Help me understand NFTs

I’m not sure I fully understand NFTs but am curious as to what they might offer on the IC. What puzzles me is this: If NFTs are mainly used to represent digital items and if the IC allows the state of whole applications being “on the blockchain”, wouldn’t that make everything that’s hosted in a canister an NFT? In the end, a static website on the IC is a digital item as well, isn’t it? With traditional NFTs, there’s no one keeping me from changing the “underlying” image anyway. It can be lost, it can be tampered with and so on. And all the token does is “describe” what thing (image etc.) the token should correspond to, often times just by simply stating a URL in the metadata. So why have a token at all if you can host the item on the blockchain?

I feel I’m having a hard time getting to the bottom of what NFTs actually are but I know that one of the main benefits of blockchain technology is dematerialization. Bitcoin dematerializes immobile assets like gold, houses, cars etc. Instead of keeping physical gold at home (or trusting a bank to hold it for you) you can simply hold the private key to Bitcoin. Hence the term “digital gold”. I always thought NFTs to be a means of dematerializing physical assets like houses, cars, paintings on the Ethereum blockchain in order to make their underlying value easily transferable and build applications around them.

However, all I’m seeing are image files being traded in a gold rush frenzy although you don’t need dematerialization for digital assets. We were able to move them around perfectly fine before NFTs came along and we also traded digital items before. The whole thing of having a token for it seems rather pointless to me, unless I just don’t really understand it.

The real challenge seems to lie in bridging the token and the item associated with it, right? When it comes to digital items, the IC at least let’s you host your digital item directly on-chain, thereby proving that it’s not being tampered with, right? But how can one be sure that a token represents that specific item? Also people can copy digital items infinitely and claim that they are the owners. So do we really need NFTs and if so, what’s the “magic” behind them?

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  1. You want to “tokenize” NFT’s in order to trade them easily between people. If you consider your website on ICP (as an example) as an NFT, how would you actually sell that website to someone and transfer owenrship of it to him? Having NFT tokenized enables people to transfer token from one wallet to another, permanently written on the blockchain and enabling this functionality.

  2. Tokens are connected to their metadata and collection they live in. You could create an exactly same BAYC NFT in your own collection (that you made trying to copy BAYC and sell your worthless BAYC copies), but your collection does not equal original BAYC collection. Everyone knows what is the original BAYC collection and will never buy a fake one. At least I hope so :smiley:

  3. NFT’s don’t have to be digital representations of real world assets at all. They could, but they don’t need to. Most of them aren’t yet. All they are are non fungible tokens, meaning, there will never be two same tokens with exactly same properties in one specific collection, ensuring uniqueness for each of the items in the collection.

  4. Most NFT’s (on ETH for example) have their owners mapped to each NFT id on the blockchain (ensuring ownership) and metadata files uploaded to external decentralized hosting service like IPFS. Even though this is not ideal, it still isn’t end of the world, since it allows collections to actually change artwork or similar for already minted tokens if any issues arise (legal issues for example), but they can’t update token ownership and your tokens always belong to you.

We were able to move them around perfectly fine before NFTs came along and we also traded digital items before

Yeah, you were able to move around and sell digital art or similar, but you always relied on centralized services for doing so, without any real proof of ownership.

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OP, you’re asking the right questions.

I think the first killer use case of NFTs (which I don’t believe has happened yet) will be one that is purely virtual and not tied to a physical asset.

  1. You want to “tokenize” NFT’s in order to trade them easily between people. If you consider your website on ICP (as an example) as an NFT, how would you actually sell that website to someone and transfer owenrship of it to him? Having NFT tokenized enables people to transfer token from one wallet to another, permanently written on the blockchain and enabling this functionality.

This is actually really deep and is a fascinating example of what NFTs can do. Imagine selling blockchain-hosted websites on a marketplace. No need for escrow, no need to contact anyone. Just assets traded trustlessly. Then, whoever owns the website, say, owns the revenue stream that the website generates. The NFT can store the controller of the website.

A great quote I’ve heard is that NFTs are like the webpage when it first came out. It’s not a product but a platform on which you build great products. Imagination is the limit.

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Well with an NFT selling a digital asset is simply a click of a button. And then the whole transaction data is stored on the blockchain. This is leaps and bounds ahead of how you would have to do it otherwise.

Thank you all for your answers. I have now digged a little deeper into how NFTs work on the IC and one thing that struck me is the relationship between an NFT and a collection. First of all, many people seem to think of NFTs as always being part of a collection which of course isn’t true. When I started looking at NFTs I thought I’d stumble upon an open marketplace for any item that anyone tokenized using one of the proposed NFT standards, even single items. Remember that “real” artists don’t usually create collections. The point of having a collection seems to be monetization: As long as I’m not Banksy, I won’t make much money from selling one unique NFT so I need to create a collection and sell each item for 2 ICP or whatever.

Then there seems to be a technical reason (please correct me if I’m wrong). NFTs don’t live on a central ledger since there is no such thing on the IC. Instead if I create an NFT project, I will deploy a canister with one of the token standards proposed by the community and all NFTs minted by that canister are just canister state isolated from all the other canisters deployed on the IC. This includes marketplaces like Entrepot as well as DAB. Now, DAB is trying to develop a registry that would connect all these “strings” together but has to resort to having developers submit their NFTs using Typeform: DAB - NFT List Submission

This makes it nearly impossible for any artist to mint his one single unique artwork as an NFT and connect it to any other app, including selling it on an NFT marketplace. This sucks but I think it’s one of the main reasons why people think of NFTs as being part of a collection. Now the artist could use a minting service of course where the canister of the service integrates with marketplaces and other dapps. But is there such a thing?

The reason I’m writing this is because it has huge implications for the IC when it comes to openness. Right now, Entrepot is not an open marketplace. Instead it works as a gatekeeper for all wanna-be successful NFT-projects on the IC because all of them have to go through their checks. You can’t just mint five NFTs and go list them on an open marketplace on the IC. I think that this is detrimental to the quality of the art on the IC and it’s also not what I personally expect from open tech-infrastructure. The reason we’re here is because we don’t want gatekeepers. We don’t want AWS, FB or other over-regulated systems.

So if my assessment isn’t completely wrong, I think what we need is an efficient way to keep track of all NFTs minted on the IC. I’m not a good programmer, just trying to figure things out, but it feels like we need a special canister for this, comparable maybe with the one that keeps track of ICP tokens. What do you think?

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Have you seen DAB?

Thank you Paul! I’ve looked at DAB but the story is the same: It’s a registry with entry barriers causing friction. If an NFT project has not been listed using the form and intervention by the DAB-team, then any dapp written with their wrapper won’t be able to pull in NFT-data.

I think what you’re asking about would be IC/blockchain native NFTs. I highly doubt the DFINITY team would build a native canister (like the management canister) specifically for this use case, at least at this time.

What would the solution be that you’d be seeking look like?

One could make a black-hole type of canister and marketplace where you upload your NFT image, but with no centralized authority, but what would stop someone else from copying your image/collection from the web and uploading it to the same marketplace? A project without management has no authority to say what is legitimate and what is not, other than the NFT associated with the image.

I think this is a larger problem with images as currently the main use case for NFTs. I’m biased, but NFTs would be much for useful attached to assets like a car title, certificate of completion, or signed document between two parties - the idea being it doesn’t matter if the item is copied, just that it is legitimate and owner is specified. However, in all of these cases a trusted authority is needed, and until the SNS and community management/policing is up and working on the IC, a centralized marketplace is the solution.

Point of collections is to know for sure which NFT is the “real one”, to allow for easier navigation on the marketplace (imagine how hard it would be if all NFT’s with different kinds of art would be scattered in the same collection, or no collection). It would be madness of finding NFT’s that you would want to buy. It also prevents fake NFT’s with stolen art. If you wanted to “tokenize” anything and sell it as NFT you could still create your own collection (karim’s collection let’s say) and put single items that are all unique and possibly completely different than each others in that “karim’s collection”. If people appreciate you as an artist, they would then search your collection for your art or whatever you have tokenized. I don’t see a problem with this and it’s very convenient. If you’re a good and appreciated artist, you will sell them.

So if my assessment isn’t completely wrong, I think what we need is an efficient way to keep track of all NFTs minted on the IC. I’m not a good programmer, just trying to figure things out, but it feels like we need a special canister for this, comparable maybe with the one that keeps track of ICP tokens. What do you think?

I agree 100% with this. There should be an official container made by the IC team (something similar to a ledger canister) that accommodates NFT’s.

This depends on how you are defining collection, in the NFT space we have lots of singular themed collections created for the purpose of selling under that theme but in reality nearly all artists create loose collections of art that are either displayed on websites, social media sites or art galleries. The only way to find their art is often via these centralised locations. If you tried to randomly sell your art around various unconnected locations you would find it very difficult.

I absolutely agree, pretty cool ideas! In the end, maybe we could think of tokens as permission rights to do something. And these rights can simply be reassigned to other people. Things that need categorical or binary permission structures we use NFTs for and things that are of more continuous nature we use fungible tokens for (voting rights).

I would say, NFTs are damn cool. The concept of NFTs is so futuristic. Backing your ownership to a token that is non-spilitable. Cool, isn’t it?