Misconceptions surrounding NFTs

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16/01/2023 Article
Ryoji Kashiwagi NRI Expert Researcher

NFTs’ functionality and structure

NFTs are one-of-one (nonfungible) tokens minted on a non-falsifiable blockchain. Endowing a digital asset with nonfungibility ensures the asset is uniquely identifiable. Meanwhile, NFTs’ transaction history is preserved on a non-falsifiable blockchain as proof of the transactions’ authenticity.

NFTs have a multilayer nested structure1) (see diagram). The first layer contains information about the tokenized digital content itself (e.g., artwork, video clip or other collectible). The second contains the layer-one information plus registration information that points to where the layer-one data is stored. The third layer stores metadata pertaining to the NFT, together with the registration information. The fourth contains index data stored on a blockchain, in addition to the metadata layer. The key point is that only the index data is stored on chain (i.e., on a non- falsifiable blockchain) while the other three layers of data are stored off chain.

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