In a previous article, we introduced web3 which is a term that describes a truly decentralized web using blockchains. In the following article, we will be examining what a blockchain is and how NFTs relate to this technology.
What is a Blockchain?
First up, blockchain. Blockchains are a type of distributed ledger technology, which essentially means they are like a database (ledger) that is stored across a network of computers (distributed). This database stores transactions about tokens that have been exchanged within the network which allows us to use this database as a reference point for information. You could liken a blockchain to a collections management system (CMS). A CMS is used in cultural institutions to store information about objects in the collection, from title and location, to the provenance and artist or creator. Similarly, a blockchain is a record of information about tokens such as the name and current owner, you can also use the ledger to trace previous owners (the token’s provenance).
What is an NFT?
Non-fungible tokens (NFTs) are a type of token stored within this network. They are digital vessels for information and are used to represent assets with unique values (e.g. a digital artwork). We can think of an NFT as the record within a CMS. Like a CMS record, the NFT includes information such as a title and metadata. It also includes information such as a link to the image file, and the ID of the token’s owner.
This also highlights the important point that NFTs are representations of the image file, rather than the file itself. In other words, NFTs are like a receipt or certificate of ownership over the file. The file is stored elsewhere, normally on a decentralized storage system such as arweave or the interplanetary file system (IPFS). These work by storing the file as a content hash across a network of participating nodes, which means that we can continuously access the file, even if one server went down.
What is a Smart Contract?
We mint (create) NFTs using a technology called a smart contract. This technology is formed from pieces of self-executing code, and they are like the terms and conditions or the contractual agreement of a token. These conditions can include resale rights for the artist, ownership rights of the purchaser, or even unlockable content upon purchase. These different conditions are met through transacting with the contract. For example, on primary purchase of the NFT, the purchaser might gain certain rights that enable them to make derivatives of the work or access to specific content that was previously hidden. If that owner then chose to sell their NFT, upon secondary sale the artist could earn money from that resale depending on whether they chose to embed resale rights into the smart contract.
In this respect, smart contracts animate NFTs and provide exciting opportunities for artists, cultural institutions, and potential owners.
The Key Takeaway
In summary, there is more to the NFT than what is immediately apparent. The combination of technologies that creates an NFT provides us with far more opportunities and in the next article, we'll discuss what these opportunities might look like.
