NFTs, Explained

In the year since NFTs exploded in popularity, the situation has only gotten more complicated. Pictures of
apes have sold for tens of millions of dollars, there’s been an endless supply of headlines about
million-dollar hacks of NFT projects, and corporate cash grabs have only gotten worse.

What is a NFT?
A non-fungible token (NFT) is a record on a blockchain which is associated with a particular digital or
physical asset. The ownership of an NFT is recorded in the blockchain, and can be transferred by the
owner, allowing NFTs to be sold and traded. NFTs can be created by anybody, and require few or no
coding skills to create.

What is ‘a blockchain’?
A blockchain is a type of distributed ledger technology (DLT), A distributed ledger is the consensus of
replicated, shared, and synchronized digital data that is geographically spread (distributed) across many
sites, countries, or institutions, that consists of a growing list of records, called blocks, that are securely
linked together using cryptography. Each block contains a cryptographic hash of the previous block, a
timestamp, and transaction data (generally represented as a Merkle tree, where data nodes are represented
by leafs). The timestamp proves that the transaction data existed when the block was created. Since each
block contains information about the block previous to it, they effectively form a chain (compare linked
list data structure), with each additional block linking to the ones before it. Consequently, blockchain
transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered
retroactively without altering all subsequent blocks.

How do NFTs work?

NFTs function like cryptographic tokens, but unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs
are not mutually interchangeable, and so are not fungible. (While all bitcoins are equal, each NFT may
represent a different underlying asset and thus may have a different value.) NFTs are created when
blockchains concatenate records containing cryptographic hashes—sets of characters that identify a set of
data—onto previous records, creating a chain of identifiable data blocks. This cryptographic transaction
process ensures the authentication of each digital file by providing a digital signature that tracks NFT
ownership. Data links that are part of NFT records, that for example may point to details about where the
associated art is stored, can be affected by link rot.
But can’t I just download the image?
Wow, rude. But yeah, that’s the awkward bit. You can copy a digital file as many times as you want,
including the art that’s included with an NFT. But NFTs are designed to give you something that can’t be
copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just
like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print.
But only one person can own the original.