A Guide For Understanding NFT And Its Functioning

A Guide for Understanding NFT and its Functioning

What is NFT?

Mankind is seeing a wave of the digital world like nothing else. The technology is evolving and developing at a good pace. NFTs and Cryptocurrencies being a part of this evolution. NFTs and cryptocurrencies have been around since 2014 but now they are at their high place. With the rise of cryptocurrencies and NFTs taking over marketplaces to sell, buy and invest there has been a massive hype over the newly popular term called NFTs. A common mistake made by everyone is that, sometimes people confuse cryptocurrency and NFTs to be similar to each other because it is built on the same platform as cryptocurrency and both have the same programming. The NFTs are non fungible whereas the cryptocurrency is fungible which means that NFTs can not be traded, exchanged or sold like the cryptocurrency. But what do they mean, and how are they building the internet of the future?

Non-fungible tokens (NFT) are digital assets which represent real world objects like art, music and videos that can be bought and sold online just like cryptocurrencies. NFTs are encoded with blockchain technology and the same underlying software as any crypto. Even though the NFTs can be seen online for free, they still hold a great value in the market. The reason behind this is the ownership of a particular NFT. When you buy a NFT, you own the original item which contains built-in authentication, which is the proof of ownership.

A Guide for Understanding NFT and its Functioning

NFT value depends just like physical items, value changes based on what people are willing to pay for that item. The security feature being unique data added to digital work is provided along. The buyer owns the original, and the creator gets reproduction rights, still selling prints. These can also be used to sell anything unique and require proof of ownership. Imagine we made a piece of digital art, essentially a JPG, on our computer and created or minted an NFT out of this. This NFT that represents our art now contains some information about it, such as a unique fingerprint of the file, a token name and a symbol. This gets stored on the blockchain, and we become its owner. We can now sell this token by creating a transaction on the blockchain(information never gets tampered with). Only the attributes get stored, not the actual product.

These tokens have been finding their way into everything, starting from the art market to video games. These are non-fungible, which makes them a different type of asset.

A Guide for Understanding NFT and its Functioning

NFTs will open the door for many people with artistic inclinations to explore avenues they never thought were possible. A lot of people would be seen making transitions to a healthy career.

Artists getting royalties from the resale of their digital works will empower creators, leading to a shift in how art is perceived. They represent a significant shift in culture and modern technology. This will also allow artists to capitalize on their IP and everyday people to discover their artistic callings, thus changing the perspective of how art is seen.

How does a NFT work?

NFTs exist on blockchain platform only which is a public ledger that records all the transactions. Blockchain is a well known underlying process that makes cryptocurrency possible. Ethereum Blockchain is the most familiar platform which typically holds the NFTs but there are other blockchain platforms as well which support them. NFTs are just like a physical item but digital. So instead of buying an actual painting or statue, the buyer gets a digitalised file instead.

A NFT is minted from a digital object which is the representation of both tangible and intangible items. It can include anything for example Art, GIFs, Music, Digital Avatars, Video game skins, Sports highlights, Video highlights etc. The NFTs are not limited to this only. Even the tweets are counted as NFT. Recently, Jack Dorsey sold his tweet as a NFT for around $2 million.

Once you own a NFT, you have all the rights of ownership of that particular NFT which means that a single NFT can have a single owner. You can sell that NFT further but the buyer will not enjoy the ownership. The unique data of NFT makes it easy to verify their owner.

The Purpose of NFTs

The invention of NFTs has been proved useful in many ways. As the technology is rising day by day, NFTs are gaining popularity for their unique authentication and process. The blockchain technology and NFT provides the artists and content creators a unique opportunity to monetize their wares. This can be more understandable by this example that now the artists are not bound to galleries and auctions to sell their art. An artist himself can sell it directly to a buyer or customer through NFT which will help him in saving a lot of time and he can even keep more profit. He can also program his NFT in royalties so he will receive a percentage of sales whenever his art is sold to a new buyer. This feature is very useful for the artists as they do not receive any future sales once their product is sold but with this feature of NFT they can easily make more sales and profit. This feature has attracted many artists and more artists are now inclined towards NFT. This is one major reason for the NFTs gaining popularity.

Earlier this year in february, Nyan Cat a 2011 era cat GIF was sold as a NFT for worth of $600,000 and NBA Top Shot generated $500 million in sales in the month of march. Popular celebrities like Lindsay Lohan, Amitabh Bachchan, Salman Khan and Snoop Dogg are boarding the NFT wagon by releasing new memories, artworks, music etc as securitised NFTs.

How one can develop a NFT

The establishment of NFT requires an underlying distributed ledger for records, together with exchangeable transactions for trading in the peer-to-peer network. This report primarily treats the distributed ledger as a particular type of database to store NFT data. In particular, we assume that the ledger has basic security consistency, completeness, and availability characteristics. Based on that, we identify two design patterns for the NFT paradigm.

The first protocol is established from top to bottom: building NFTs from the initiator and then selling them to the buyer.

Top to Bottom

For this design, an NFT protocol consists of another two roles: NFT owner and NFT buyer,

1: NFT Digitize

The file, title, and description are being checked to be accurate by the NFT owner. Then they digitize the raw data into a proper format.

2: NFT store

The NFT owner stores the raw data in an external database outside the blockchain. They can also store the raw data inside a blockchain, despite this operation being gas-consuming.

3: NFT sign

The NFT owner signs a transaction, including the hash of NFT data, and then sends the transaction to a smart contract.

4: NFT Mint & Trade

The Minting and trading process starts as soon after the smart contracts(Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met.) receive the transaction with the NFT data. The primary mechanism behind NFTs is the logic of the Token Standards.

5: - NFT Confirm

The minting process completes as soon as the transaction is confirmed. NFTs will forever link to a unique blockchain address as their persistence evidence by this approach.

Bottom to top

This part of the protocol consists of NFT creator and NFT buyer.

1: Template create

The project founder initiates a template via the smart contract to set up several basic rules, such as different features (character style, weapons, or accessories) in the game.

2: NFT Randomize

When a buyer bids for an NFT, they can customize the NFT product with a set of additional features on top of primary lines. These other features are randomly selected from a database that was predefined at the initial.

3: NFT Mint&Trade

Once the corresponding smart contract is triggered, it starts the process of Minting and trading.

4: - NFT Confirm

The procedures are conducted through smart contracts. The generated NFT will be persistently stored on-chain when the consensus procedure has been completed.

Every block here in the blockchain system has a limited capacity. When the power in one block becomes full, other transactions will enter a future block linked to the original data block. In the end, all linked blocks have created a long-term history that remains permanent. Whenever an NFT is minted or sold, a new transaction must be sent to invoke the smart contract. After the transaction is confirmed, the NFT metadata and ownership details are added to a new block, thereby ensuring that the history of the NFT remains unchanged and the ownership is preserved.

How can one buy a NFT?

  • The first step required to purchase a NFT is, you must own a digital wallet to store your NFTs and Cryptocurrency.
  • Once your wallet is set up, you need to purchase cryptocurrency like Ether on the basis of what currency is accepted by your NFT provider. further, you can purchase the crypto through your credit card through platforms like Coinbase, WazirX, Opensea, Binance NFT Marketplace, JupiterMeta etc.
  • Once the wallet is funded, there are many NFT sites to shop from. The few popular NFT sites are:


It is a NFT marketplace where artists must receive upvotes or an invitation from fellow creators to post their artwork.


Founded in 2018, this platform is known for the NFT market dedicated to regional and traditional creators. The marketplace work on the binance smart chain network and you need to have tokens in your wallet to place a bid or buy a NFT.

There are many other popular NFT marketplace for NFT trades but understanding of the NFTs and the risk related to it must be known before buying.

How does the future of NFT look like?

NFT has gained a lot of popularity because of enhanced media exposure and attention by popular artists on social media. NFT has introduced the new meaning of security when it comes to digital transactions while simultaneously improving efficiency. The online documents are at a high risk of being pirated, deleted, copied, hacked which costs millions of dollars to the companies. The future NFT is capable enough to solve such problems as anyone who is involved with the transaction can see the NFT’s journey from creation to final version with the knowledge of all the people involved in the process of transaction. NFT creates an unhackable system which is encrypted and can be altered.

NFT also has the potential to reduce transaction processing costs for both buyers and sellers of the goods and services. Although the future is unpredictable, NFT might have a bright future if it continues to work efficiently in everyday business. Even though the NFTs are widely popular, we should not forget that NFTs are risky as well because of their uncertain future. It might look like a good investment and if we look at daily statistics it is a good investment but there are chances of its downfall in the future. Small investments in NFTs are the way to enter the world of NFTs. The amount you pay to buy a NFT may or may not increase in the future, it could remain the same and maybe it can fall so investing in NFTs should be done wisely. The Indian Budget 2022 has imposed a flat 30% tax on transfers to NFT and cryptocurrency. All these factors and many others will decide the future of NFTs.

Disclaimer: This blog has opinionated information, not making us liable for anything. The content of this blog is authentic to the best of knowledge and may be missing some information. All the content provided in this blog is for informational purposes only. All the data, facts and examples posted in this blog are accurate according to the information and date posted.

Similar Articles