What is NFT?
NFT is a Non-Fungible Token embedded in a Blockchain network. Digital contents, including digital image, digital art, digital song, digital music, digital video, digital sticker, digital document, online game, virtual real estate, e-book and tweet, can be minted as an NFT in the blockchain which will be immutable.
An NFT cannot be divided into smaller size, and it exists as a whole piece. One NFT can only be linked to one single digital content, but a single content can be linked to more than one NFT. Each NFT is unique and it cannot be replaced or exchanged, which is unlike Bitcoin. A digital game CryptoKitty in green colour in form of NFT has different value to another NFT of CryptoKitty in pink colour, therefore they are not exchangeable. However, a Bitcoin can be split into many fractions. A Bitcoin has the same value as any another Bitcoins, so they can be exchanged.
Each CryptoKitty is a unique NFT by itself.
NFT cannot be destroyed or removed, because it is stored via a smart contract in a blockchain. Ownership of NFT is recorded and immutable, where the history of ownership information can be found on blockchain. The first owner of NFT is usually the digital content creator, which can be represented as a certificate of authenticity as well as a virtual signature of the creator. Of course, when the NFT is transferred to the buyer, it will also become a proof of ownership for the buyer, too.
Where do NFTs live?
NFT firstly appeared in Ethereum ERC-721 on 21 October 2015. The first tradable user-generated content of NFT was available on 13 November in London. Proof-of-Stake (PoS) verification method is used in NFT transactions. Although it consumes less energy than another consensus algorithm, i.e. Proof-of-Work (PoW), NFT is still criticized by environmental organisations, as a study revealed that for an average single-edition NFT, its carbon footprint could be as high as driving a car for 1,000 kilometers. Nonetheless, Ethereum ERC-1155 introduces the idea of ‘semi-fungibility’ to the NFT world with a lower transaction fee, incorporating an ERC-721 asset.
Alternatively, the Simple Ledger Protocol (SLP) can also be used to support NFTs by minting an indivisible token. Using this SLP token structure, NFT1 was introduced onto the Bitcoin Cash blockchain in 2019.
Flow is the other blockchain which also has NFTs running. It is created by Dapper Labs, the team behind CryptoKitties which is a digital game for players to purchase, collect, breed and sell virtual cats. In 2019, over 2 million on-chain transactions were generated by nearly 100,000 CryptoKitties owners, occupying 10% of network traffic in Ethereum. The Ethereum network was almost halted and the speed of transaction was slowed down significantly, so Dapper Labs decided to build their own chain. Flow, which also adopts Proof-of-Stake, offers a lower transaction cost for users. Importantly, Flow NFT can only have 1 owner, who cannot be copied, duplicated or destroyed, which ensures the real value preservation and safety protection. CryptoKitties are migrating from Ethereum to Flow. Upgradable and extensible smart contracts will be available after migration.
Written by Ms. Florence Ip