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NFT: How to Make, Sell or Buy It?

Updated: May 8, 2021

The advancement of technology and infrastructure has transcended human expectations and redefined the new norms of living. Not many remember a world without smartphones and everything, and quite frankly not many would want to.

While all aspects of human life progressed, one area certainly moved at a snail pace owing to the fact that large institutions operating as the majority wished it so i.e. The world of Financial services.

FinServ relied on large scale institutions to govern it and regulate it from the get go however as evident by the financial crisis of 2008, the centralised power collapsed and the world collapsed with it.

Technology had been adopted up to that point however post crisis the adoption rate accelerated at an unprecedented way. The world woke up to cryptocurrencies and blockchains and in an instant the financial service sector was redefined.

Bitcoin rose to fame or rather infamy as the dread of governments and central banks alike. The masses were sceptical about cryptocurrency from the get-go. Crypto-currencies initial reputation was that of facilitating exchange on the dark web and other affiliates and no one thought it would amount to anything great. However time is a true testament of the asset that has grown to be so prominent that companies accept it as legal tender.

As a spin off of the concept, NFTs were brought into the world. The biggest difference from then vs now is that people are aware of it and the value it can generate. Unless one has been hiding under a rock, chances are they have heard about NFTs and the exorbitant amount some of them fetch. However, the viability of NFT as an investment raises concerns since it is a comparatively newer investment source.

Classification of Assets

Every supporter of the cause swears by NFTs as the next big thing in data, crypto and investments alike, however the concept brings it fair share of problems, the biggest being valuation of assets and standardisation or regulation. In the following article we shall explore Non Fungible Tokens, their viability and the world of Decentralised Finance that made its existence a possibility.

List of Content:-

Introduction to Decentralised Finance

The present financial infrastructure is largely centralised i.e. large institutions oversee smaller branches spread across regions, conducting transactions as a singular entity. The entities themselves are regulated by an apex central authority. Financial institutions acts as facilitators and guarantors of transactions, using their fame and prestige to provide a sense of stability and security.

Certain regions act as focal points or powerhouses conducting large scale transactions, essentially moving mountains of money around them. This has led to gaping regional disparities in terms of wealth and infrastructural development. Moreover, large institutions have a larger target on their backs. They are thoroughly audited and regulated since their failure can snowball into a worldwide financial crisis's evident by the 2008 financial crisis.

The Decentralised Finance or DeFi systems aims to shift from the myopic 'all for one' framework banks and financial institutions have operated into an all delivery mechanism providing financial service to everyone without the need for financial intermediaries or middlemen.

Decetralised Finance refers to the implementation of open source technology and software to create a blockchain network accessible by everyone without the need of banks and other financial institutions. It allows anyone to facilitate transactions between buyers and sellers or even borrowers and lenders.

The industry itself is new and budding with a developing infrastructure that leaves much to be desired. Regulation of the same are as minimal as The Wild West. Until now technology only existed to ease human burden and facilitate transaction however DeFi aims to make technology the focal point and building block of all financial services provided.

Most components of DeFi coincide with modern financial infrastructure i.e. the need of means of exchange and facilitation of services. Therefore the concept of crypto-currencies, stable coins, digital wallets and platforms were borne.

Smart contracts or self executing contracts contain terms of agreements transcribed as lines of code. They serve as a framework of functioning within the Decentralised Financial System.

The lines of code and the smart contracts themselves are stored on the blockchain. Since all transactions are executed on the blockchain they are all permanent and traceable therefore providing a sense of accountability. The mechanism allows for safety and security amongst possibly anonymous entities without the involvement of any apex legislative or enforcement entity.

Since DeFi is generally Open Source, it is essentially a stack of software that can be used by anyone to facilitate a financial transaction through a decentralised financial system. The aforementioned stack can be broadly classified into the following layers:-

  1. The Blockchain or the Network,

  2. Asset Facilitating exchange aka crypto currencies and stablecoins,

  3. Smart contracts acting as protocols enabling functionality,

  4. Applications that access protocols and facilitate transactions.

Block Chain

The creation of Blockchain is possible through cryptography. The essence of Cryptography lies in hiding in plain sight i.e. only those who are meant to understand and make use of it are able to see it. Therefore, The process can be broken down as:

a. the creator/prescriber of the content,

b. the content itself,

c. the intended user of the content,

and, d. the access or medium of exchange for content.

All of Decentralised Finance is made possible through blockchains serving as a vast compilation/list of records of data stored in blocks. The blocks also store a hash pointer that links it to the previous block, forming a chain. The hash pointer is a locating function that enables identification or tracking of specific data in the entire list.

How does Blockchain Work?

Image from 101Blockchains

A side chain enables conducting transactions on a separate 'chain of blocks' that are updated to the main chain later on. Side chains also minimise the minting cost of NFTs by minting in batches rather than single mints and use less energy. However it involves more steps and is a long process.

Cryptocurrency and Stablecoins

Cryptocurrencies use bits of data compiled as tokens to facilitate exchange serving as the 'currency'. Cryptocurrency designers are the creators intending the use of tokens as a means of exchange. Cryptocurrency users are the intended users that facilitate exchange and the 'access' is provided by the set of private and public keys the designer used to create the token and the user uses to purchase items.

Cryptocurrency facilitates most of the exchanges of Net fungible tokens.