How NFTs are created and stored on the blockchain

How NFTs are created and stored on the blockchain

Creating an NFT (Non-Fungible Token) and storing it on the blockchain involves a series of technical steps:

  1. Select a Blockchain Platform:
    • When creating an NFT, the first step is to choose a blockchain platform that supports NFTs. The most commonly used platform is Ethereum, which provides standards like ERC-721 and ERC-1155 specifically designed for NFTs. ERC-721 is the original standard that ensures each token is unique, while ERC-1155 allows for the creation of both unique and semi-fungible tokens, offering more flexibility for creators.
    • Other platforms such as Solana and Tezos also support NFTs, providing alternatives with different features and ecosystems. Solana is known for its high transaction speeds and low fees, which is attractive for creators seeking efficiency. Tezos, on the other hand, is appreciated for its eco-friendliness and offers a unique consensus mechanism.
    • Each platform has its own marketplace ecosystem, developer tools, and transaction costs, so creators often select the one that best aligns with their technical requirements and target audience.
  2. Prepare the Digital Asset:
    • When creating an NFT, the digital asset to be tokenized can include forms like art, music, or videos. However, because blockchain networks are designed to handle lightweight transaction data and not large files, the actual digital file isn’t stored directly on the blockchain due to its size. Instead, a reference to the asset, such as a URL pointing to where the file is stored, is placed on the blockchain.
    • This approach allows the blockchain to maintain a record of ownership and provide metadata about the asset while the file itself is stored off-chain, often in decentralized storage systems like IPFS (InterPlanetary File System). This method ensures the NFT remains immutable and secure while keeping storage efficient. The blockchain entry, combined with decentralized storage, maintains the authenticity, uniqueness, and traceability of the NFT.
  3. Minting the NFT:
    • Metadata Creation: A metadata file is crucial in the NFT creation process because it provides important details about the digital asset being tokenized. This file contains information like the asset’s title, description, and unique properties that distinguish it from other NFTs. Additionally, it includes a link to the asset itself, often pointing to a decentralized storage platform like IPFS (InterPlanetary File System).
    • Storing this information in a decentralized storage system ensures that the digital asset is not controlled by a central authority and remains accessible even if one node or server fails. This decentralized approach, combined with the metadata file on the blockchain, provides secure and tamper-proof documentation of the NFT’s attributes and ownership, ensuring its authenticity and traceability.
    • Smart Contract Interaction: To create (or “mint”) an NFT, the creator engages with a smart contract on the blockchain. This smart contract is essentially a program that enforces the rules and attributes of the NFT. During the minting process, the smart contract assigns a unique token ID to each NFT, which makes it distinguishable from any other tokens on the blockchain.
    • The smart contract’s code defines important properties of the NFT, including its uniqueness, ownership, and rules regarding transfer or resale. Once the minting process is complete, the smart contract securely stores this information on the blockchain. This ensures that each NFT remains verifiable, immutable, and traceable, establishing a clear chain of ownership and authenticating the asset’s originality.
  4. Payment of Gas Fees: The process of minting an NFT requires the payment of transaction or gas fees. These fees are necessary because each transaction on the blockchain requires computational resources, and the fee compensates network participants who validate and process the transactions. The amount varies depending on the blockchain network being used and its current traffic.
    • For instance, on Ethereum, gas fees are paid in Ether (ETH), the network’s native cryptocurrency. Fees can fluctuate significantly based on network congestion and demand. In comparison, other blockchain networks like Solana, Binance Smart Chain, or Tezos often have lower fees due to differences in their architectures or consensus mechanisms.
    • Despite the costs, these fees help maintain network security, ensuring that the blockchain remains decentralized, resistant to spam, and capable of validating the integrity of each transaction, including NFT minting.
  5. Verification and Storage: After the NFT is minted, the smart contract on the blockchain securely stores the token’s metadata, which includes a link to the digital asset it represents. This metadata is vital for identifying and authenticating the NFT because it includes information like the asset’s title, description, and unique properties.
    • The link within the metadata points to the actual digital asset, which is often stored off-chain in decentralized storage systems like IPFS. Storing the metadata on-chain through a smart contract ensures that the asset’s ownership, provenance, and transaction history remain tamper-proof and transparent. This setup allows anyone to verify the NFT’s authenticity and ownership at any time, providing creators and collectors with a trustworthy mechanism for trading and transferring unique digital assets.
    • When an NFT is minted, the smart contract responsible for the token securely stores its metadata on the blockchain. This metadata includes important information like the asset’s title, description, and unique properties that make the NFT distinguishable. Crucially, it also contains a link to the digital asset itself, which is typically stored off-chain due to the size limitations of blockchain storage.
    • To maintain decentralization and security, this external link often points to a decentralized file storage system like IPFS (InterPlanetary File System). By keeping this information on-chain and tamper-proof, the smart contract ensures a reliable record of the NFT’s ownership, provenance, and authenticity.
    • Storing metadata this way allows anyone to verify the NFT’s details and ensures that the asset remains accessible even if centralized servers fail, thus maintaining the asset’s integrity and the owner’s control over it.
    • The blockchain transaction involved in minting an NFT serves two critical functions: verifying ownership and confirming the token’s existence. Once the transaction is confirmed and added to the blockchain ledger, it creates an indelible record of the NFT’s details, including its unique identifier and associated metadata.
    • This record allows anyone to verify who owns the NFT and to trace its history back to its origin. The transaction log provides transparent and tamper-proof proof of ownership and authenticity because the blockchain’s decentralized nature ensures that once recorded, information cannot be altered or removed.
    • This transparent system guarantees the legitimacy of the NFT, allowing creators, collectors, and marketplaces to engage in trustless transactions. Ownership verification becomes straightforward because each NFT is securely tied to a specific blockchain address and is publicly visible, making fraudulent claims about ownership exceedingly difficult.
  6. Listing and Trading:
    • Once created, NFTs can be listed for sale or trade on specialized marketplaces like OpenSea, Rarible, and others. These platforms are tailored to handle NFT transactions and provide features like browsing, bidding, and auctions. The NFT creator can set their terms, including the sale price, auction parameters, and royalty fees for future resales.
    • When an NFT is sold or traded, the blockchain ledger records the new ownership, ensuring a transparent, tamper-proof history. This transaction history is vital for proving provenance, which refers to the record of ownership and authenticity. With every transaction recorded immutably, potential buyers can verify an NFT’s authenticity and previous ownership, enhancing trust and reducing the risk of fraud in digital asset trading. This feature ensures that NFTs maintain value and can be freely traded between owners with minimal risk.

Overall, the blockchain acts as a secure ledger that ensures the uniqueness and traceability of each NFT, allowing creators to directly engage with their audience and monetize their digital assets without intermediaries.

My career journey weaves entrepreneurship, environmental stewardship, and technological innovation starting from the 1990s with a salvage company focused on eco-friendly appliance decommissioning. As a trained historian and former associate director in Minnesota’s 1st Congressional District, I gained leadership and policy experience. I significantly impacted healthcare through digital transformations, like introducing electronic medical records at major health systems. I also pursue photography, with projects emphasizing environmental preservation, and currently manage a retail operation, integrating my diverse skills to drive innovation in digital arts and biotechnology investments.