What is an NFT Smart Contract: Why You Need It and More
There are no governing bodies for NFTs or clearly outlined regulations as of yet. But there are smart contracts, which handle the transferability and ownership verification of NFTs. Today, we will focus on NFT smart contracts, detail what they are for, and introduce you to smart contracts standards. Read about them below.
What are NFT Smart Contracts?
NFT smart contracts are what the name suggests – they are contracts. It is a digital agreement between two parties, the NFT owner and the buyer, who partake in the transaction. What’s great about smart contracts is that they are “smart”, and they do not require human intervention or regulation. They pretty much self-execute. In a world where speed and convenience are highly-prized, smart contracts are a huge asset.
A smart contract is written into the blockchain, so it virtually cannot be tampered with. Once the smart contract has been executed, you can access the information as needed.
What are They Used for?
NFT smart contracts are used in almost all aspects, from secondary sales to NFT fractions. Of course, they also verify the originality of the NFT. They protect them from being copied.
Aside from security functions, smart contracts are also excellent for convenience and speed. There is no intermediary party (also known as third party or middle man) thanks to smart contracts, which quickens the transactions and saves costs.
The smart contract is a proof of transaction between the buyer and seller, and can authenticate the deal. When ownership of the NFT is transferred from the creator to the seller, the smart contract acts as proof as well.
The smart contracts records are public, which makes it more difficult to hack and alter the transaction proof.
How Do They Work?
Smart contracts can verify authenticity of an NFT, prove ownership (which prevents counterfeiting) and ensure uniqueness. Smart contracts are public, so if there is ever a need to verify something, one would just need to access the metadata that’s attached to a wallet address.
Looking up this information cannot link a wallet or smart contract to a person, but platforms that need to verify a seller or buyer’s identity will need to do this to ensure the security of their platform. However, this is done manually by asking NFT supporters to fill out a form and the platform will run a check.
What about proof of ownership? How does an NFT smart contract handle that? Each NFT is unique in how it was created, how it was sold, etc., and the smart contract is used to tell the story. The smart contract along with the information is registered onto a blockchain, which is public and cannot be altered. Let’s say for example someone went onto NFT Drops, right-clicked an NFT and claims to own it. The smart contract on the blockchain will state otherwise.
Smart Contracts Standards
Because Ethereum is the blockchain for most NFTs, we will use it as an example. There are two standards for Ethereum smart contracts, which we will get into below.
The ERC-721 is the standard that outlines how to build Ethereum NFTs. The ERC-721 deems tokens non-fungible. When you get the ERC-721 smart contract, you will need two things: the token ID and the Smart Contract address. These are what represents your ownership.
Unlike the ERC-721, the ERC-1155 standard can be a part of non-fungible, funbile, or even party fungible. This standard can handle multiple tokens at once, which means you can transfer more than one in a single transaction.
NFT smart contracts are definitely a necessity for all parties involved. They afford buyers and sellers some peace of mind in knowing that their new digital assets cannot be replicated, copied or counterfeited. No one can claim ownership of the unique piece of art but yourself, so be sure to secure your next transaction with a smart contract.