With a previous articler we had started talking about the characteristics of NFTs. We have yet to explain how it works. For that we must define some basic concepts
Tokens, blockchain and wallets.
What are tokens
In principle, the word token can be used as a synonym for "cryptocurrency" or cryptocurrency. Although, the most correct, considering the subject of this series of articles, we should talk about "crypto assets"
Being more specific, it is used to describe certain digital assets that run on the blockchain of other cryptocurrencies, as do many decentralized finance tokens (or DeFi) or the NFTs themselves. Thanks to the tokens, decentralized exchanges and the sale of accessories for video games are made possible. Always maintaining the possibility that they can be traded or treasured like any cryptocurrency.
Some types of tokens
- DeFi Tokens: There are cryptocurrency-based protocols that aim to reproduce the traditional functions of the financial system; loans, savings, insurance, international trade. Such protocols issue tokens that perform a wide variety of functions, but can also be traded or held like any other cryptocurrency.
- Governance tokens: It is the digital equivalent to the shares of a company. These are specialized DeFi tokens that They give owners the right to vote on questions about protocol.
- Non-fungible tokens: These tokens represent property rights to a unique real-world or digital asset. They are used to restrict the copying and sharing of digital creations . They also serve to issue a limited number of digital works of art or sell unique virtual assets.
- Property tokens (Security tokens): They are the cryptographic equivalent of stocks and bonds. They are used to sell shares in companies or projects without the need to use a stockbroker or comply with the rules of regulators.
What is the chain of blocks (Blockchain)
To put it simply, a blockchain is a type of database. In other words, it is a collection of information stored in electronic form that can be accessed, filtered and manipulated quickly and easily by any number of users at the same time.
However, there is an important difference from traditional databases. The way the data is structured.
In a chain of blocks, information is collected in groups (the blocks that give it its name), These groups contain sets of information. The blocks have certain storage capacities and, when filled, they are chained to the previously filled block, forming a chain of data known as a "blockchain". All new information that follows that newly added block is entered into a newly formed block which will then also be added to the chain once it is complete.
This system also creates an irreversible timeline of data when implemented in a decentralized manner. When a block is filled, it becomes unchangeable and becomes part of this timeline. Each block in the chain is assigned an exact timestamp when it is added to the chain.
In a blockchain, each node has a complete record of the data that has been stored on the blockchain since its inception. If a node has an error in its data, you can use the thousands of other nodes as a benchmark to correct yourself. In this way, no node within the network can alter the information contained in it.
Smart contracts
It is a program that can be integrated into the blockchain to facilitate, verify or negotiate an agreement contractual. Smart contracts work according to a set of rules that users accept. When those conditions are met, the terms of the agreement are carried out automatically.
What is a crypto wallet (Crypto Wallet)
It is a software that interacts with the block chain allowing the generation of public and private keys, monitoring balances and sending and receiving cryptocurrencies.
They can be installed on the system or used in the cloud.