In-depth explanation on NFTs
There are so many articles about NFTs, but the problem is, everyone is writing the same thing. No one goes really in-depth on NFTs, no one writes how it works, and how to create one, etc.
What they write is something like this.
NFT is non-fungible token. It’s unique and can only one person owns it. It’s like trading card etc.
That doesn’t explain it very well. Instead, in this article, I want to explain it in-depth. I am going to start with a little bit of foundation and then explain how to create one.
The foundation is really important for understanding NFTs. Because of this, first we have to understand what the Ethereum Blockchain is.
What is Ethereum?
Ethereum is an open-source blockchain software.
You can think of a blockchain as computers connected to each other and stores the same database in every computer.
When you want to add data to the database in the blockchain you have to make a transaction. You create a transaction and send it to the blockchain (to the computers). To make that transaction be part of the blockchain, you have to pay some fees. This is called a “Gas Fee”. After completing the transaction, all the connected computers verify that transaction data and add it to the blockchain.
There is a single computer called the Ethereum Virtual Machine (EVM) in the Ethereum network. Everyone who contributes to the Ethereum network keeps a copy of the state of that EVM. You can think of EVM as Java Virtual Machine (JVM) but in a blockchain. You can run your own applications on the EVM. So there should be a programming language for EVM, right?
Yes, there are multiple programming languages that compile into byte-code that EVM can understand. The most popular one is the Solidity Language. The programs you write for EVM are called Smart Contracts.
What is Smart Contract?
A smart contract is an application that runs on the blockchain (actually more than that). Every smart contract has some functions and some state. Also, these smart contracts have an address like your wallet address.
So if these smart contracts have addresses, they must have a balance, right? Yes. Smart contracts have a balance and they can send transactions to the blockchain. The most important thing you have to understand is, smart contracts are not controlled by some user. They just run what is inside of the code.
For example, you can write a simple smart contract that increments some value every time a function is called. But how do we call its function? We can call their functions with, you probably guessed it, transactions.
Writing smart contracts is not that hard, especially if you have a programming background. But deploying a smart contract to blockchain costs a bit much, I will explain it later.
Gas and Gas Fee
Every transaction made in the blockchain costs Gas — making transactions, deploying smart contracts, reading a value, the addition of two values, etc.
Gas is computational power required to validate and process your transactions. But who validates your transactions? Miners.
Miners uses some special hardware and process transactions in blocks. In exchange, miners earn block rewards and gas fees.
That means the gas fee you pay will go to the miners that secure the blockchain and processes your orders.
Also, different kinds of actions cost different gas counts. For example, sending ETH to an account is cheaper than deploying a smart contract or doing complex stuff inside of smart contracts.
The cost of 1 Gas is called gas price. If a gas price is 1 ETH (not real), and you want to do a transaction which costs 10 Gas, you have to pay 10ETH.
Gas prices are denominated in “gwei” unit which is 0.000000001ETH.
Gas prices change frequently. Gas prices are not being set by developers or miners. It’s all about transaction volume.
If many users requesting to validate a transaction, gas prices will be high because miners are going to select who pays more and the average gas price of some of the latest transactions will be the new gas price. In that way, gas prices will be higher than the previous one. It depends on the number of transactions.
Standart transactions cost 21,000 Gas. For example, you want to send 1ETH to your friend. You have to pay 21,000*Gas Price + 1ETH.
You can find the current gas price here.
Wait. Isn’t this article going to explain what NFT is? Yes it is. We are finished with the basic foundation that we need to understand NFTs better.
Let’s dive into NFTs
Do you still remember what a smart contract is, you have to because an NFT is simply a smart contract that applies ERC-721 or ERC-1151 specifications. Don’t let ERC-721 and ERC-1151 things scare you because it’s actually very simple.
In this article, we are going to cover ERC-721 specification since most NFTs are made with this specification in mind.
So, a smart contract is code that runs on the blockchain and it has some functions and state.
Let’s create an NFT. I will not code an NFT but the process is the same.
I am going to use some kittens for this, so our token will be a Kitten.
No animals were harmed while writing this.
Our kittens should have some attributes, for example eye color, fur color, pattern, and also needs an ID, name, and able to breed with other cats. That means our NFT should include a Kitten object that includes all attributes we want. Also we should be able to create new kittens (0th Generation) and this creation process is called minting. Lastly, we should be able to transfer our kittens to another owner :(
In this case, our token is Kitten. It has an ID (TokenID), name, and attributes. Luckily for us, ERC-721 specification includes TokenID and transfer functions. Next, we have to create some initial kitties, for example 100, and we should have limit of how many cats can be created totally, let’s say 50,000.
Creating a kitten for Generation 0 is simple because we have a function in smart contract that creates random kitten. Generation 0 kittens will be ancestor of all next generation kittens. Let’s say we created 100 Generation 0 kittens and added to a list that contains all of the kittens that are created or born.
In this kitty case, our functions are BreedKitten, CreateKitten, TransferKittenTo, SellKitten. Our state is the list that stores all kitties.
But where is my kittens?
When we created the first 100 kittens, we created those kittens (tokens) in the owner account. The owner account is generally the account that deployed that smart contract. Simply, owner account is your own Ethereum address. That means if I deploy this smart contract to blockchain network, I will be owner and 100 kittens are going to be mine, YAY! :)
Now, I have 100 tokens for kittens. What can I do with those? I can breed them or I can transfer them to another owner for free, or I can sell them.
So yes, this is an NFT. It can be an object, kitten, painting, sound, imaginary person, etc. All of the things I’ve listed above are called tokens. Initially, the tokens I created are mine and I can sell those tokens or transfer them to my friend.
Most importantly, every token is different from each other. This is why they are expensive and valuable.
How much does it costs to create NFT?
Making changes in the blockchain is getting more expensive every day. It’s because many more people are learning blockchain technology and using it.
Let’s say, we created our smart contract and compiled it. We have a code that only EVM can understand. Sending this code to blockchain costs a bit much.
Do you remember what I said?
Every transaction costs gas (except for one or two if I remember correctly)
To deploy a smart contract to blockchain uses some gas. First fee we need to pay is, transaction fee. This costs 21,000 gas. The second fee is the cost of CREATE operation.
Create an operation simply creates an address for our smart contract. When we are deploying our smart contract we need to access it, so it needs an address. So create operation creates an account, which has balance etc, and belongs to your smart contract.
Also your smart contract does stuff on blockchain, right? We have to include those as well. Every byte of your smart contract costs 4 gas and every operation you’ve made in your smart contract costs some gas.
So in total, deploying a smart contract will cost minimum (you can fill Gas Price with current Gas Price from here);
(32000 + 21000 + Smart Contract) Gas * Gas Price = ??? $
Optimization is really important when it comes to deploy a smart contract. There are some tips available in Solidity documentation.
After deployed it and created initial NFTs, you can put these tokens to sale in marketplaces or create your own website and use your website as marketplace.
“Wait, I can create my own NFTs for free on blabla.com?”
Yes you also can create NFTs for free. But the thing is, when you create an NFT for free, you are not actually creating it. It gets created when someone buys it.
If you have individual pieces you want to sell, creating for free is the best choice. There are really popular marketplaces that let you create NFT and sell.
If you want to create limited collection of punks or add a functionality to breed your cats, you probably want to code your own smart contract.
TL;DR: NFT is a smart contract that runs on blockchain and does stuff on there.
Thank you for reading this far :)
If you want to go more in-depth you can check out these resources:
And some popular NFT collections and games (made with smart sontracts):
