According to a recent NFT research, India ranks first among 26 countries on the basis of play-to-earn (P2E) gaming adoption. Indian Players Outnumber Hong Kong's and UAE's As per the survey, approximately 34% of respondents in India have experience with play-to-earn games. To be clear, play-to-earn games are blockchain-based games in which players receive incentives with real-world value. Since the outbreak of the pandemic and the rise of the work-from-home culture in India, the popularity of P2E games has soared.…
In the crypto community, NFTs are generating enormous hype. More and more artists have begun to produce and collect their NFTs. They aim to join the bandwagon and ride the NFT wave.
Today we will talk more about the technology that made the rise of NFT possible. After a quick general introduction about smart contracts, we will look into the matter more closely.
Understanding the Logic Behind a Smart Contract
Smart Contracts are pre-programmed and automated computer systems that govern blockchain transactions. These pieces of code contain all the information that a decentralized system needs to trigger the contract.
Imagine we need to ensure a car that we hardly ever use, working remotely. Ideally, we would like to have insurance only when using the vehicle. Car usage can be a condition that a developer may insert into a smart insurance contract.
The most common smart contract in the crypto universe is transferring tokens to a wallet. Whenever you provide liquidity to a system, the code automatically sends a number of cryptocurrencies to an address.
When we introduce NFTs into the picture, we obtain an advanced smart contract. To help you understand how it works, let us provide more details in the following section.
Applying the Idea of Smart Contracts to NFTs
NFTs, or new forms of intellectual property, are now in vogue. This new technology consists of crypto tokens that a blockchain can control. We have all observed the remarkable growth in popularity of NFTs in 2021, a trend that caught everyone’s attention.
While many are familiar with the concept of NFTs, grasping their underlying technical functioning can be less straightforward. Like common (or “fungible”) cryptocurrencies, NFTs rely on the execution of smart contracts.
NFT Smart contracts control the many actions that take place in these assets, such as:
- They verify who owns what in a blockchain
- They take care of the transferability of the digital asset
NFTs are software applications with a technical system making the issuance of digital assets relatively secure. But how exactly does a piece of code achieve this remarkable result?
We will provide more information on the matter in the remaining part of the article. For now, let us see these smart contracts as cable to linking digital assets and their owners.
A typical NFT smart contract allows permanent identity information storage. They also prevent NFTs dismantlement and fragmented sales. Anyone wishing to proceed with fragmented NFT sales uses a different smart contract.
In addition, the smart contract may guarantee that the digital assets are unique and non-replicable. We have just mentioned, possibly, the essential feature of NFTs. Uniqueness and non-replicability lead to an automatic idea of scarcity for each NFT.
If we throw scarcity into the discussion, we have to include the idea of limited (and scarce) supply. The combination between high market demand and low supply is sufficient to explain most price increases in the industry.
NFT Smart Contracts on Ethereum
As of today, most NFTs run on the Ethereum blockchain. Consequently, we feel it is helpful to focus on the typical protocol in this network for NFTs. The following subsections provide more information on the matter.
The ERC-1155 Protocol
The ERC-1155 standard is a multi-token protocol that allows each token ID to represent its customizable token type. We understand that this concept may appear complex and abstract for anyone not particularly familiar with smart contracts.
Let us simplify the idea: NFTs using ERC-1155 are born on Ethereum. However, nothing prevents them from having compatibility with other blockchains. In other words, you can buy ERC-1155 NFTs by using $ETH and other cryptocurrencies.
While multi-chain compatibility may help reach NFT mass adoption, you may notice a few inefficiencies. Some blockchains may not fully support all the instructions in NFT smart contracts.
The ERC-721 Protocol
The first standardized interface for producing NFTs was ERC-721. It came to the market as an unchangeable, transparent in terms of ownership and secure protocol.
As a result, each asset exploiting the ERC-721 technology is non-fungible, making it a real NFT. Although it is transferrable, moving a complete collection might be time-consuming and inefficient.
The major difficulty with ERC-721 is that minting an NFT might be highly expensive when gas prices are high. Consequently, using this contract to mint NFTs in large quantities may not be a good idea.
Ownership and Copyright
The smart contracts cover the rights that the owner is selling, among other things. If you possess an asset, one presumes that you also hold its copyright. We want to clarify this aspect: “ownership” and “copyright” are not legally interchangeable terms.
The copyright does not necessarily belong to the individual who purchases a digital item. In most circumstances, unless the contract states otherwise, the copyright will remain with the author.
The smart contract contains all the information that a blockchain transfers when anyone exchanges NFTs. In this industry, smart contracts may grant the buyer:
- Access to show the artwork
- Commercial license to make merchandise using the artwork
However, these terms may vary from transaction to transaction, and each smart contract must correctly specify this matter.
A Protection Layer Against Counterfeiting
When you purchase an NFT, you will receive a one-of-a-kind token containing the smart contract’s information and data. A system records the transaction on the blockchain, just like a standard smart contract does.
This information, which includes the purchase record and evidence of ownership, is public on the blockchain. Anyone owning the NFT can show it around or sell it. Anyone may replicate an image, audio, or other authentic digital assets.
The robust structure of the blockchain’s distributed ledger unambiguously proves the ownership of the NFT. In other words, it is relatively easy to check whether we are looking at a counterfeit on a blockchain.
In general, smart contracts are the foundation of any NFT. The potential for smart contracts to see even broader applications in other sectors requiring authenticity is undoubtedly intriguing.
A world where we can remove all feelings of distrust can push the economy toward a new state. NFT smart contracts prove that unambiguous authenticity proof is not just a dream.