{"id":34386607,"date":"2021-03-28T06:30:53","date_gmt":"2021-03-28T06:30:53","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/2021\/03\/28\/on-nfts\/"},"modified":"2021-09-13T19:43:21","modified_gmt":"2021-09-13T14:13:21","slug":"on-nfts","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2021\/03\/28\/on-nfts\/","title":{"rendered":"On NFT's"},"content":{"rendered":"\n

A serious joke<\/h2>\n\n\n\n
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In 1996, a federal mint employee was eating bananas near where US dollar bills were being printed, and a Del Monte sticker on one of the bananas fell into the printing press and got under a transparent layer of a $20 bill. The Del Monte note was created. This particular $20 note is a collectible in some circles and has been auctioned many times before, and most recently for around $400,000. That the serial number of the note is printed over<\/em> the Del Monte sticker makes this even cooler, and kind of unforgeable, and a fungible token became a non-fungible token.<\/p>\n\n\n\n

What?<\/h2>\n\n\n\n

What does it mean for something to be \u201cfungible\u201d anyway? As an example, dollars (or any money for that matter) are fungible. That is, a dollar is a dollar is a dollar. It doesn\u2019t matter if it\u2019s a note with serial number XYZ or ABC or a ledger entry in some bank\u2019s database. If I give you a $10 bill to transfer an equivalent value, the actual printed bill is irrelevant. This was made much easier when we went from cash (physical transfer of value) to digital transfer of value, and we now transfer an abstract notion of $10 without having to bother with a physical vehicle to carry that value. Now that we have digital money like your bank deposits or Bitcoin \u2013 what is the equivalent of the Del Monte note? We will get to that question in a bit.<\/p>\n\n\n\n

In the physical world, there are two primary requirements for an object to become a collectible.<\/p>\n\n\n\n

  1. It should be one-off, or a limited edition.<\/p><\/li>

  2. It should have some intrinsic appeal because of aesthetic reasons (a Picasso, a Ferrari 250 GTO) or quirky reasons (the Del Monte note).<\/p><\/li><\/ol>\n\n\n\n

    The appeal of a collectible is driven by popular culture. That\u2019s beyond the scope of this article. The limited edition nature is what I am interested in. <\/p>\n\n\n\n

    Limited Editions and Artificial Supply Caps<\/h2>\n\n\n\n

    Most paintings appreciate in value after the painter has died. This makes that artist\u2019s work provably limited edition. In rarer cases, the technology used to create the collectible in question is provably obsolete, or some raw materials have become extinct. Many times, if the creator is still active, they could implicitly make a promise that the collectible is limited edition. For example, the car company McLaren has implicitly promised us that they won\u2019t make more of their iconic F1 supercar from the 1990\u2019s. Or Ferrari with their 250 GTO from the 1960\u2019s. Note that there is no technical reason that prevents them from making more of these cars. It\u2019s just that if they break their word, the collectible nature of these cars will vanish. <\/p>\n\n\n\n

    On the other hand, Seiko and Casio G-Shock, the Japanese watchmakers, make many limited edition collections of watches every year. In the watch collectors\u2019 community, it\u2019s almost a joke when a new \u201climited edition\u201d Seiko comes out. Sure, there will only be 50 of these specific watches with some specific quirk, but tomorrow, there will be another limited edition collection with some other quirk. Eventually, even among watch collectors it\u2019s hard to know which of these is a true collectible, and which is not. But they are all limited edition, according to Seiko.<\/p>\n\n\n\n

    What about collectibles in the digital world, where anything can be copy-pasted? Making a limited edition of anything is quite hard. For the most part, digital money is the only thing that cannot be copy-pasted. Government controlled digital money does this by having a centralized database with a trusted party (commercial or central banks) and this trusted party is \u2013 er \u2013 trusted to not copy-paste. Bitcoin and related cryptocurrencies prevent copy-paste using cryptography, distributed computing, and game theory. <\/p>\n\n\n\n

    If you can make a unit of a digital money unique, by affixing a banana sticker on a it digitally, you get yourself a digital collectible, or a Non Fungible Token (or NFT).<\/p>\n\n\n\n

    \"The<\/figure>\n\n\n\n

    Can we \u201caffix a banana sticker\u201d on a unit of digital money in your savings bank account?1<\/a> Bank account balances are not represented as cash-like notes with serial numbers. Every account has just a numerical balance, and that makes it quite hard to take a part of that balance, and affix a banana sticker on it. So, that\u2019s out. What about the other money that we know about: Bitcoin? Bitcoin is cash-like, in the sense that each digital unit of Bitcoin (technically called a UTXO, or Unspent Transaction Output) has a unique serial number associated with it. But how do we affix a banana sticker on it? For better or worse, Bitcoin is a bit too focused on being a secure implementation of money, and makes affixing this banana sticker much harder, like that Del Monte note was a one-off with the US dollar, but most US dollar bills are unmarked and fungible. Bitcoin is out.<\/p>\n\n\n\n

    What if we had Bitcoin-like platforms where affixing banana stickers on non-copy-paste-able digital tokens is easy. These are NFT platforms built on Ethereum.<\/p>\n\n\n\n

    A bit of history here: Ethereum, being a more ambitious platform than Bitcoin, wanted to allow general purpose computation on a decentralized system with no central operator (the opposite of say, Google Cloud or Amazon Web Services). General purpose computation is all fine and dandy, but most users wanted coins equivalent to Bitcoin, but with more fine-grained control on how the actual units were minted and transferred. Note that Bitcoin itself has these minting and transfer rules, but they are all set in stone. Ethereum\u2019s underlying currency: Ether, also has such rules, and for the most part, they are also hard to change. But if a single user wanted to create their own such coin platform, with their own minting and transfer rules, they could create such a platform on Ethereum. This platform standard was called ERC-20, and all the ICO\u2019s you heard about from 2017-2018 were ERC-20 coin platforms with specific mint and transfer rules created by specific teams. To give another analogy, every ERC-20 token-platform is like a bank. Users of a specific ERC-20 token-platform have their own account in this bank with fungible ERC-20 tokens in these accounts, and can transfer these tokens from their account to someone else\u2019s account. This entire ERC-20 bank, along with other such banks, are all built on Ethereum. There are 1000\u2019s of popular ERC-20 token-platforms on Ethereum, with each of them having many users. <\/p>\n\n\n\n

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    Read: a quick primer on bitcoin<\/a> and ethereum<\/a><\/p>\n\n\n\n

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    One such platform is Cryptopunks<\/a>, which is an ERC-20 token platform created by a company with 2 engineers. Cryptopunks added one new feature to each of its erstwhile fungible tokens. Each token is associated with a unique 24×24 pixel art image representing various human like faces, which added \u2013 er \u2013 personality, to each token. It turned out that these tokens were now not<\/strong> fungible at all \u2013 some of these tokens have cooler personalities and are valued higher. Thus was born the ERC-721 standard, which allowed token-platforms to add a unique personality to each token that the platform mints. The ERC-721 standard is also popularly known as the NFT standard. Any token-platform that conforms to this standard allows creation\/transfer\/showcase of tokens with personalities \u2013 and sometimes, the personality is as random as a random string of 32 characters. The digital fingerprint of an image file can be 32 characters, and if you add such a fingerprint to a token \u2013 this token now has art associated with it. You could add digital fingerprints of music files to a token. Cryptokitties is another famous NFT platform on Ethereum \u2013 where each token represents a kitten, with kitten like features \u2013 all digital, of course. Note here that the token is associated with the token platform, which is in turn associated with the meta-platform on which the token-platform is built. Could the same 32 character fingerprint of some art be associated with a token from another NFT-platform? Yes, it can be.<\/p>\n\n\n\n

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    Point<\/strong>:<\/p>\n\n\n\n

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    NFTs liberate art. Traditional art is confined to time and space. You have to be in the right city, go to a museum, be invited to someone's home, etc. Anyone, anywhere with an Internet connection can view NFTs and take them in. This is a huge breakthrough.<\/p>— Cameron Winklevoss (@cameron) March 21, 2021<\/a><\/blockquote>