What does NFT stand for?
NFT stands for non-fungible token. NFTs are classic digital objects that are unique and cannot be altered or replaced in any way. They can represent digital paintings, pictures, trading cards, videos, animated GIFs, music, domain names or entire digital worlds. To ensure the uniqueness of NFTs, they are held on a blockchain, i.e. a decentralised database, and linked to a very specific digital asset. Owners of NFTs receive a certificate of ownership of the digital object. Ownership relationships are digitally mapped, which means that they can only be traded digitally.
Structure and operating principle of NFTs
NFTs are based on a blockchain. The ownership claims to all types of goods are recorded via an entry in the blockchain. This enables collectors to trace their digital collectibles back to the author in decentralised fashion.
What is a blockchain?
The individual blocks represent single data records that are stored consecutively, creating a sort of data record chain, the blocks of which are linked with one another. This means that individual blocks cannot be altered unnoticed, making a trusted third party unnecessary. This reduces fraud and abuse.
What are coins?
Coins are cryptocurrencies that have their own independent blockchain, such as Bitcoin, which uses the Bitcoin blockchain, or Ether with its Ethereum blockchain.
What are tokens?
Tokens are cryptocurrencies that do not have their own blockchain. Instead they are based on another existing blockchain, such as Tether, which exists on the Ethereum blockchain.
Each individual block on the blockchain contains three elements:
Second: a hash. Hashing is a non-reversible encryption function which, once broken, cannot be reassembled.
Third: Each block contains the hash code of the previous block. Before a new block can be added to an existing chain, so-called miners verify whether the transactions, i.e. the data held within the block, are correct. For this purpose a matching arbitrary number must be determined. This number is called a nonce. The miners trial many different combinations until a suitable number is found. This is an extremely time and energy consuming problem to solve. When the right number is found, this block is appended to the blockchain.
The blockchain is nothing more than a large database to which further data blocks are appended chronologically after they have been verified and confirmed. There are two different methods for this consensus protocol:
Method 1: Proof of work
1. During the mining process, miners attempt to solve mathematical problems to achieve a result with specific characteristics as quickly as possible.
2. This is done on the basis of transactions that are collected together in a block.
3. Miners then validate this transaction by checking the block (hashing). They use the hash function, i.e. a mathematical function that takes a variable-length string and converts it into a fixed-length string. The difficulty here is to find a result with specific characteristics that is determined from the so-called hash function.
4. The first miner to find the solution receives the block and the corresponding rewards (transaction fees). The validated transactions are appended to the blockchain in the form of the new block.
Method 2: Proof of stake
This does not involve any mining. With this variant, only one person is selected, the validator, who validates the new block. The prerequisite for being selected as a validator is that there are tokens in the wallet. The more tokens there are in the wallet, the more likely it is to be selected.
When the validator has solved the problem, he or she receives a predefined transaction fee.
The major advantage offered by proof of stake is that it requires less energy than the proof of work method, because only one person attempts to solve the problem – not an infinite number of people simultaneously. Moreover, people or institutions gain no advantage here just because they can provide a particularly large amount of computing power. In addition, the algorithm penalises participants who attempt to bring manipulated transactions into the blockchain.
How is NFT ownership status documented?
Thanks to the unique hash value that each block has and the data it contains, each block can be uniquely identified in the blockchain. This means that ownership – whether physical or digital – can be linked to an NFT and assigned to a specific person.
NFT compatibility of smart-TEC products
Every NFC transponder, regardless of its design (card, key fob, wristband, emblem, etc.) has an integrated NFC chip. The NFC chip is encoded with a link that leads to an NFT platform. Currently, the largest platform is called OpenSea. People can buy, sell or explore NFTs there.
The entire history of their product can therefore be embedded in the NFC transponder.