Understanding Non-Fungible Tokens


This article aims to discuss and enlighten readers about NFTs and their relevance, based on an interview with Faris Nasir, one of the co-founders of NFXT, a community of forward-thinking creatives, who have come together to play and work towards experimenting, educating and raising awareness about digital art here in Malaysia. Before defining what NFTs are, Faris insists on the need to clarify the technology that supports NFT market transactions.

The Technology

1. Blockchain

Blockchain technology serves as an infrastructure supporting the application of digital currency across the decentralized digital world. It is an unmodifiable ledger of transactions history. It is designed as an “append-only” database where people can only append new data in the form of additional blocks. All existing blocks will eventually be chained together and stored permanently across all other 

NFXT - a community that advocates knowledge sharing and the betterment of people through art.

nodes/blocks in computers worldwide, leveraging cryptography (i.e. coding of information) to provide a decentralised concurrency control mechanism towards maintaining the consensus publicly. Blockchain promotes transparency. No modification or manipulation can be performed without collaborative validation within the worldwide network. It prevents double-spending (i.e. single unit of currency is spent simultaneously more than once) attacks. The entire network must reach a worldwide consensus on the transaction order through a peer-to-peer (P2P) validation system or consensus mechanisms, namely Proof-of-Work (PoW) or Proof-of-Stake (PoS) algorithms (i.e. set of rules).

2. Cryptocurrencies

The digital currency applied using blockchain technology is called cryptocurrencies. For instance, Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Tezos (XTZ) and Cardano (ADA) are some popular cryptocurrencies applied in the marketplace. Each system stores and maintains digital transaction history and accounting details for every cryptocurrency user. Each user will receive a private key (digital codes) that gives ownership and access (send or receive) to the amount of currency held as registered on the blockchain. The amount of currency held on the blockchain will never be lost as long as the user keeps their private key codes securely. Crypto wallets (e.g. Coinbase, Electrum, Ledger Nano X, Exodus and so on) are programs intended to allow users to keep all their private keys. 

"Never make digital copies or screen shots of your private key to prevent the risk of being hacked," Faris reminds. "You may have to find a cryptocurrency exchange such as Binance, KuCoin and Luno websites that allow you to buy and sell cryptocurrencies, and also to convert them to fiat currency or vice versa, and you can transfer them into your own crypto wallet."

Non-fungible Tokens (NFTs)

Supported by the blockchain technology, NFTs have emerged as unique collectable digital tokenised assets that contain identifiable cryptographic information recorded in smart contracts on blockchain. The market for "one-of-a-kind" NFT assets, including illustrations, paintings, sculptures, animated GIFs, music, songs, games, etc., has grown rapidly in the world of digital marketing. Global creative talents including Malaysian art practitioners, especially those who are tech-savvy are now actively exploring the potential of the NFTs market. 

According to Faris, the NFT smart contract usually consists of three components:

  1. Artwork in digital format (i.e. pdf/ jpeg/ wav/ mp3/ png/ mp4…etc.)
  2. Metadata – the properties of artwork such as the title, description or other content described in the contract while the digital artworks are stored in a separate decentralised storage server. In some cases, the digital artworks are stored natively in the blockchain, called on-chain NFT art.
  3. NFTs – the tokens stored in the blockchain

Check out the showcase of Creativists’ NFT creations @ NFXT

The chart below outlines the steps for selling and buying NFT art:

Step-by-Step Selling NFT Art

Step-by-Step Buying NFT Art

“While everything is decentralized, it becomes transparent. Fraud cases can be controlled as the NFT ecosystem removes the divide or the middle party between collectors and artists. Collectors can easily or even directly verify works' authenticity by reaching out to the artist through the social media links that the artist has shared in the NFT market. At each resale, the artist will continue to receive royalties according to the rate specified when the artwork was minted. Artists from around the world are now getting closer to sharing and exchanging information and connections in the NFT art world," says Faris. 

In conclusion, the NFT art market enables individual art talents to market their works independently instead of relying on third parties.

References used in this article and for more information check out:

What is Blockchain Technology? 

Proof of Work vs Proof of Stake: Which one is better? 

What is an NFT? A beginner's guide

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