Hola! I hope you are doing great. I am doing fantastic as well. Recently I was having a few conversations with some of my colleagues, where they were asking me very fundamental questions about NFTs (Non-Fungible Tokens). Though I was happy to see their interest creeping up in the decentralised space, their question was also testing my understanding.
Like, Mr Albert Einstein has said, ‘If you cannot explain it simply, you don’t understand it well enough.’ Conversations with my colleagues again gave me a trigger to dwell deeper into the NFT space. And, bring it, in front of you all, in the most easiest and understandable way, humanely possible. 🙂
I have recently started writing extensively on Blockchain, as I see a considerable knowledge gap, some of us know a lot, and many of us don’t know anything at all. Well, it is just a simple logic of Early adopters and laggards. I see myself, as the one, who is trying to onboard as many laggards as possible, on this digital Noah’s Ark.
What is Fungibility?
To start, we have to understand the basic difference between Fungibility and Non-fungibility. Fungibility is a simple property of an object, which enables it to be exchanged for an identical object, or a group of smaller objects, that totals up to the value of that object. The most simple example of this is currency. INR 2000 can always be exchanged for another currency note of INR 2000, the same is there with a $100 bill, and the same is the case with 1 bitcoin. Also, if we have four INR 500 notes, their value will also be equal to INR 2000 and can be happily exchanged for it.
Now, imagine a person you love. Avoiding the romantic drama, imagine your mother, even if you find someone identical, still they won’t be it, because no one can be ever her. And, of course, there is no question of smaller parts coming together to make the whole intact. 🙂
Hence, people are Non-Fungible objects, they can be replaced of course, but in no way there will be two people, with same value proposition and same attributes.
How Non-Fungibility is achieved on Blockchain?
As you know, Blockchain technology is based on a public and immutable ledger. And, hence once a information is recorded on it, there is no logical way to change it, unless the complete security of the blockchain is compromised. Also, every new block that is created on a blockchain, enforces each and every valid block, that was created before it.
Hence, it is very easy to identify, when was the first time something was registered on the blockchain, who created it, who bought it, and who is the current owner. Even if someone creates something that looks completely identical, he/she cannot erase the public history of the original one, and hence cannot pose to be something it is not.
Childlike Example
Imagine, a group of 5 years old children are playing a game of choosing unique nick name for themselves. The game is being assisted by their teacher, with a simple rule, that no two children can have same nick name. To start the game, the teacher brought big LEGO like units, that can be stacked on top each other to make tower.
Hope you are imagining. Each of these units is in 4 colours, Blue, Red, Yellow, and Green. And, each colour unit has geometrical shapes inscribed on them, Square, Circles, and Triangle. So, we have 3 Red colour units, the First is a square, the Second is a circle, and the third one is a Triangle. Following the same trend, there are of total 4×3=12 units. With me? Good.
Wuuf! The last part was so hard to articulate, sometimes it is very tough to write simple English. *Smirk. Anyways, let us move ahead.
Now, the game is very simple, each child will pick a unit randomly, and start writing their preferred nickname on it. They have to decide on the name, sign it, and then take the signature of the teacher on it. Who will do it first, will make the first block of the tower. Also, he/she will get the opportunity to choose the name of his/her choice, the second one will put his block over the first name, with a different name, because one is already taken.
Those who got confused in choosing the name can risk losing their preferred name to be claimed by someone else, hence time is of the essence here. So far so good, now imagine a notorious child, whose preferred name was just taken by someone else. Of course, he/she got furious, but can he/she manipulate the system here? Considering, beating the other child is not an option.
If we go with the same name, it will be rejected, as the name is already taken. Remember, he/she needs to take the signature from the teacher as well. Even if the teacher does it, out of favouritism, and the child places the blocks on the tower, every other child will immediately recognize this, and reject the block.
If the block, was placed at the sixth spot of the 12-block tower, the child has to replace that with the one, he/she has. And for this, he/she has to topple all the blocks above it and place his/her, and then re-rack all the blocks, to make the tower complete and upright, just like its previous state. But, since this game is happening publicly, every other child will notice this.
Hence, here every block is different, and cannot be replaced with a duplicate, once the same is included in the tower. And as more and more blocks are placed on it, it becomes harder to change anything. The same principles help NFTs to create unique original instances of when any item, that can be a piece of land, a portrait, a corporation, or whatever, came into existence, and who owns it.
Unique Attributes and utilities are assigned to a digital asset, with proof of ownership determined through cryptographic signatures, and all this happens on a public ledger. The fact that the blockchain is a public ledger-based technology, provides it with a unique deterrent towards fraud.
NFTs across blockchains
So, all that we discussed above is applicable to a single blockchain. But, there are multiple blockchains. Like the concept of NFT came from the Ethereum blockchain, because of its ability to support external self-running smart contracts. Now, What are smart contracts, that can be a topic of my other blog? If you are curious right now, you can visit Binance. The Binance platform holds some exceptional content on Blockchain and decentralised finance.
So, NFTs can be made on any chain, we talked about Ethereum, and the recent buzz is about the Ordinals, which are inscriptions on the Bitcoin blockchain. Different from Ethereum, Bitcoin does not support external storage of NFT-related data. Hence, whatever it is, it has to be completely inscribed on the chain. Blockchains like Binance Smart Chain, and Solana, are completely independent chains. And, blockchains, like Polygon is layer-2 blockchains. Polygon currently works over Ethereum and is helping it to be more scalable.
So, the story is that earlier, the NFT ecosystem was flourishing on Non-Bitcoin blockchains, and a company called Yuga Labs, launched an NFT collection with the name, Bored Ape Yacht Club (BAYC), on the Ethereum blockchain. The project became very popular, and it managed to build a strong community, through good engagement and rewards. Lately, an independent group provided opportunities open to everyone, including the community of BAYC members.
The opportunity was to inscribe a ape pair of BAYC apes, on the Bitcoin blockchain. While the current floor price of a BAYC NFT is ~52 ETH (~$95,739), the ape pair could have been inscribed on Bitcoin as an ordinal, in just ~0.014 BTC (~$382). When the DeFi (Decentralised Finance) community heard of them, 10,000 such Apes were inscribed forever on the Bitcoin blockchain, in a matter of days. And, the money people paid to inscribe them went to the Miners, who helps in ensuring that the Bitcoin network is up and running.
It shows the dynamism running around in this ecosystem, new trends are emerging every day, and only those, who are following them, will know. Later Yuga Labs is trying to get them removed from multiple Ordinal exchanges so that people cannot trade them. But, they very well know, what gets inscribed on Bitcoin, can never change. They have to accept that they didn’t see it coming. They have a huge RnD team, why didn’t they offer this on Bitcoin, in the first place?
But, this does not dilute the BAYC NFT on Ethereum, simply because it is a totally different ecosystem. I guess, the bigger we get, the slower we become.
The Ending Notes…
Non-Fungible Token, is an important use case of blockchain technology. And it offers the creators to mark the authentication for each of their creations. This eliminates piracy, and allows the creator to earn the royalty forever, whenever, someone trades their creation to someone else.
Blockchain is not exciting because it is something out of an world thing. It is exciting because it is solving so many problems of the systems built by us in the past, with style. Hence, it is imperative that the world will adopt it, it has to.
Hope you are also getting some curiosity, about this new way of doing the same things. We are made to solve problems, imagine and build things, and it is in our best interest to enjoy the process, but that does not change the reason, we are here. With your love and support, I will always find the courage to reach out to you again with interesting and meaningful topics. 🙂
Cheers, to love.
Thank you.
~R
Featured image credits: iStock
An Observer 