NFT Basics & Smart Contracts

NFT Basics & Smart Contracts

NFT Basics & Smart Contracts

An introduction to Non-Fungible Tokens (NFTs) and their transformative impact on digital art, including generative art on platforms like fxhash.

What are NFTs?

Imagine NFTs as digital certificates of authenticity and ownership for unique items. They're akin to virtual collectibles, each with its own special story and intrinsic value.

What are NFTs? A Non-Fungible Token (NFT) represents a unique digital asset, recorded and stored on a blockchain, and signifies the ownership and authenticity of specific items, such as digital artwork. Non-fungibility in this setting means uniqueness. Each NFT is distinct and cannot be replaced or exchanged on a one-to-one basis with another token.

An NFT is like a one-of-a-kind painting. Just as no two paintings are exactly alike, each NFT is distinct and irreplaceable. This is in contrast to cryptocurrencies that are fungible tokens:

  • Fungible Tokens: Regular money is fungible. One $10 bill can be swapped for another, retaining the same value. The same principle applies to cryptocurrency, which is a fungible token on the blockchain.
  • Non-Fungible Tokens: A unique painting or a signed first-edition book can't be swapped for just anything else. They are valuable because of their uniqueness – this is what an NFT represents. It is a unique digital token that has unique properties making it distinct from any other token, such as a unique ID and metadata.

By virtue of blockchains being digital ledgers that have an immutable record of transactions, ownership of these Non-Fungible Tokens can be associated with specific wallet addresses. This also has the consequence that NFTs are financial assets:

  • Ownership: NFTs affirm digital ownership, akin to holding a rare, collectible item.
  • NFTs can be sold and traded: This ownership is recorded on the blockchain, allowing for transparent and verifiable transfer, exchanged for cryptocurrency or traded for another NFT via smart contracts.
  • Authenticity and Provenance: The blockchain ensures each NFT's authenticity and provides a traceable history.

What are Smart Contracts?

Whereas blockchain technology provides the infrastructure to store and immutably record transactions, there needs to be a protocol for how these transactions are effectuated.

These protocols are called smart contracts, as their name suggests, are agreements executed between two parties on a blockchain. They typically dictate the rules for transaction execution, doing so in a transparent and secure manner.

What are smart contracts? In essence, smart contracts are small pieces of code that represent the rules and conditions of a contract. Moreover, since they run on a decentralized blockchain, they are not controlled by any single entity, thus ensuring transparency and security. Smart contracts self-execute when both parties agree to the contract conditions, making the process trustless – neither party needs to trust the other, as the smart contract ensures each party receives what has been agreed upon.

Smart contracts, which come in various forms, are essentially the code that makes blockchain transactions possible. Most of the operations that you will effectuate on fxhash have some sort of smart contract running in the background. For instance, purchasing a GENTK from fxhash triggers a smart contract upon transaction confirmation in your wallet. This action records the transaction on the blockchain, transferring the cost of the GENTK to the artist and delivering the purchased GENTK to you.

NFTs in Generative Art

Smart Contracts and blockchain technology are crucial in enabling code-generated blockchain art and facilitate the ownership of these code-generated tokens. It is an innovative piece of technology which fxhash builds upon for the distribution of generative artworks.

When collectors acquire an iteration from a project on fxhash, this action generates a new Non-Fungible Token on the blockchain, representing the acquired asset. We cover how this works in more detail in the Introduction to Generative Tokens section.