How NFTs Operate in Ethereum

This article presents the NFT protocol and is the second in our series of articles introducing NFTs from a technical point of view.

By Qin Wang (Swinburne University of Technology & CSIRO Data61 ) and Rujia Li (Southern University of Science and Technology & University of Birmingham)

In essence, the NFT system is a blockchain-based application. Whenever an NFT is minted or sold, a new transaction is required to invoke the smart contract. After the transaction is confirmed, the NFT metadata and ownership details are added to a new block, thereby ensuring that the history of the NFT remains unchanged and the ownership is preserved.

Thus, establishing an NFT requires an underlying distributed ledger for records, together with exchangeable transactions for trading in the peer-to-peer network. The distributed ledger is treated as a special type of database that stores NFT data. Beyond that, an NFT system also consists of two roles: NFT owner and NFT buyer. 

Here are the major steps to describe the lifecycle of NFTs

  1. NFT Digitize. An NFT owner checks that the file, title and description are completely accurate. The owner then digitises the raw data into a proper format.
  1. NFT Store. An NFT owner stores the raw data into an external database outside the blockchain. Note that the owner is also allowed to store the raw data inside a blockchain.
  1. NFT Signing. The NFT owner signs a transaction, including the hash of NFT data, and sends the transaction to a smart contract.
  1. NFT Mint & Trade. After the smart contract receives the transaction with the NFT data, the minting and trading process begins. The main mechanism behind NFTs is the logic of the Token Standard ERC721 (describing how to build non-fungible or unique tokens on the Ethereum platform, refer to
  1. NFT Confirmation. Once a transaction is confirmed, the minting process is completed. With this approach, NFTs will forever link to a unique blockchain address as their persistent evidence.

NFTs enjoy the benefits/properties from their underlying public ledgers as well as providing new features of uniqueness.

  1. Verifiability. The NFT with its token metadata and its ownership can be publicly verified.
  1. Transparent Execution. The activities of NFTs including minting, selling, and purchasing are now publicly accessible.
  1. Availability. The NFT system running on the distributed network will never shut down like an accident in a centralised system. All the tokens and issued NFTs are always available to sell and buy.
  1. Tamper-resistance. The NFT metadata and its trading records are persistently stored and cannot be manipulated once the transactions are confirmed.
  1. Usability. Every NFT has the most up-to-date ownership information, which is user-friendly and manageable.
  1. Atomicity. Trading NFTs should be completed in one atomic, consistent, isolated, and durable (ACID) transaction. 
  1. Tradability. Every NFT and its corresponding products can be arbitrarily traded and exchanged.


Qin Wang is a researcher focusing on blockchain technology, covering sub-fields of consensus protocols, security, and blockchain economies. More information refers to his homepage

Rujia Li is a blockchain researcher with interests on privacy-preserving smart contracts and FinTech. More information can be found at

Photo by Fakurian Design on Unsplash

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Standards surrounding NFTs

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