What is an NFT?
“An NFT is a digital asset that represents real world objects like art, music, in-game items & videos. They are bought and sold online, frequently with cryptocurrency and they are generally encoded with the same underlying software as many cryptos”. — Forbes: What is an NFT
The acronym NFT stands for Non-Fungible Token. In order to really understand what that means, we must look at the definitions for tokens, fungibility and consequently, non-fungibility:
- A Token is a unit of data encoded on the blockchain, and enforced through a smart contract. According to Coinbase:
“The other increasingly common meaning for “token” has an even more specific connotation, which is to describe cryptoassets that run on top of another cryptocurrency’s blockchain” — Coinbase
- Fungible: Like physical currencies and other crypto tokens, being fungible means the token can be interchanged with other tokens. They’re all equal in value and indistinguishable.
- Non-Fungible: Each token has a digital signature that makes it unique. Each token has its own value, one NFT can not be interchanged for another unless they have the same price. Each token is cryptographically unique.
The concept of non-fungibility introduces the concept of digital scarcity, as Arry Yu siad:
“Essentially, NFTs create digital scarcity” — Arry Yu, WTIACBC
Now that we’ve covered what NFT stands for, we must explore their early use-cases and traction to date. The most popular use-case for NFTs has been in the form of monetizing digital art. Throughout the 2020–2021 period, NFTs have risen to mainstream consciousness.
The current NFTs we’ve seen rise to prominence are a type of NFT known as static, since at the time of writing the token, its metadata (core properties) is frozen, and therefore permanent. This works great for digital artworks in the form of videos, images, gifs, 3D models, etc. Below, we’ll take a look at some of the core features of static NFTs.
- Designed for original artwork
- Offer exact ownership to users
Most common use case for sNFT is art collecting due to their frozen metadata. Increasing the earnings potential of artists was and continues to be a compelling value proposition.
Bugs with sNFTs:
- Fixed Metadata: limited use-cases, specially limited use on real-world assets, progression based games, blockchain fantasy sports leagues
- Limited Value Add: since digital content can easily be downloaded and copied, static NFTs have commonly struggled to provide value beyond proof of authenticity and uniqueness (on-chain). Therefore, it is clear to see that the most successful sNFT projects have been the ones who build a strong community around the project (ex: BAYC, CryptoPunks, Cryptokitties)
- Fake Content:
“According to OpenSea’s analysis of its own marketplace, over 80 percent of the NFTs listed on the marketplace were plagiarized art” — Wired
With such large fraction of all NFTs on a major marketplace like OpenSea being plagiarized works, it is clear to see that there is still a long way to go in favor of enforcing digital authenticity.
Static NFTs are the first generation of Non-Fungible Tokens, characterized by their inmutability, limited value proposition and risk of plagiarism. The next generation of NFTs is known as Dynamic NFTs, which are explored in the following section of this report.
Dynamic NFTs are the next iteration of static NFTs. By allowing for the NFTs’ data to be changed in real time through data feeds, smart contract logic can be used to tweak the NFTs properties in response to external stimuli. An interesting definition for Dynamic NFTs (dNFTs) is:
“Real assets similar to living entities. They grow, morph, degrade and regenerate based on external stimuli” — CoinTelegraph
But what kind of data to dNFTs take in? There are two types: on-chain and off-chain data. On-chain data can be directly accessed through the smart contract, but off-chain data needs to be validated and added to the blockchain by an entity known as an Oracle.
What is an Oracle?
An Oracle attempts to add real-time data from off-chain data sources such as web2 websites, sensors, etc. An interesting definition can be found below:
“Service that provides smart contracts with verified and up-to-date data, triggering a change of state in the smart contract” — Visionary Art
Oracles play a pivotal role in the implementation of dynamic NFTs, since off-chain data holds the key to expanding dNFTs to different use cases.
“Oracles are absolutely crucial for Dynamic NFTs to become ubiquitous”. — Supra Articles
Now that we’ve explored what an Oracle is,we can dive back to our definition of Dynamic NFTs:
Dynamic NFTs = NFTs + OraclesDynamic NFTs have static properties plus dynamic data inputs that are constantly updated through oracle input. This is an NFT that changes its expression over time. Below you’ll see the flow for a common dynamic NFT contract
- Person/process makes a request for Smart Contract for NFT token URI
- Smart Contract receives request for processing
- Smart Contract makes a call for on-chain data and processes the results
- Smart Contract makes a call for off-chain data from an Oracle, and processes the results
- Contract logic evaluates what to display
Dynamic NFTs are the combination of first generation NFT technology (static NFTs) and real-time data feeds. These data feeds can either be on-chain or off-chain. For the case of off-chain data (which holds the more enticing use-cases), this data needs to be added to the blockchain for analysis by the smart contract. Oracles play a pivotal role in performing this service.
Below you will see a full comparisson between Static and Dynamic NFTs:
Static vs Dynamic NFTs
Comparison between Static and Dynamic NFTs
The data above was compiled from Zeeve.io
Now that we understand the key differences between Static NFTs and Dynamic NFTs, it is clear to see how dNFTs provide different, uniquely programmable user experiences based on real-time data feeds. In the next section of this report we will evaluate the trends causing disruption in the very much nascent NFT space.
Dynamic NFTs Use-cases
Communities
The first example is the Fragsy marketplace that among many other use-cases allows social media creators to mint dNFTs, demonstrating how dynamic NFTs can be used to create gated communities and a reward system based on the performance of their communities.
Fragsy collectors can get rewards and increase the value of their dNFTs depending on the engagement they have with the creator of their dNFTs. To this end, related data, such as comments, shares, and likes, are linked to NFTs, making them dynamic (the first social platform to be used for this purpose is Twitter). For instance, the creator of the dNFT can grant access to exclusive events or private Discord channels.
NFT Sports Cards
The second example is sports cards, and in this case, we’re going to take a football player as an example. Let’s say that we have a dynamic NFT representing a real-world football player. The NFT could have information, such as speed, agility, strength, goals scored, assists, etc., stored in the token’s metadata.
However, as the season continues, these stats will change as, for example, the player might score a few goals. This means that the dynamic NFT might have the option to fetch off-chain data regarding the player’s progression and update the metadata accordingly. This would not be possible with a static NFT since the metadata would be permanent once someone creates the token in the first place.
Real Estate
The second example is real estate, and in this instance, we’re going to use a house. Now, let’s say we have a dynamic NFT representing a house. In the case of tokenizing real-world assets, it’s beneficial to have the ability to change metrics, something that is often required.
In this example, we would like the metadata of the NFT (non-fungible token) to reflect specific changes that might occur to the property, which is of potential interest to future buyers. So, for example, the metadata should present maintenance history, age, market value, past sales, etc. As such, when tokenizing real-world assets such as property, it’s clearly beneficial to have the ability to update and change the metadata of the tokens.
Blockchain gaming
Similarly, in-game NFT assets can also be dynamic. For example, an object can become more efficient if specific actions defined in the smart contract take place.
The collectibles game Aavegotchi applies the dynamic NFT concept to create a farming game. Per gameplay, players nurture and level up digital pets with different rarities. The rewards increase only if players really care about their pets, all thanks to the dynamic nature of the NFTs.
Passport and other certificates
Governments can theoretically issue passports in the form of dynamic NFTs that update information as a person travels. There will be no need for a stamp and additional paperwork since the information is stored in the blockchain. It will also reduce the possibility of fraud as the blockchain makes them immutable and verifiable.
Landscape
Fragsy | Type: Dynamic, Horizontal marketplace | Why it matters: interesting because is the first platform that makes it easy to create, buy and sell dynamic NFTs for any use-case (now focused in communities).
Sol Soldiers | Type: Dynamic, Art | Why it matters: interesting because of how they are using Oracles to truly randomize feature selection in their NFT rewards.
VenVuu | Type: Dynamic, Ads | Why it matters: interesting because it allows users to easily get paid for ad, wearables and product placements in the metaverse through the use of dNFTs.
Liquid Earth | Type: Dynamic, Static, Real Estate | Why it matters: interesting because it allows users to easily get paid for ad, wearables and product placements in the metaverse through the use of dNFTs.
Unstoppable Domains | Type: Dynamic, Personal Identity**| Why it matters:** interesting because they allow users to register various NFT domains on multiple chains in the form of static NFTs. In addition to this, Unstoppable Domains NFTs are directly connected to regular websites and can be used as both webpage URL and wallet address. They have direct compatibility with top web browsers (Chrome, Firefox, Opera, Edge, Brave) and work with top crypto protocols like Chainlink, Moonpay, Coinbase Wallet, OpenSea and The Graph.
Final Statement
Dynamic NFTs are the next iteration of static NFTs. Dynamic NFTs are the combination of first generation NFT technology (static NFTs) and real-time data feeds. These data feeds can either be on-chain or off-chain.
Disclaimer: This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer by me or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.Fragsy does not claim to own the rights to the text in this website.
