NFT is a rapidly rising industry. It has attracted the public's attention since the middle and late 2021 and has quickly developed many application methods, which have changed many creators' lives and creative forms in one fell swoop.
NFT is a relatively new field with many new proper terms and new operation methods. Therefore, it is difficult for ordinary people to get started quickly. This series of tutorials will solve this problem. Before understanding NFT, you must first understand what blockchain is because NFT is an application method based on blockchain technology. Below we will explain the origin and principle of blockchain step by step, from shallow to deep.
Blockchain is a new technology for recording data. According to the traditional concept, to ensure the authenticity of a transaction, there must be a trusted third party as a notary. For example, to send money today, Mr. A wants to send 1,000 US dollars to Miss B, and the procedure will be as follows.
1.Mr. A requests the bank (physical & electronic) to send money to Ms. B; the bank verifies that Mr. A's account has sufficient funds and that Ms. B's account is securely authenticated.
2.The bank will transfer $1,000 from Mr. A's account to Ms. B's account, and the bank will record the transaction.
In this transaction process, the bank acts as a trusted third-party notary. This transaction method is called a "centralized transaction," a trusted third party executes transactions for both parties and records, monitoring the process.
The emergence of blockchain is to achieve "decentralization." Blockchain is a "decentralized distributed database," which can be imagined as a vast cloud electronic ledger shared by the public, each page is a block, and these blocks are connected to form a blockchain. The operating principle behind it is to verify and seal the data of a transaction (transaction amount, content, time, etc.) into a block and use random passwords as codes. Each block will be chained together and verified to ensure the data's security and immutability. The more data in the chain, the higher the safety factor.
We can imagine that on the blockchain, all users hold this ledger in common; not only can everyone see the information, but these virtual ledgers will also be automatically updated to confirm that everyone's information has not been tampered with. Once an abnormality is found (tampering records), it will be corrected automatically.
After a brief understanding of how the blockchain works, let's sort out the advantages of the blockchain in practical applications, which can be divided into the following four characteristics.
1.Immutability of data records - Since all ledgers on the blockchain record the same data, they must hack 51% of the ledgers on the blockchain simultaneously if someone wants to change the data records. This feature makes the data on the blockchain highly credible and cannot be deleted or modified at will. Even the parties who established the transaction cannot change the record.
2.Decentralization - Since the transaction records are directly and automatically dispersed in the ledger of all blockchains, there is no need for an impartial third party, both parties can now conduct transactions on the blockchain, and the records on the blockchain are already reliable enough. The advantage of this is that it can save the handling fee that is deducted in the middle of the transaction and ensure the privacy of the personal data of both parties to the transaction.
3.Anonymity - On the blockchain, accounts may be presented with codes of numbers and English letters. Since a third-party notary is not required, both parties to the transaction do not need to disclose their identities. It can ensure that both parties to the transaction are difficult to be tracked and lock. But this part also has a downside: it makes criminal cash flow more difficult to trace. This is one of the reasons governments actively plan and manage and make it difficult for blockchain technology to be implemented.
4.Data Transparency - All transaction records are publicly available on the network, and each piece of information on the blockchain will be arranged in chronological order. Anyone can confirm the existence of this transaction, which makes transaction information transparent, and these features can help us save many complicated procedures on traditional transactions. (For example, when handling financial business, it often takes time and layers to check the correctness of the data)
With different application methods, blockchain can be roughly divided into three categories, namely "Public Chain, Permission Chain, and Consortium Blockchain." The degree of decentralization and the level of trust placed on traders vary among the three chains.
1.Public Chain - A completely decentralized, open, and transparent blockchain, available to all users to use various functions. But at the same time, openness and transparency are its shortcomings. For example, some companies do not want their information to be seen, so they are reluctant to use it. In addition, due to a large number of users, transactions on the public chain are slower. The most well-known representatives are Bitcoin and Ethereum.
2.Permission Chain - A completely centralized blockchain that requires authorization to enter and use, usually a centralized blockchain created by a single company or institution for internal information records and exchanges. The advantages are low transaction cost, high speed, and high privacy. Still, the central management also increases the possibility of data being hacked and stolen.
3.Consortium Blockchain - Based on the Permission Chain, it is a blockchain created by several companies and institutions. Usually built by companies with the exact nature and close transactions, the rules are locked on the blockchain, which reduces the cost of communication between enterprises and improves efficiency while maintaining a certain degree of privacy. The advantage is that the transaction speed is fast, and the expansion is rapid, but the initial setup cost is high, and there is still the possibility of data being hacked and stolen.
The application industry built on the blockchain is quite diverse. We will list the four types here and explain them in more detail later.
1.Cryptocurrency - This is the first application method on the blockchain, and it is a currency mechanism of decentralized management. It exists on the blockchain as virtual currency and uses the characteristics of the blockchain to create a new form of money that is open, transparent, free to trade, and decentralized. The most famous one is Bitcoin.
2.Defi - The full name is Decentralized Finance; the most significant difference from the traditional financial industry is that it dramatically reduces the importance of intermediaries (banks, insurance companies). Using the characteristics of blockchain technology, we can create smart contracts that can be automatically executed without third-party intermediaries and regulatory agencies. Through smart contracts, financial services such as transaction payment, loan services, and insurance purchases can be completed on the blockchain.
3.NFT - This is a new form of currency derived from cryptocurrency, the full name of which is Non Fungible Tokens. It is given to digital assets (pictures, videos, music, digital contracts, etc.) through the features of the blockchain—ownership of irreplaceable, indivisible, unique value. In turn, digital assets can have clear proof of ownership and anti-counterfeiting solid capabilities. It is a major technological reform that makes digital assets truly valuable.
Bitcoin - The earliest cryptocurrency and a milestone in bringing blockchain technology into the public eye. The main goal is to create a currency system that can flow autonomously without being tied to any bank or country. As a result, Bitcoin is now the most representative and authoritative cryptocurrency, also accepted by many businesses as a currency.
Ethereum: Another big blockchain that is active after Bitcoin. Unlike Bitcoin, which operates as a currency, the most significant difference is that Ethereum is more like a "decentralized world computer" built based on blockchain. Ethereum can not only record accounts but record and execute the program script.
1.The blockchain is like an immutable public database, in which all recorded information will be serialized and recorded in all blockchains in chronological order.
2.Any single individual or group will not control the economic system formed by the blockchain.
3.All transaction records on the blockchain will be recorded forever, and anyone can confirm the existence of this transaction record.
After a brief understanding of the blockchain, we will continue introducing more NFT-related knowledge in the following chapters. We will cover cryptocurrencies in the next chapter.