Dynamic NFTs — The Next Big Revolutionary Step in NFT Landscape
Dynamic NFTs are a game-changing invention in the cryptocurrency and blockchain space today. NFT is something that everyone is familiar with, that even non-technical people understand. NFTs that are currently being traded in the market are thought to be a sort of fixed asset that is non-fungible. Each NFT is made of metadata and a unique token identity, making it a unique and non-duplicatable digital asset. However, once a piece of data or file (artwork, music, certificate) is minted into an NFT, it becomes static and cannot be changed or upgraded.
What are Dynamic NFTs?
Dynamic NFT is a new type of NFT which is semi-fungible and adjustable in nature. In simple words, Dynamic NFTs are digital assets which come with the ability to modify/upgrade the data minted as NFT.
One might wonder, doesn’t this contradict the goal & purpose of an NFT if it can be modified or upgraded? How does one still guarantee the immutability of an NFT which allows these tokens to be easily identified and authenticated?
When it comes to Dynamic NFTs, the core concept of attaching a unique token id to an NFT to keep it unique and non-duplicatable remains the same, but it provides the owner of the token with the ability to modify and upgrade the data which has been minted in the NFT. This is accomplished by using a different token standard compared to traditional NFTs. Traditional NFTs which are non-modifiable in nature are created based on ERC 721 token standard, while Dynamic NFTs are created based on ERC 1155 token standard.
Dynamic NFTs are innovative because they provide programmability and an interactive element to NFTs, making them more interesting for people who use them, whether they be collectors, gamers, or content developers. This means that NFTs can now react to external parameters or variables such as user activity, real-time data such as time and weather, or other unique inputs, making them very interactive and engaging in nature.
How do Dynamic NFTs work?
When designing a dynamic NFT, the owner/creator determines what factors influence how the NFT evolves or changes over time. This is accomplished through the use of multiple smart contracts in the form of self-executing programmes that are embedded in the NFT at the time of its creation. These smart contracts help automate various functions and the behaviour of the NFT depending on specific conditions or command instructions.
While self-executing smart contracts can help modify NFT, smart contracts and tokens exist inside the closed world of blockchain and not all inputs can be received and verified directly inside the blockchain network. Hence, there are also some self-executing smart contracts that are combined together with oracles to receive input from external sources when required. Once data is received from an oracle and pre-defined conditions are met, the smart contracts auto-executive commands to make changes to metadata in the NFT making them dynamic in nature.
(Note: Metadata is the content minted as core data for which a unique token id is assigned in the NFT.)
Aside from the ability to make changes to metadata in an NFT, dynamic NFTs allow their owner to control how they can be bought, sold, and traded as well as how the royalties are distributed via smart contracts. This means that even when a content creator has to share a portion of the royalty with the marketplace or when there are multiple owners involved with the metadata (Examples — multiple singers for a song or divided ownership of artwork due to the inheritance process etc) — the distribution of royalties can be carried out smoothly and without any issues.
Use-Cases and Benefits of Dynamic NFTs
The Benefits -
The inherent ability to modify metadata in an NFT makes dynamic NFTs flexible and interactive making them more attractive to collectors and audiences. This is because it facilitates more engagement between creators and audiences.
Dynamic NFTs provide owners with new revenue opportunities based on the degree of interactions facilitated between content creators and audiences in the form of royalties and also better control over how this royalty is distributed.
Dynamic NFTs also open newer use cases and applications in which NFTs could be used ranging from identity management & social media to Game-Fi and record management aside from traditional artwork/music-associated use cases.
The Use Cases –
Artist-related NFTs — Artists can program NFTs to be associated with albums to which songs can be added in the future or for artwork such as digital painting to which modifications are added when a number of views are met (the more popular, the more iterations of changes added to artwork) etc.
Game-Fi — In traditional NFTs used for the GameFi environment, new NFTs have to be minted for each skin, character and weapon etc. While they can still continue creating such independent NFTs, dynamic NFTs offer the opportunity to introduce a character as an NFT with the ability to change skins, clothes, weapons, and various items automatically when the character’s level upgrades or when they complete a special event or when certain special conditions are met. This would mean a player has a more interactive in-game character, making it a more attractive prospect for gamers owing to its customizability without them having to spend additional funds to make upgrades to their character.
Identity Management — Issuing identity cards inside a firm or Identities being managed inside a social media environment. Without minting a new NFT identity when certain major changes are involved or when an employee is promoted, smart contracts can be programmed to make changes to data associated with the ID automatically when pre-defined conditions are met inside the firm or inside social networks (based on number of friends to a profile or based on community activity etc)
Real World Use Cases — When NFT is used as a certificate to authenticate a purchase or ownership etc. For example, instead of minting a new NFT each time by adding new data alongside the old ones, changes will be automatically updated in the existing metadata thereby facilitating better tracking ability for changes made to existing NFT and its ownership details etc.
