I don’t really care about fad stuff so I never bought any but also I never really understood how they worked practically. Like if I bought a famous tweet or jpg or what ever, how would I use the token to verify owner ship of the thing or sell it?
I don’t really care about fad stuff so I never bought any but also I never really understood how they worked practically. Like if I bought a famous tweet or jpg or what ever, how would I use the token to verify owner ship of the thing or sell it?
I feel that most people who speak very badly or very well about NFTs and crypto in general don’t really understand it.
In simple terms what the Blockchain technology solves is a way to have an append only database with no centralized authority. This is a HUGE accomplishment, but you very likely don’t care about it.
In short, this means that Blockchain provides a way to exchange “tokens” without any user needing to trust each other or a third party. If you can trust the other person, or can trust a third party to be impartial then you don’t really need a Blockchain.
A Token is a representation of something, for currencies a token is a representation of value, and value is a fungible attribute, I.e. 1 of them is the same as any other, like coins, where you can replace a coin for another of the same denomination and they’re worth the same.
However tokens can be non-fungible, which means that one token is not the same as another, think for example house deeds, if someone takes your house deed they can’t just give you a different house deed and be the same.
We use non-fungible tokens a lot on our society, some examples are steam keys, vehicle registrations, or certifications of ownership for expensive pieces of art. We usually can trust valve, the government and whoever issued the art certificate to be impartial when someone tries to sell a game, car or art. But what if you couldn’t? How would you safely validate ownership without having to trust anyone?
That’s what crypto NFT bring to the table, someone had the idea to create a platform where artists could create tokens of authenticity for their art, and sell that to people giving them a way to own digital art in the same way that someone owns a painting. Then crypto bros started pumping that to sell their tokens for a higher price and a lots of people fell for it and started buying tokens representing ownership of things they didn’t wanted or understood to try to sell for s higher price later.
Obviously that scheme fell, but that doesn’t mean the technology is useless or untrustworthy. But for most cases crypto is not needed as most people can trust their government or some other centralized authority.
Thank you for finally making me understand blockchain.
As a non-technical person - how can I trust that there really is no centralized authority? Wouldn’t whoever built the blockchain system retain some kind of power over it?
Bitcoin is a protocol, kinda like HTTP or Morse code, whoever created it can’t change what things mean unless those using it accept it.
To answer your question with some more technical details, Blockchain use a public/private key pair, explaining what they are and how they work is quite difficult without going deep into mathematics, but in short a private key is a secret number so big it would take billions of years to brute force even with the entirety of the computational power of earth. In short, it’s impossible to guess a private key. On the other hand a public key is a number that’s derived from that first number without a way to going back to it, a very dumb down example would be think on 2 numbers (123 and 5) multiply them and you have your private key (615) add them and you have your public key (128), knowing just the public key you can’t know what the private key is.
Ok, so you have a number no one can guess and another number derived from it, so what? Well, because of the way the public key is derived from the private one you can encrypt things with the public key that only the person with the private key can decrypt, which is cool and all, but the important part here is the other way around: you can sign a message with a private key that anyone with the public key can verify. This is extremely important, because it means that if we use the public key to identify someone, only the person who knows the private key can sign as them, and no one (not even the creator of Bitcoin) can falsify that signature, because to do that they would have to know the private key.
With that knowledge understanding what Bitcoin is is much easier. Imagine your public address is 12345 and you want to send 1 coin to me, my public address being 54321, you essentially send a message saying “12345 gives 1 coin to 54321” and sign it, now a miner will see that transaction, and if you have 1 coin to give they’ll try to build a block of transactions which includes yours. Eventually your transaction will make it into a block, and all blocks that are built on top of it will make it more difficult to revert.
Final details, how do they know you have 1 coin? They tally all of the coins 12345 has received and sent over time. They store the total for each account in memory so they don’t have to calculate it every time, but that’s how they know if you have enough. And finally, every time someone creates a block they can claim a special transaction that creates a specific amount of new coins to any public key they want, that’s how new coins are created.
As you can notice, you sign transactions and no one can falsify that, miners group transactions and it’s in their best interest to be honest (otherwise other miners won’t accept their block and they will have spend computer power for nothing). It’s a system where everyone is kept honest because attacking the system is more expensive than playing by the rules. And the rules are set and forget, although miners can change the rules collectively it requires lots of people to be in agreement and it won’t happen to revert your purchase.
In short, it’s not exactly 0 trust, but it uses game theory to make sure that you can trust the system as it’s in everyone’s best interest that the system remains honest.
If you have any other question let me know.
Do they actually solve the issue of trust? I don’t dispute that they make it a simpler problem, but I don’t think you can claim that you don’t have to trust anyone.
My understanding is that if the blockchain decides (i.e.: people in general) that you do not own the NFT, they could create a fork in the database. You may still have your version, but if no one uses it, aren’t you left in the same place?
Let’s talk about Proof of Work which is what Bitcoin uses (Ethereum uses Proof of Stake, and that’s slightly different).
The way Blockchain works is that every block depends on the previous one, I won’t bother with the mathematics of it, just accept that a block needs to have a parent block. The protocol is that the longest chain is the valid one, once your transaction gets on a block miners are incentivized to build on top of that. In short, suppose the chain currently has 100 blocks, your transaction on block 101, a miner that purposefully ignores that block to try to build a different 101 block is racing against every other miner who’s trying to build block 102, because I’d any other miner builds 102 before then he now needs to build 2 blocks before the miners build 1, so on and so forth until he has to accept defeat.
In short, a single miner depends on luck to be able to “rollback” (it’s not really a rollback, it’s a pretend it never happened and move the tokens elsewhere so the original transaction is not valid, in an attack called double-spending). This is why the more blocks (or verifications) are on top of a transaction the harder it is to “revert”. To “undo” a transaction that just happened you have to get lucky twice and build two blocks in quick succession, to undo a transaction from an hour ago you have to build 7 blocks in average before others can build one. To give you an idea of just how unfeasible this is, the reward for finding a Bitcoin block is around $80.000 currently, this means that to “undo” a transaction that happened 1 hour you’re losing the opportunity to earn over half a million dollars (which is what you would earn if you were to find 7 blocks without having to race against anyone else)
Because no one has your private keys, the only way to move the tokens from your ownership is to rollback the chain until that transaction happened, remove it, and rebuild the chain from that point onwards. So, it’s doable, in the sense that it’s physically possible, but unless you can convince the majority of miners that the transaction should be reverted, and even then until the new chain reaches or surpasses the old one the old one is the valid one, so if you only convince 51% of miners and the transaction happened a few hours ago they’ll probably spend a few days catching up, and if in the meantime some miners flip side they might never catch it and miners might abandon your cause as it’s coating them 80 thousand dollars every time someone else finds a block.
Finally, if such a thing were to actually happen, trust in that coin would drop significantly, and with that its price, and with that the money minera receive from finding blocks. So it’s not in their best interest to do that, as it can yield to them losing money from their source of income.
In short, yes, it’s possible, but unless your attacker can essentially burn millions of dollars to fuck with you it’s not very likely to happen.
Yes, but that’s generally a bad thing that the majority of people want to avoid. If someone controls over half of the mining pool then you have bigger issues.
Thank you for this explanation.