Understanding NFTs: Definitions, Underlying Blockchain Technology, and Real‑World Applications

What Is an NFT?

NFT stands for Non‑Fungible Token, a unique digital certificate that cannot be duplicated. Unlike fungible items such as money, phones, or soda bottles—where each unit is interchangeable—an NFT represents a single, indivisible asset on a blockchain.

Examples illustrate the concept: a digital artwork burned and re‑minted as an NFT sold for four times its original price, and a collection of daily artworks compiled into a single NFT sold for millions of dollars.

Common questions arise: why are NFTs so expensive, why do people buy them, and what can owners actually do with them?

What Is Blockchain & Bitcoin?

Blockchain is a trust‑building technology that records transactions in a decentralized ledger. Historically, humans needed to prove ownership of assets, leading to the invention of record‑keeping tools and eventually centralized financial institutions.

In 2008, Satoshi Nakamoto introduced Bitcoin, a peer‑to‑peer electronic cash system that uses a decentralized blockchain to eliminate the need for intermediaries.

Each block contains transaction data, the hash of the previous block, and its own hash. Nodes broadcast transactions, package them into blocks, and compete to solve a proof‑of‑work puzzle (finding a nonce that makes the block hash start with a certain number of zeros). The first node to solve the puzzle earns newly minted bitcoins as a reward.

The network follows the "longest‑chain rule" to resolve forks: the chain with the most cumulative proof‑of‑work becomes the canonical ledger, preventing malicious tampering.

What Is Ethereum?

Ethereum, created in 2013 by Vitalik Buterin, extends blockchain 2.0 by adding a programmable layer called the Ethereum Virtual Machine (EVM). Developers can write smart contracts in Solidity, compile them, and deploy them to the blockchain, where they execute autonomously.

Token & ERC‑721 Smart Contract

ERC‑721 defines a standard interface for non‑fungible tokens on Ethereum, providing functions for balance queries, ownership transfers, approvals, and event emissions.

pragma solidity ^0.4.20;

interface ERC721 {
    /// @dev Emitted when ownership of any NFT changes.
    event Transfer(address indexed _from, address indexed _to, uint256 indexed _tokenId);
    /// @dev Emitted when an NFT's approved address is changed or confirmed.
    event Approval(address indexed _owner, address indexed _approved, uint256 indexed _tokenId);
    /// @dev Emitted when an owner enables or disables an operator.
    event ApprovalForAll(address indexed _owner, address indexed _operator, bool _approved);
    function balanceOf(address _owner) external view returns (uint256);
    function ownerOf(uint256 _tokenId) external view returns (address);
    function safeTransferFrom(address _from, address _to, uint256 _tokenId, bytes data) external payable;
    function safeTransferFrom(address _from, address _to, uint256 _tokenId) external payable;
    function transferFrom(address _from, address _to, uint256 _tokenId) external payable;
    function approve(address _approved, uint256 _tokenId) external payable;
    function setApprovalForAll(address _operator, bool _approved) external;
    function getApproved(uint256 _tokenId) external view returns (address);
    function isApprovedForAll(address _owner, address _operator) external view returns (bool);
}

What Can NFTs Do?

NFTs can secure copyrights, intellectual property, identity information, source code, contracts, and more by providing a tamper‑proof, unique identifier.

In the virtual world, NFTs enable true ownership of digital assets such as in‑game items, videos, audio, digital art, e‑books, and other internet‑based content, supporting the emerging metaverse.

Think of NFTs as a digital notary that makes easily copied digital items trustworthy and uniquely owned.

References

Wikipedia contributors. (2021, October 21). Non-fungible token. Wikipedia.

Fungibility. (2003, April 9). Wikipedia.

Why 2021 Will be the Year of Non-Fungible Tokens (NFTs). (2021). LinkedIn.

johnnymangosteen. (2021, April 27). NFTs, explained. YouTube.

YouTube. (2021, May 20). NFTs, blockchain and crypto. explained.

李万胜. (2019). 区块链 DAPP 开发入门、代码实现、场景应用. 电子工业出版社.

Andreas Antonopoulos. (2018). 区块链：通往资产数字化之路. 中信出版社.