Smart contracts and non-fungible tokens (NFTs) are two of the most exciting blockchain technologies. Many people, however, need to understand how the two concepts overlap. NFTs would not exist without smart contracts, and an NFT smart contracts is frequently viewed as a single unit serving the same functions.
These smart contracts can be used to manage and improve digital assets. If you want to learn more about non-fungible tokens, start with their relationship with smart contracts.
NFT and Smart Contracts
NFTs are digital assets that, like cryptocurrencies, can only be owned by one person at a time. However, unlike cryptocurrency tokens, which can have millions or billions of copies, NFTs are frequently limited to one unique digital token supply. (Read More about What are Social Tokens and How Does It Work)
These assets are typically associated with a link that points to an IPFS file (InterPlanetary File System). The asset’s unique token ID and metadata are proof of ownership for the person who purchases the NFT.
Smart contracts are used in the minting (creation) of NFTs and to assign token ownership. When a new non-fungible token is created, the smart contract automatically gives rights to the creator. In addition, NFT smart contracts can transfer the token to new owners when a sale occurs.
In some cases, NFT marketplaces auction NFTs using a suite of smart contracts. These sites may temporarily hold token ownership until certain conditions, like a specific date or bid price, are met. If an acceptable bid price is not met, they can set specific parameters to cancel the auction and return NFT ownership to the creator.
An Important Use of Smart Contract with NFTs
It can also activate or deactivate NFTs. A gaming company, for example, could use blockchain technology to incorporate NFTs into their digital trading card game. They could allow players to create decks out of NFT trading cards (NFT Trading Cards: A Good Way to Engage Customers)and compete in online tournaments. In addition, game developers could use smart contracts to reward top players with limited-edition NFT trading cards.
Someone could also create an NFT series with Tamagotchi-style pet NFTs that grow when cared for and die when neglected. But, again, the nature of these interactive NFTs could be altered using smart contracts.
It’s important to note that smart contracts are only sometimes legally binding. They are pieces of computer code that automatically execute actions based on if/then statements.
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The Benefits of Using Smart Contracts
1. Enable transactions in a trustless system, which means that parties can interact without knowing or needing to trust one another.
2. The eliminate the need for intermediaries and paperwork, resulting in increased speed and lower costs.
3. They are immutable and cannot be changed once deployed, making them more secure.
4. When smart contracts are deployed on a public blockchain, they are transparent and visible to all.
5. Because they can be modified before being put into service, they can serve various purposes.
6. They are deterministic and will only do what has been programmed into them.
7. Since machines do them, there is no chance of a mistake.
8. However, unlike traditional contracts, smart contracts are not legally binding. This means that while these lines of code aid in the execution of blockchain outcomes, they cannot enforce off-chain agreements.
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Creating NFTs with Smart Contracts
Using a process called “minting,” digital items such as photographs, videos, and audio clips can be transformed into NFTs and stored as crypto assets on a distributed ledger.
When you mint NFTs, you set up the smart contract code determining how your crypto assets work.
Several smart contract standards have made it easy for NFTs to work with applications. For example, TRON, EOS, and Tezos are blockchains with smart contracts and tools for making NFTs.
However, a standardized approach to smart coding contracts and NFTs may be necessary for NFTs built on different platforms to trade on the same NFT marketplaces (Everything You Need to Know About NFT Smart Contracts).
Smart Contract Specifications for the Creation of NFTs
Ethereum’s ERC-721 standard is one of the most widely used crypto standards because it was the first standard for tokens that can’t be changed into other tokens.
As the first standard for creating NFTs, this one is used by many to make and launch NFTs. ERC-721 also says that all tokens must be non-fungible and have unique token IDs, which may not be the case with other standards.
Aside from ERC-721, another standard is widely used in the NFT gaming industry. The ERC-1155 bar was made to work with both fungible and non-fungible investments, like in-game currency and limited edition skins.
NFTs, Smart Contracts, and the Metaverse
The metaverse is a three-dimensional digital universe that connects the financial, virtual, and physical worlds. For example, the metaverse would include NFTs, blockchain games, and crypto as we know it.
Since smart contracts are the basis of NFTs, it shouldn’t be a surprise that they are also crucial to building the metaverse. Smart contracts can support NFT art and games as possible parts of the current metaverse landscape.
Smart contracts can also make exchanging money easier, eliminating the need for a third party and making interactions on the metaverse smoother.
Other NFT-Related Smart Contracts Use Cases
Enforcing Ownership and Authenticating
Smart contracts used to issue NFTs can aid in enforcing ownership and data authentication. Furthermore, if these NFTs are hosted on public blockchains, anyone can access ownership and creation time information.
For digital degrees, schools can give students unique NFTs stored on public blockchains. Employers looking to hire students can validate an applicant’s degree by searching for the relevant block explorer. Anyone can use this search engine to access public information stored on the blockchain.
This can be extended to NFT licensing as well. Details of an image or sound file’s transferred rights can be created and easily transferred to the next NFT token holder. Anyone can verify the ownership and privileges granted to buyers.
Preventing Plagiarism and Spoofing
Smart contracts can also help combat counterfeiting and plagiarism via NFTs. Smart contracts, because they are built on the blockchain, can automatically check the time and location of the creation of an NFT or token, i.e., the first recorded wallet address.
It can also track creative ownership, combat forgeries, and aid in the abolition of counterfeit products. Such products, for example, can be automatically filtered out if they do not meet specific requirements.
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Making Business Transactions Easier
Smart contracts can improve business transactions in two ways: speed and security.
Smart contracts enable two parties to enter into an agreement that ensures the previously agreed-upon outcome is enforced when the terms are met.
As a result, delays caused by a lack of trust can be avoided, resulting in a more efficient transaction process.
Parties may not trust each other, but a smart contract that executes the transaction as soon as the contract terms are met can reassure them.
Consider the home-buying process. A smart contract can simultaneously release funds to the seller and transfer ownership to the buyer once the buyer has met all of the requirements, such as credit checks and a successful down payment.
The transaction, which may include a title deed transfer, will be recorded on the blockchain for easy verification.
Conclusion
Smart contracts are highly adaptable and can be tailored to almost any industry. The importance of smart contracts as the building blocks for one of the hottest digital asset classes is likely to grow as NFT adoption, and the metaverse expand.
