Definition: original encoded digital form
What is a Non-Fungible Token (NFT)?
A Non-Fungible Code is a unique, indivisible, and irreplaceable digital code. A token represents a digital or physical object on the blockchain. Tokens are an encrypted digital form of an asset. Rights or ownership of physical or digital items can be demonstrated using tokens.
The literal translation of non-fungible token is “non-replaceable token”. NFT is an acronym for Non-Fungible Symbol. It is a unique, irreplaceable, and indivisible digital code that represents ownership or use rights in a digital or physical object.
As with cryptocurrencies, blockchain technology serves as a technical foundation. However, cryptocurrencies are exchangeable tokens. NFTs are tradable and can be bought or sold through trading platforms. Codes contain cryptographic information that proves their uniqueness and enables traceability. Tokens refer to a virtual or physical object such as a digital image.
Even if referenced digital objects can be copied, the uniqueness of the object’s NFT reference is preserved. The first NFTs were created in 2012 in the Bitcoin side chain. Meanwhile, non-fungible tokens are traded in large values. The NFT market is unregulated and the trading of non-fungible tokens is highly speculative. There is NFT for digital artwork, virtual trading cards, the world’s first SMS sent or the first entry in the Internet encyclopedia Wikipedia and much more.
Differentiate between non-fungible tokens and cryptocurrencies
Non-fungible tokens and cryptocurrencies have the same technological and cryptographic basis with the blockchain. However, cryptocurrencies are divisible tokens (interchangeable tokens).
While cryptocurrencies can be purchased and used in any subset of the unit, NFT exists only as a whole. There is only one non-replaceable token for a specific representation of an object. With cryptocurrency, on the other hand, it doesn’t matter what kind of bitcoin or ether you use for payment, for example. Like banknotes, they can be exchanged at will.
Basic functions of non-replaceable tokens
The blockchain is the technological and cryptographic basis for irreplaceable tokens. A blockchain is a type of database that consists of many individual blocks of information arranged in a chain. Blocks are related to their previous block via their unique hash values. Manipulating a single block invalidates the entire blockchain. This ensures that the data content is immutable. The blockchain is decentralized and managed in a peer-to-peer network. Each participating computer has a copy of the blockchain and can check its consistency.
With non-fungible tokens, various pieces of information about a digital or physical object are stored in blocks of the blockchain. Blocks contain, for example, the reference (link) to a digital object, information about ownership rights, usage rights, buyers and sellers. The represented object itself does not exist in the blockchain. The Ethereum blockchain used in the popular cryptocurrency Ether has become very popular for NFTs. NFTs can be bought and sold in the blockchain using the cryptocurrency ether.
NFT creation is also known as sq or sq. When engraving, the digital element to be represented is uploaded to the NFT trading platform, for example, and the NFT is generated there for a fee. Adding NFT to the blockchain, like mining digital money, involves a lot of computing efforts.
Possible uses and examples of non-replaceable symbols
Non-replaceable tokens are often used to represent virtual objects digitally and explicitly assign ownership or use rights. Examples of such virtual objects include digital images, artwork, digital audio tracks, digital videos, digital trading cards, virtual items in computer games, digital membership cards, certificates, identities, patents, certificates of origin, website names, and many more. In the past, the sale of some NFTs caused quite a stir. In some cases, large sums of money were paid for individual non-fungible tokens. Examples of such NFT transactions are:
- Auctioning work every day by American digital artist Beeple for approximately $69 million,
- The auction of the first entry in the electronic encyclopedia Wikipedia for $ 750 thousand,
- Gustav Klimt’s “The Kiss” painting sold as 10,000 NFT per image 100 x 100 pixels,
- The source code of the World Wide Web was sold for $5.4 million,
- The first tweet on Twitter sold for $2.9 million,
- The first SMS sent sold for around 100,000 euros.
Criticism of non-replaceable icons
The trading of non-fungible tokens has attracted a lot of attention, but also criticism. Numerous criticisms have been leveled at creating, trading and using digital tokens. An important point of monetization is that, as with cryptocurrency mining, minting informal coins involves a great deal of computational effort and therefore energy consumption. CO . company2– Emissions to generate one NFT must be more than 200kg in some cases, which means CO2The permission can correspond to multiple flight hours for one person (largely depending on the blockchain technology used and the type of flight).
Another point of criticism is that the market for NFTs remains largely unregulated. There is great potential for fraudulent transactions, unrealistic speculation, and pyramid schemes or Ponzi schemes. Another problem is that many legal questions regarding the creation, sale and purchase of non-fungible tokens and the ownership and use rights they contain remain unresolved. In some cases, there are significant ambiguities in copyright. The legal status often varies from country to country. In many cases, additional private and independent agreements must be concluded to clarify open issues.
The high prices achieved at auctions and sales of NFTs in recent years are interpreted as a sign of an emerging price bubble in the NFT market. In addition, non-fungible tokens are suitable for money laundering due to the anonymity of the blockchain and payments using cryptocurrencies.
Another point of criticism is the fact that purchasing a non-fungible token does not provide any security about the actual long-term preservation of the digital object being represented. Even if the NFT is preserved, the actual digital object referenced by the NFT can be deleted or lost. In principle, there is no guarantee of long-term storage of a digital thing or its safety without special protective measures.
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