WTF are NFTs?!

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Before I start to explain what an NFT is, let’s have a look at some examples. I tried to gather different styles of NFTs in the high price segment. There are of course also NFTs for 100$ and less.

Sold for $210’000

LeBron James: Dunk, From the Top (Series 1)

Source: https://nbatopshot.com/moment/bigdog_brothers+2499f572-8280-4057-ac27-5603971de95d

Sold for $888’888

Hairy: Musician, fashion designer, and entrepreneur Steve Aoki recently collaborated with 3D illustrator Antoni Tudisco to produce the eclectic piece known simply as ‘Hairy’ (A blue bespectacled creature bopping to one of Aoki’s beats in a 36-second clip).

Source: https://niftygateway.com/itemdetail/primary/0xbeccd9e4a80d4b7b642760275f60b62608d464f7/1

Sold for $2.9 million

First Twitter Tweet: First tweet posted by Twitter founder and CEO Jack Dorsey

Source: https://v.cent.co/tweet/20

Sold for $69 million

EVERYDAYS: THE FIRST 5000 DAYS: The artwork, created by famed digital artist Mike “Beeple” Winkelmann represents a collage of 5,000 of Beeple’s earlier artworks

Source: https://onlineonly.christies.com/s/beeple-first-5000-days/beeple-b-1981-1/112924

What is an NFT?

As you saw in the few examples, NFTs can be anything. It could be a tweet, a digital painting, a video clip, an animation, music, a 3D model, a picture, a GIF or even virtual land in a blockchain-based game. To further explain what NFT exactly means, it’s easier to split the word and have a closer look at Non-Fungible and Token.

NFT = Non-fungible token

Non-fungible

The official definition of fungible is “to be substituted for something of equal value or utility; interchangeable, exchangeable, replaceable”. For now, let’s replace the word fungible with replaceable. So non-fungible means non-replaceable. Let’s make some examples:

Physical fungible (replaceable)

  • CHF Coins and CHF Notes (my 10 Swiss Franc note has the same value as 10 x 1 Swiss Franc coins)
  • Precious metals like gold and silver (my 1kg gold bar has the same value as your 1kg gold bar)

Virtual fungible (replaceable)

  • Bitcoins and other crypto currencies (my 0.00001 BTC has the same value as your 0.00001 BTC)

Physical non-fungible (non replaceable)

  • Historic Coins (the first 1 Swiss Franc coin, or a limited special edition coin. The value is not really defined. Also the first 1 Swiss Franc coin has not the same value as the current 1 Swiss Franc coin)
  • Art (like paintings from Banksy. It’s unique and the value is only defined by the potential buyers. If a painting is destroyed, it’s not replaceable by another “similar” one)

Virtual non-fungible (non replaceable)

  • Tweets
  • NBA Dunks
  • Art (image, video, 3D model, music)

Token

The token certifies a digital asset to be unique and therefore not interchangeable. It’s proof of ownership that is stored on the blockchain (in this case: Ethereum). While someone can sell an NFT representing his work, the buyer does not necessarily receive copyright privileges if ownership of the NFT changes, allowing the original owner to create further NFTs of the same work. An NFT is merely proof of ownership separate from copyright.

NFT Properties

UniqueProvably ScarceIndivisible
Each NFT has different properties that are usually stored in the token’s metadata.There is usually a limited number of NFTs with an extreme example of having only 1 copy, the number of tokens can be verified on the blockchain, hence its provability.Most NFTs cannot be split into smaller denominations, so you cannot buy or transfer a fraction of your NFT.

The dark side of NFTs

NFTs are stored on ETH (Ethereum) Blockchain, which is currently using 51 TWh/year. That’s 51’000’000’000 kWh/year (comparable to the power consumption of the whole of Portugal). If we calculate the carbon footprint, it’s 30’000’000 tons of CO2/year. You could drive 121’000’000’000 km with a car to have the same emissions as ETH has in one year.

Source: https://digiconomist.net/ethereum-energy-consumption/

Create your own NFT

The process is very simple and creating an NFT at OpenSea is done in a few minutes. I decided to go for OpenSea because it’s the most popular marketplace and easiest to use.

Create account, collection and item

  1. Create digital art (image, video, audio, or 3D model) with your favourite tools. I did it with Adobe Photoshop and Adobe Premiere.
  2. Create an account at OpenSea. I used MetaMask as my wallet. You can also choose other wallets. If using MetaMask, it’s the easiest to have it installed as a Chrome/Firefox addon.
  3. Create a collection and add a new item to it.
  4. Upload your art (file types supported: JPG, PNG, GIF, SVG, MP4, WEBM, MP3, WAV, OGG, GLB, GLTF. Max size: 40 MB) and give it a name. That’s all you need for now!

Sell your item

After you created your item inside your collection, it is ready for selling. You will have the option to sell for a fixed price or create an open auction (highest bid). I decided to go for an auction and I will let it run until the end of the year.

  1. Click on your item
  2. Click on the top right corner button “Sell”
  3. Select “Highest Bid” to create an open auction
  4. All other settings are customizable, like minimum bid, the reserve price and expiration date. I set the minimum bid to 0, the reserve price to 1 and the expiration date to 31.12.2021 (end of the year)
  5. Post the listing with the big blue button. Posting something the first time requires a gas fee. Depending on the time and day, this will vary. See https://ycharts.com/indicators/ethereum_average_gas_price
  6. Congratz! You created and listed your first NFT!

Our N47 NFT is up for sale!

Of course, I had to create an N47 NFT too! Our sale end of the year (December 31, 2021, at 12:00 am CEST). Check the listing at OpenSea and make a bid! It will be a great investment 🤑

https://opensea.io/assets/0x495f947276749ce646f68ac8c248420045cb7b5e/84521541564558765496637908089370856586310363315177326824411334291304117960705

Why Multi-sig wallet?

Reading Time: 3 minutes

Bitcoins are generally stored in Bitcoin’s blockchain addresses, which are Public/Private key pairs of ECDSA. Around 80% of the bitcoins are stored using standard (single-key)🔑 addresses, which usually starts with number “1”. Therefore, anyone who have access to any private key corresponding to that standard address can move funds and these transfers are irreversible. This kind of bitcoin(₿) storing nature led to critical problems.

Security👮

When user creates wallet, wallet generates pair of Key. These wallet files are typically stored on machines and securely store on disk using encryption. However, after taking best practices for securing wallet, there are chances of being offline attack. There are possibly chance of malware or hacker’s attack on your system when user login to their wallet. This kind of single-key storage is risky and led to create protocol that stores key offline. These wallets known as “Cold storage or Hardware wallet”. Hardware wallets generates key based on Random number generator and if that generated key had weaknesses, funds may be at risk without any malware or hacker attack. Obviously attacking on hardware wallet have their own expenses, so it is safer than storing on machine.

Access Control 🔑

When it comes to business for handling bitcoin, then its different game compared to individual. In most of organization, leaving key of bitcoin wallet to employees is not reliable as one can move funds without leaving any traces. There are some way to get rid of them by splitting keys and giving access to their CEO, CFO but again for larger business where many transactions needed, it is not reliable. Businesses need some internal policies for transaction. Nevertheless, there is another solution for it.

The Solution: Multi-sig 👥📝

Blockchain industry is evolving rapidly and to overcome above-mentioned flow of bitcoin, they have upgraded their protocol and brought up alternative to single-key addresses. In upgraded version, new type of address defined and standardized that is called P2SH (pay-to-script-hash) and these addresses starts with “3” instead of “1”. The new addresses need multiple private keys to transact bitcoin and this known as Multi-signature or “Multi-sig”. The X number of keys are required out of arbitrary set of Y key to transact a P2SH address. This also called as “X-of-Y”. Therefore, single-key address considered as “1-of-1”. Because of limitation of blockchain, most of multi-sig implementation are either “2-­of-­2” or “2-­of-­3”.

The easiest example of “2-of-2” multi-sig address is “bank locker” 🏦 with 2 keys where one key held by bank and other is customer. To open deposit box, both keys are needed else it is impossible to open locker.

Unlike single-key, the malware or hackers attack on machine can be avoided using multi-sig “2-of-2” address scheme by storing keys of wallet on two separate devices i.e computer and phone. As both keys are stored on different devices, funds cannot be stolen on malware or hacking attack. However, question arise, what happen if one loses their phone? In such cases “2-of-3”, address scheme is useful by storing another key offline. In case of loss of one device, still fund can be recovered using offline key and available device.

As we can see, multi-sig technology helps both business and individual users by improving security and access controls.