What is Ethereum and how is it related to NFT?

(Ethereum is) the world’s programmable blockchain.

That’s the official line from ethereum.org.

But it is a still quite a confusing collection of words.

To start, let’s explain the blockchain technology at a high-level.

Blockchain is a connected collection (database) of ledgers.

Imagine your favorite bar have a running tab of its most trusted customers – that is a ledger.

So, for argument’s sake, if there’s a database that stores the ledgers of different bars, that is a blockchain.

Now, the system is a lot more complex – with security and immutability and other features built in – but in essence, that is blockchain.

So let’s delve further deeper using Ethereum.org’s description:

Ethereum builds on Bitcoin’s innovation, with some big differences.

Both let you use digital money without payment providers or banks. But Ethereum is programmable, so you can also use it for lots of different digital assets – even Bitcoin!

This also means Ethereum is for more than payments. It’s a marketplace of financial services, games and apps that can’t steal your data or censor you.

from ethereum.org

So Bitcoin is a type of blockchain.

As good an innovation Bitcoin is, it does have a few drawbacks. One of them is that it does not allow computers to run programs on top. Once a bitcoin is minted, nothing more can be done to it.

Ethereum, on the other hand, has smart contract capabilities built-in. Developers can build and run distributed applications on it.

So using these smart contracts, one can define rules, like a regular contract, and automatically enforce them via the code.

Every basic Ethereum token (specifically called ERC-20) are all the same aka “fungible”. I can trade you 1 Ethereum that I own for yours and it would not make any difference.

But NFT (non-fungible token, most commonly ERC-721) makes it possible to have entirely different tokens. In this case, my NFT that, for example, contains a LeBron James NBA Top Shot highlight is NOT the same as your Beeples NFT art.

And these tokens can be applied to any asset class – photograph, painting, song; even corporate stock, copper, or anything you can think of!