To achieve our goals, we first worked out what kind of constraints we’d like to work under. Based on our target audience, we thought it would be best to use the kind of language and analogies that we used amongst ourselves. In fact, a lot of this was borne from our chats and calls with each other, where one would try to water down a complex concept in the most simplest terms for the other. We had the advantage of being new learners and by turning what could be a shortcoming into a feature of our work, we felt that we could create something more meaningful than had we done it any other way.
Over the course of our reading, we have come across some fundamental questions that are critical to gain a fuller understanding of non-fungible tokens. In our view, it is better to summarize the research in this manner since it helps us down the line. These are listed below in no particular order and have been answered in a manner that we understood them. Based on this understanding, we can select narrower and more structured questions for our GIFs.
01. What is meant by a token?
A token is any entity which denotes a value. A voter ID denotes a person’s right to vote, a URL denotes the address of a website, a person’s name is a token of their identity and so on. Similarly, anything which is capable of holding a value in the crypto space is a token.
02. What is meant by fungibility?
Fungible tokens are completely interchangeable with each other. One is as good as another. A Rs.10 note in my pocket is no more special than the Rs. 10 in yours. You can transfer fungible assets from one owner to another to make payments for certain things. On the other hand, exchanging fungible assets does not hold any meaning because they have the same value. If you lose a note, you can simply get another. By this understanding it follows that any token which is non-fungible must have a value that cannot be replaced or interchanged.
03. What is an example of a non-fungible item in real life?
Think of buying an NFT like buying a limited edition book. It means people who buy limited copies of a book can be sure no one else will ever have the same exact copy as them. That they won't lose their specialness.Why does this artificial limiting work?TL;DR, people are greedy. Let's go back to the special book example. There are only a few copies in the market. And because of that, they'll pay more money to get a copy. The publishers can charge more money and the author can earn more money because the publisher can sell fewer copies. NFTs work the same way, by artificially limiting the amount of editions of an artwork people can buy.
04. Does buying an NFT give me the rights to the work?
Buying an NFT gives you no more right to a work than buying a reprint of the Mona Lisa gives you a right to the original painting. The token you’re buying should be thought of merely as a ‘receipt’ to a limited edition of a work. The receipt certifies you as an owner of that particular edition of the work, nothing more.
05. Why can’t I just ‘Right Click’ and ‘Save As’ work on an NFT marketplace?
This is a common question. NFTs are not the images themselves, but the unique token of authenticity attached to them. An artist can still post the same work on any other platform, you can still screenshot or save it if you wish. But you are deprived of any proof of ownership on the blockchain.
06. What is the difference between Proof of Stake and Proof of Work?
PoS and PoW are two methods of verifying a transaction on a blockchain. To understand PoW in simple terms, whenever a transaction is added into the blockchain ledger, all participants must do some ‘work’ to validate that addition. This maintains the integrity of the blockchain.
With PoS, however, certain participants pledge their own money (their ‘stake’ in this whole exercise) and in return, only they validate the transactions. The rest of the blockchain accepts this because the validators have personal stake in the process and they stand to lose if they manipulate the transactions in any way. While PoW gives everyone a chance to validate, PoS may be said to concentrate power with users with the most money.
07. Why do people bother buying NFTs? What are the benefits?
One common pattern to emerge from the recent boom in NFT sales is that the token is listed again for resale soon after purchase. This points to a potential investment value that buyers see in certain tokens, much like buying real estate or paintings from a gallery. Often, the only aim of the purchase is to sell it at a higher price later. There is also a faction of NFT enthusiasts who buy tokens to support their favourite artists.
08. What kind of NFTs are people collecting?
What are the advantages of NFTs for artists? NFTs are now offering a chance for digital artists to sell their work in a manner that has been compared to the real-life gallery and auctions culture. Previously, it was unfathomable to imagine that a JPEG or a GIF could be bought and sold, because the entire point of digital art is that it is easily reproducible. By creating tokens, it is now possible for their circulation to be limited in number.
Additionally, marketplaces also allow artists to collect revenue after their piece has been sold downstream. If user A buys an NFT that user B had bought, a part of the money from the transaction will go to the artist. This was never possible before with art.
