Basics of NFTs

Let us start with a simple question - how much would you be willing to pay for the following GIF image (called Nyan Cat) ???

Any bids ??? What if you were told that it sold for hefty price of 600K ???

You may feel this is INSANE !!! Remember the Internet frenzy in the late 90s, when the valuations were over-the-roof ??? Welcome to that kind of a crazy world of NFTs !!!

You may ask - what is an NFT ??? Well, it stands for Non Fungible Tokens.

We will unpack the terms in the following paragraphs.

Per the English dictionary definition Fungible means, an asset that can be freely exchanged, in whole or in part, with another asset. For example, the exchange of a dollar bill for 4 quarters.

A Non-Fungible asset on the other hand, cannot be exchanged for any other asset, since it is very unique and one of a kind.

A Token is a virtual digital asset that can only exist on a Blockchain.

There are three aspects to a Blockchain:

• Digital Wallet :: is a digital system (be it a device, online, or software based) that allows a owner to maintain and manage digital assets

• Distributed Ledger :: is a decentralized and distributed data store that holds all the transactions made by the different users on the Blockchain

• Smart Contracts :: is a digital legal contract that consists of some state (data that represents the meta data and conditions of the contract), along with some code (logic that implements the contract process)

Ethereum is a popular open source Blockchain platform that allows one to host and run distributed applications.

An Ethereum Request for Comments (or ERC for short) is a set of well defined rules that allows a Smart Contract to interact well with other Smart Contracts on the Ethereum platform in a standard way.

Now that we have all the terms unpacked, an NFT is nothing more than a Smart Contract (that adheres to the ERC721 standard), which represents a unique digital asset as a non-fungible digital token on the Ethereum platform. Once an NFT is created on the Ethereum platform, it can be thought of as a digital proof of authenticity/ownership of the corresponding unique digital asset, stored in the owner's digital wallet (along with the other digital assets), and transacted with.

The assets in an NFT world can include (but not limited to) digital artwork (including generated art), literature, images, videos, software (including video games), etc.

An NFT (aka ERC721) token encapsulates the following pieces of data about the digital asset:

• a unique token identifier

• the creator/owners information (including the their public key)

• an image of the digital asset (at a lower resolution than the original for digital art)

• a Smart Contract with specific terms and conditions

• an optional list of unlockables (features that can be unlocked when the digital asset is purchased. Examples include special weapons in a video game specific to the buyer, etc)

Given that one can code Smart Contracts in a Blockchain, the original creator of a piece of digital asset can embed additional logic to collect royalties (for their creation) each time the associated digital asset is transacted (bought or sold), without the involvement of any broker or middleman.

The current NFT frenzy comes from few human behaviors, such as, the feeling of owning something unique that no one else has (bragging rights), the fear of missing out on something new and exciting (herd mentality).

Now, that we have a basic understanding of NFTs, the next question will be - so, how does one get started ???

To get started, one needs the following:

• A software based Digital Wallet called Metamask that can be installed either on the desktop (as a browser extension) or as an app on the mobile device

• A small amount of Ether (the digital currency on the Ethereum platform), which can be purchased via Metamask and stored in the Digital Wallet

• An account in a NFT marketplace, such as, the world's largest and popular Opensea marketplace

The following are the steps to get started on a Desktop using a browser extension:

• Launch a browser and go to the Metamask site to install the browser extension

  
  
  

  Metamask Extension
  
  

• As part of the installation, the next step would be to create a Digital Wallet

  
  
  

  Create Wallet
  
  

• The Digital Wallet creation will prompt for the creation of a password

  
  
  

  Create Password
  
  

• At the next step, Metamask will display the secret phrase which needs to be noted and selected in the same order. At this point Metamask should be installed in the browser and ready for use. *DO NOT* lose or share the secret phrase

• Next, launch a browser and go to the Opensea marketplace to create an account. To do that, click on the person icon as shown below:

  
  
  

  Opensea Account
  
  

• Next, click on the Profile menu item as shown below:

  
  
  

  Select Profile
  
  

• Next, click on the Metamask menu item as shown below:

  
  
  

  Select Metamask
  
  

• Finally, Metamask will prompt you to enter the password in order to setup the profile:

  
  
  

  Metamask Prompt
  
  

• WALLA !!! You will now be in the Opensea marketplace. But before you can do any transactions, ensure you have the necessary ethers in your Metamask wallet