system by moving away from the Bitcoin Blockchain system. Ethereum invented a new blockchain application called NFT. It has an inbuilt system for token generation and storage.
Like Bitcoin, to run operations on one’s own, Ethereum created its cryptocurrency called Ether (ETH). However, the goal of both cryptocurrencies is different.

How does Ethereum works?

Being a Blockchain implementation, Ethereum requires a distributed — decentralized network. Ethereum is an open-source platform that performs 3 functions —

• Provide editor to create DApps (decentralized application). It is a computer application capable of running on a distributed computing system.
• Provide compiler to execute DApps on condition-based triggers.
• Generates NFT — create a token of ownership for digital object inscribed in DApp and track it through blockchain ledger.

Ethereum has its programming language called Solidity. Using Solidity, a programmer can create a digital smart contract or DApp. Solidity has limited vocabulary comprising conditional and legal clauses.

The user has to pay a 3 ETH fee to create a smart contract. Based on the contract, an extra fee is charged to make it live. Selected peers in the network maintain an identical copy of all the smart contracts. They provide 24×7 computing power to execute the terms of a contract when conditions are met.

Example: I programmed a smart contract between me and Leonardo da Vinci. The contract suggests the generation and transfer of NFT to me. The NFT representing ownership of the painting — Mona Lisa. To trigger this contract, I have to transfer 1000 ETH to Vinci’s account. Once the Ethereum wallet verifies this transaction- it signals to execute the contract. Transaction of NFT is then recorded on Ethereum’s Blockchain

In Cryptocurrency Blockchain, mining takes up a lot of computing power and electricity. In Ethereum Blockchain, an eco-friendly approach was taken to exert an entry barrier. These measures are — POS and Gas.

POS — Proof of Scope & GAS

Bitcoin and other crypto currencies being a public Blockchain suffers from network congestion and lowered speed. To tackle this issue, Ethereum Blockchain controls who gets to be active on the network. Before we understand how?, note these key definitions and their contrast against cryptocurrency:

In Ethereum Blockchain, peers willing to take part as a forger have to stake out 32 ETH per account as collateral. This is called Proof of Stake (POS). 32 ETH is equivalent to 70,000 USD currently, that’s a high capital to ensure the sincerity of peers.

Ethereum full nodes pick every day only 900 new forgers from a long list of waiting peers to forge a new data block. POS just like POW keeps trespassers out of the network. Some other rules of Ethereum to maintain the hygiene of the network are:

• No one may withdraw their stakes till the ‘Docking’ event is complete. ‘Docking’ event is when all the versions of Ethereum Blockchain will merge into one. We expect the merger to happen in 2022.
• Peer’s computer should never turn off.
• A heavy penalty imposed if in any case Peer negatively affects the network efficiency, i.e. bad configuration of node, poorly written smart contract.

On successful execution of DApp, taking part peers get rewarded with Ether. An Ether can be divided into quintillion (1000 raises to six) parts and depending on the no. of forgers who took part, each gets their share.

Concept of Gas - to avoid network congestion

In Ethereum to reward its peers for their computing power, it runs an internal currency called — Gas. Each line of code in a smart contract that needs to be executed by the network requires a certain amount of Gas.
The value of each command in a smart contract is pre-defined in terms of Gas. So a programmer can always know the minimum Gas required for the contract to get executed. However, to gain faster execution programmers can bid for a higher price for the same amount of Gas.
To enforce good coding practices, Gas is not allowed to refill. Run out of it and your code will stop running. How much GAS will be required also needs to specified upfront This is to avoid inefficient code and motivate contract programmers to keep their code lean and optimized.
The value of each action in the code is pre-defined in terms of GAS. So a programmer should always know the minimum GAS required for the smart contract to get executed. However, to gain faster execution programmers can bid for a higher price for the same amount of GAS. If the network is congested, the GAS price hikes up.

Currently to execute a transaction of 1 ETH to another account cost 21,000 units of GAS.

Full and light nodes in Ethereum Blockchain

When connecting to the Ethereum network, one can use a full node or a light node (also known as a light client).

• Full nodes — has a copy of the entire state of the Ethereum blockchain and executes every transaction that gets mined. Full nodes are individually capable of executing a DApp or choosing decentralized light nodes to execute it together.
• To run as a full node, a peer will need more than120 GB of storage and 8GB+ of RAM to ensure smooth sailing.
• Light nodes — has only the minimal amount of state to make sense of things while talking to full nodes. The goal of a light node is to be small enough to run on a phone or embedded device. Any time a light node wants to query the blockchain or send a transaction, it must ask a full node to do it on its behalf.
• A light node can join the network and start using it almost instantly, assuming it can find a full node with a light node slot available for it.

Ethereum Wallet — to create Smart contracts

Ethereum wallets are applications that let you interact with your Ethereum account. An Ethereum wallet, popularly known as a client holds your private key. The private key is a secret password that gives you control over the ETH coins. Wallet also supplies with a public Ethereum address that others can use to communicate or send you ether.

In Ethereum you can create two types of accounts: EOA & Contract account.

EOA accounts are preferred by full nodes as it has a larger number of responsibilities and authority that would require good computing power.

This is an exhaustive list of things there are to know about NFTs. To know about trending NFT’s application — CryptoArt, Crypto music, why they are so valuable, and how you can create NFT tokens of your childhood picture read the next article of this series (coming soon).