Friday, September 29, 2023

Understanding dynamic NFTs

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NFT technology keeps developing over time and finds more adoption by the day. Among the most recent developments in technology is the rise of dynamic NFTs, also known as dNFTs. When dNFTs are in use, the interactivity and functionality of digital assets scale at an unprecedented high.

Some time has now passed since static NFTs first came into prominence. But, now, the spotlight is on dynamic NFTs. Within the NFT community, dNFTs are a frequent topic of discussion.

In this article, we take a closer look at what dynamic NFTs are and how they operate. Some use cases are also herein considered.

What are dynamic dNFTs?

dNFTs or dynamic NFTs are a new type of Non Fungible Tokens. They are demarked by their interactive and programmable features which aid with the creation of digital assets that evolve over time. 

When dNFTs are in use, changes and updates can be made to the underlying data. The need to change the unique ID of an NFT is not herein required. This functionality is achieved by means of smart contracts. The unique feature of smart contracts is that in response to specific user interactions or conditions, they can update the metadata linked with the NFTs automatically.

Let us consider a basic instance. Dynamic NFTs by Pearpop facilitate creators to leverage the Solana blockchain for minting their social media posts’ NFTs.

 Now, when the post is going to become popular, NFT’s rank also increases via likes, comments, shares, and the associated metadata.

By using a basic example, we can understand dynamic NFTs better. Let us suppose that an NFT is a representation of a car. If this one’s a static NFT, it will represent the car as it is. But, if it is a dynamic NFT that we use, it would be programmable. The dNFT may be leveraged to represent the car’s maintenance history, current mileage, and probably its current market value as well. 

This added functionality, as facilitated by dNFTs makes the NFT more valuable. It shares the insights and data not rendered by a static NFT.

What limitations do static NFTs have?

It is undeniable that the world of digital art has been revolutionized by static NFTs. This puts forth a method for the artists to establish ownership. Similarly, safeguarding original works against illegal copying is also prevented. 

However, in certain scenarios, the usefulness of static NFTs is hindered by their limitations. 

Let us take a look at a few of the top limitations of static NFTs. This limits their utility in the realms of digital art and further still.

  1. Fixed properties

With Static NFTs being fixed, they only represent a digital asset’s single version. So, the ability to respond to changing parameters or conditions is limited in static NFTs. 

This is a direct implication that when a static NFT is placed in a blockchain, its description, image or any other metadata cannot be updated.

  1. Limited interactivity

For responding to external conditions or user interactions, static NFTs keep unprogrammable. Correspondingly, their applications and use cases are limited. This is more so the case for all interactive environments such as gaming where dynamic behavior is a must.

  1. Insufficient versatility

Static NFTs do retain their value in the world of art. But, when we consider digitalizing other assets, static NFTs have a limited utility because of their fixed properties. This category of applications includes patents and real estate papers. This type of asset requires a more programmable and versatile approach. Hence, dNFTs become more utilitarian.

The properties of both, NFTs and dNFTs are distinctive. This makes them suitable alternatives for leveraging for a host of applications, subject to the requirements of a use case or the specific needs. 

The best part about dynamic NFTs is that they make available solutions to the limitations posed by static NFTs. This covers:

  • Creating tokens of real-world assets that feature dynamic ownership or values
  • Making video games that feature evolving storylines or game elements
  • Leveraging blockchain for creating fantasy sports leagues. Here, rankings and player statistics change with time.
  • Recording provenance and ownership of physical art pieces. This information can be updated when sales records are added or new exhibitions are organized.
  • Storing medical records that seek regular updation

Operation of dynamic NFTs

The operation of dynamic NFTs takes place on the same blockchain where the traditional static NFTs work. Nevertheless, in the case of dynamic NFTs, certain sets of rules understate how they are going to change or evolve over time.

The encoding of these rules takes place within smart contracts. Herein, NFT’s behavior, animation, appearance, and other dynamic functions that change based on certain circumstances are recorded.

Another factor that distinctifies dynamic NFTs from static NFTs is that they leverage the ERC-1155 token standard. On the other hand, the ERC-721 token standard is characteristically used for creating static NFTs.

When we consider the case of dynamic NFT’s ERC-1155 standard, data can be stored in a format wherein it can be edited based on the requirement. This makes dynamic NFTs semi-fungible.

When blockchain oracles are used in tandem with dynamic NFTs, they become more than static representations of digital assets. This makes the dynamic NFTs responsive and interactive. New applications and use cases hence come into the picture. 

Blockchain oracles, smart contracts, and crypto wallets

A change is triggered in dynamic NFTs when a smart contract receives external data from a blockchain oracle. At this time NFT’s metadata is updated. 

Correspondingly, other characteristics of the NFT are also updated, including its appearance. Smart contracts further define how dynamic NFTs can be sold, bought, or traded. The procedure for distributing loyalties among creators is also defined.

Crypto wallets that support smart contracts are a must for interacting with dynamic NFTs. This allows users to trade, sell, or collect NFTs on NFT marketplaces. Alternatively, NFTs can be used in decentralized applications (DApps) that support dynamic NFT features.

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