What you need to know about NFTs and smart contracts

The non-fungal token often referred to as NFTs, is a digital asset that represents real-world objects such as art, music, and video on the blockchain.

Some examples of NFTs include the Nyan Cat gif, the first original tweet from Twitter founder Jack Dorsey, and a video of LeBron James’s basketball dunk. NFTs use identification codes and metadata logged and authenticated on the cryptocurrency blockchain, which renders a unique asset to each NFT presented on the blockchain. Unlike cryptocurrency, which is also logged on the blockchain, NFTs cannot be traded or exchanged on parity, so they are non-fungible.

Smart contracts linked to non-fungal tokens (NFTs) open the door to a plethora of new applications and possibilities. To properly understand the potential of these technologies, one needs to understand NFTs, smart contracts, and other related technologies.

What are NFTs?

Non-fungal tokens or NFTs are digital files that live on the blockchain. The blockchain is a decentralized database that is not under the control of a single party. Hence, NFTs are scarce digital objects whose ownership is unique and verifiable. On the internet that we use today, digital files like images and videos are easy to copy and paste. However, their ownership can be verifiable when we build a new internet based on blockchain. Hence, that means the blockchain is like the real world. Anything can be tokenized and its owners can get traced on the blockchain.

What is a smart contract?

A smart contract is a computer program or transaction protocol intended to automatically execute, control, or document legally related events and actions in accordance with the terms of the contract or agreement.

NFTs are supported by Smart Contracts, which handles transfer and ownership verification. Smart contracts consist of a sequence of “if” and “when” statements which are recorded as code in the blockchain and stored as data. These are operated by multiple computers that perform all the agreed acts that are written in the smart agreement in question. Each action is carried out only if all pre-determined criteria are met and checked.

Some Smart Contract Features:

  • They’re Contribute to time and efficiency as paperwork can be eliminated.
  • They’re Encourage trust because once the agreement is made no one can amend the terms.
  • They are very secure and hard to hack when doing Smart Contract properly.
  • There are many savings on intermediaries that are avoided.

NFTs are created by a minting process that involves the creation of smart contracts that are also stored on the blockchain. Smart contracts are defined as “a self-executing program or protocol in which the contents of a contract are embedded directly in a line of computer code to facilitate the operation of the contract”.

The Smart Contract includes NFT-related information including the manufacturer of the work, other parties entitled to royalties each time the NFT is sold, and the history of ownership of the work. Most NFTs are not stored on a blockchain because storing that much data on a blockchain is expensive and consumes a lot of electricity. Therefore, smart contracts usually have a link to the work they represent which can only be accessed by the owner.

How smart contracts and NFT can interact with each other.

There are two primary ways in which smart contracts and NFTs can interact with each other. NFT can be embedded in smart contracts and vice versa:

  1. NFT can be embedded in smart contracts. The Smart Contract may contain NFT within it which is then transferred to the User or to another Contract based on the terms and conditions defined in the Smart Contract.
  2. Smart contracts can be embedded in the NFT to call and access assets within the NFT. For example, a user can access a song embedded in NFT through a smart contract. They will agree to the terms using the Smart Contract, pay the agreed-upon amount, and then gain access to the song. This is a process that will mostly run in the background when users hit the play on their apps.

NFTs have the power to instantly turn digital art, music, and video into verifiable assets that are easy to acquire and sell using blockchain technology. Smart contracts serve as the basis for each NFT system. Introducing smart contracts in transactions like house loans as well as other business-related transactions is likely to be very beneficial. When trading with others, it completely eliminates any feelings of distrust that may arise.

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