NFT Contracts: The Basics, FAQs, and Need-to-Knows
NFTs are all the rage over the internet right now!
But what are they, really?
NFTs or Non-Fungible Tokens are basically data added to a file (a song, a picture, a meme, etc.) to produce a distinct digital signature. It can also be applied to a variety of other digital formats.
It is the code that, when incorporated into the digital file, separates it from the rest of its copies.
NFT is the mark that gives the digital file the right to scream, “Hey, I’m the authentic one! I belong in the museum!” while all the others are, well…stuck in the souvenir shop being sold as merchandise.
It’s like an artist’s signature on their piece of work.
But how do they work?
Now, for NFTs to work and become available for transaction, that’s where smart contracts come in.
What Are Smart Contracts?
Smart contracts are not much different from your regular paper contracts. The only difference is that it is ENTIRELY digital, making it FULLY AUTOMATED and SELF-EXECUTING.
NFTs work THROUGH smart contracts.
The statements of agreement you would typically find in a regular contract are written as code in a smart contract.
It is a computer program stored on a digital ledger and secured by the blockchain.
How Do Smart Contracts Make NFT Work?
The digital file is stored inside the NFT contract, which can only be accessed after agreeing to the set terms and paying the agreed amount.
- It stores ALL the NFT transaction information of the digital file. The transaction information of the NFT (and all its previous transactions of the digital file) is stored in the software code. This includes the terms of sale, the price, etc.
- Smart contracts handle the transfer of ownership of the NFT from one owner to the next.
- It verifies the authenticity and ownership of the NFT. Also, the blockchain not only verifies that the digital item is unique, but that it is also not easily interchangeable or replicable.
- Aside from its basic functions, NFT contracts are also capable of managing royalty fees. They can be set up to automatically pay the creator a percentage for every resale.
Are NFT Contracts Secure?
Let’s look at the interesting features of smart contracts.
1. NFT Contracts Are Completely Distributed
Since it is stored on a blockchain, it means that no one person is in total control of the money.
All the money involved is transparent, and everything is validated by everyone involved in the transaction.
2. Smart Contracts Are Also Immutable
Once created, it can never be changed again. This feature makes tampering impossible.
Anyone can utilize NFT contracts to buy, sell, or even trade NFTs with anyone online, but don’t worry, the transactions are still secure.
This is because they are run by a network of computers that must first verify the transaction and the data within it.
ALSO REMEMBER: Nothing can be carried out without ALL the preset requirements specified in the contract being met and validated first.
What Is Written in an NFT Contract?
The rights over the digital assets that are being sold can differ from file to file and even from transaction to transaction.
So for clarity, the specific rights to the file being transacted are SPELLED OUT in the NFT Contract and written in code.
The NFT contract SPECIFIES CLEARLY which rights are being sold to the current buyer.
This dictates how the owner can use the digital file. It could also include how they can use it for profit, like selling merchandise of the art.
Will NFT Contracts Protect the Digital Asset From Forgery and Fakes?
NFTs are one-of-a-kind and function as digital signatures.
The information and data of the latest transaction and its current owner are written in the smart contract, then certified and stored in the blockchain.
The blockchain then publishes:
- Who the current owner is
- The evidence of ownership
- The purchase record
The public blockchain publishes not only these latest purchase details, but also the ENTIRE HISTORY of the NFT.
It includes EVERYTHING like:
- When the NFT was developed and integrated into a digital file
- All its previous owners
- All the dates when it was resold
- And other essential details
This then makes it possible for ANYONE on the internet to check and prove authenticity since everything is out in the open on the blockchain.
What other measures do they take?
Now, if the image is copied when the owner publishes and sells the NFT, the blockchain has the authority to verify the real thing, and the rest of the copies are now just fakes.
And that’s all about the basics of NFT Contracts!
In summary, NFT Contracts are convenient, secure, fast, and overall make transactions easier.
We hope you got all the information you needed!