Combining smart contracts with NFTs will open up a slew of new use cases and possibilities. To properly grasp the possibilities of these technologies, it is necessary to first study NFTs, Smart Contracts, and Oracles in depth.
Definition of NFT
NFT is an abbreviation for Non-Fungible Token. It is a sort of digital token that is one-of-a-kind and rare. An NFT is basically one-of-a-kind evidence of ownership of anything, most commonly a digital asset. NFTs are digital replicas of actual collector’s artifacts, and no two NFTs are alike.
The ability of an asset to be exchanged for another asset of the same sort is referred to as fungibility. A $5 dollar, for example, is fungible with all other $5 notes. They have the same value. However, the Oppenheimer Diamond, for example, is non-fungible, which means that only one genuine, one-of-a-kind form exists.
- Digital Scarcity
The internet and digital technology, in general, generated a wealth of data and information, such as files and photos, that could be reproduced and shared indefinitely. For example, if I captured a photo of a celebrity on Santa Monica Boulevard using my phone, I could transmit it to thousands of people in seconds, instantly producing thousands of variations of that photo.
Digital scarcity is enabled by blockchain technology, especially NFTs. Some data from an NFT can still be copied and shared, but an asset’s certificate of authenticity and legal rights will be stored on a single, tamper-proof NFT. NFTs are available on blockchain networks like Ethereum and give a certificate of validity as well as legal rights or privileges to the digital asset.
Definition of Smart Contract
One of the most powerful aspects of blockchain technology is smart contracts. A smart contract is a type of digital contract in which the conditions of the agreement between users are written in code. A smart contract may also be configured to execute itself when a set of preset criteria is met. On decentralized and distributed blockchain networks, smart contracts exist.
Several groups are working to develop smart contracts that will stand up in a court of law. The solutions will most likely take the shape of smart contract interfaces, in which the code in a smart contract creates a document in plain English describing the contract’s terms at the same time.
When smart contracts are performed, they can be configured to cause other smart contracts to run or to create new events. Smart contracts can also contain assets, NFTs, and cryptocurrencies. These assets can be distributed upon execution if a set of requirements depending on the contract’s code are satisfied.
Example: Smart Contracts & A Basketball Game
If I predict the Lakers will win tonight’s game and you predict the Knicks will win, we may place a bet utilizing a smart contract. In this instance, we’d construct a new smart contract and each of us would deposit a Bitcoin (or other cryptocurrencies) into it. According to the rules of the deal, if the Lakers win, the smart contract should pay out in full to me, and if the Knicks win, it should pay out in full to you. When the game is over and the smart contract receives a signal (through the oracle) indicating a certain team has won, it will execute the smart contract and pay out the two BTC it now possesses based on the outcome.
Definition of Oracle
A blockchain oracle is a trustworthy third-party service that connects smart contracts to authorized external data sources in the real world via an API. Oracles link smart contracts to occurrences in the real world. Smart contracts are frequently triggered by an external event. Continuing with the basketball game example, the smart contract would get data showing which team won the game via an oracle, which in this case might be an API feed from a sports network such as ESPN or NBC Sports.
Oracles may be built to offer a variety of data to smart contracts. For example, an oracle might give real-world weather data, event results, legal case outcomes, financial statistics, economic data, interest rates, market data, car or machine performance data, and so on. The essential thing to understand about oracles is that most smart contracts are designed to be executed when a real-world condition is satisfied, and oracles are data sources that can give verified data about real-world occurrences.
Because there has been some discussion about oracles being compromised in the event of larger bets, certain smart contracts can additionally include multiple oracles to guarantee that various sources or oracles confirm the same conclusion. So, for example, in the instance of a basketball game, we might create a smart contract that needs 5 oracles to participate, such as CNN Sports, Yahoo Sports, ESPN, BBC Sports, and NBC Sports. Before the smart contract can be performed, all five oracles must indicate the exact same conclusion.
How Can Smart Contracts and NFTs Engage With Each Other?
There are two main methods for smart contracts and NFTs to communicate with one another. NFTs can be embedded in smart contracts, and smart contracts can be embedded in NFTs:
- NFTs may be included in smart contracts. A smart contract can include an NFT, which is then transferred to a user or another contract according to the smart contract’s rules and events.
- To call and access assets within an NFT smart contracts can be integrated. A smart contract, for example, allows a user to access music contained in an NFT. They would use the smart contract to agree on the terms, pay the agreed-upon sum, and then get access to that music. When users press the play button on their applications, this procedure will most likely execute in the background.
When NFTs and smart contracts are combined, users will get the ability to unlock a wide range of use cases. It is possible to build complex contractual frameworks and agreements. The underlying blockchain protocols will make contracts visible, tamper-resistant, and auditable in real-time. This will simplify and expedite any future arbitration procedure.
- Gaming: Tournaments in games might be governed by a series of smart contracts and NFT combinations. Skins, in-game assets, and in-game tools are all examples of in-game objects that can be incorporated into NFTs. Players in a tournament might agree on a set of rules that specify how the assets of the contestants in a tournament could be distributed to the winner of each round via a series of smart contracts.
- Streaming: Each film or episode of a television show can be included in an NFT. Users may gain access to the show via a smart contract, which accepts a micropayment and afterwards presents the movie or episode on the end user’s device for a set amount of time or number of views.
- Exhibits of Art: An artist may embed their artwork into an NFT and establish a smart contract in it that defines the conditions of usage. Real-world art galleries may then access this work and display it on a physical screen at their location, sharing the income generated by ticket sales with the artist according to the parameters agreed upon using the smart contract.
Because of blockchain technology, smart contracts and NFTs exist. When developing NFTs, users already have a variety of NFT standards to select from. As additional blockchain platforms are formed, I predict that numerous more NFT standards will be developed. Because blockchains are interoperable, consumers will be able to transact across many platforms from a single location. That is, a user might access NFTs and smart contracts on platforms other than their chosen platform. Blockchains will also provide real-time audibility and security for platform assets and transactions.
NFTs have the capacity to immediately convert digital art, music, and video into verifiable assets that can be bought and sold utilizing blockchain technology. NFTs have a variety of corporate applications and have far-reaching consequences for media and digital rights management. NFTs will be used in conjunction with Web 3.0 to build a more transparent and secure internet.