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How do NFTs work technically?

Recently, there has been a significant increase in interest in NFTs worldwide. There are constant reports in the news about how people get thousands of dollars from selling or investing in tokens. Let’s figure out what NFT is and how do NFTs work technically due to NFT licensing, what token standards exist, and how to increase your capital with their help.

What is a token, blockchain, and NFT?

In simple terms, an NFT token is a certificate created on the blockchain that confirms the ownership of a digital asset.

NFT tokens are non-fungible (unique), and their number is always limited. They differ from identical cryptocurrency tokens, which can have unlimited emission and participate in the exchange. The blockchain must record information about the author, the time of the creation of the NFT, and data on each operation performed with it.

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To better understand the principle of operation of NFT tokens (what they are and how does nft work technically arranged), you should find out the meaning of the concepts associated with them.

What is blockchain?

A blockchain is a database that is a continuous chain of blocks arranged chronologically. The key features of the blockchain are transparency and security. No one can correct, copy or delete data from the blockchain.

What is a token?

A token is a digital asset without a blockchain and allows you to use certain goods or services on the network.

One of the main functions of a token is identification. A company or individual can prove their involvement in a particular project through this asset.

How nft works

The technical process of NFT creation

Creating an NFT requires an underlying distributed ledger for records and transactions. The nfts work technically system includes two nodes that perform the roles of owner and buyer. The following algorithm can describe the process of creating an NFT:

Every time an NFT is minted or traded, a new transaction must be sent to invoke the smart contract. Once the NFT transaction is confirmed, the metadata and owner details are added to the new block, thereby ensuring that the history of the NFT remains intact and ownership is preserved.


Having defined what an NFT token and tokenization are, let’s look at the areas in which these types of assets are most often used:

NFT standards

How do nfts work technically, and what do they mean when creating digital assets? What are ERC-721 NFTs, and do they have anything in common with ERC-1155?

NFT token standards differ depending on the blockchain on which they were created and the features and functions embedded in them.

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In Ethereum, the most commonly used standards are ERC-721 and ERC-1155. The former can be used exclusively for NFTs and requires developers to create a separate smart contract for each token. ERC-1155 is an improved version of the previous standard considered more efficient and functional. It involves the creation of a single, smart contract for several tokens. The standard can be used for fungible and non-fungible tokens.

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When creating a token on the Tezos blockchain, the TZIP-16 standard is most commonly used. It provides access to contract metadata in JSON format and simplifies the integration of Tezos smart contracts for applications and crypto wallets.