NFT Market, NFTs Explained

Dynamic NFTs Explained

In this article, we’ll take a closer look at what a dynamic NFT really is and how the mechanism behind dynamic NFTs functions.

October 21, 2022

Non-fungible tokens (or NFTs) are becoming more and more popular as several high-profile public figures have already launched their own NFT issues. The numerous uses of these tokens, involving P2P trading and digital payments, have drawn an unprecedented amount of interest and attention from the public.

This field is continually advancing, and the next step in the NFTs evolution is dynamic NFTs or dNFTs. With NFTs conquering the world, offering numerous opportunities for minting artworks, and keeping their value in a trusted, smart contract, the dynamic era is about the begin. Dynamic NFTs offer the best of both worlds, keeping a non-fungible token unique while providing features like updating the metadata.

We have already seen the numerous capabilities of the NFT industry. Many digital artists offer their artworks in the NFT format, and many other industries like real estate have seen and used the proposed value of NFT. But something is lacking in the first generation of these non-fungible tokens. Their metadata can’t be updated.

Metadata stores the data related to an NFT. It can include the name of the NFT, its traits, and the address of images, videos, or other digital items linked to it.

What is a Dynamic NFT?

As we know, NFT represents a digital item on a blockchain and stores a static form of digital creation (or digital form of a physical thing) in a smart contract. Unlike an NFT that has an unchangeable token ID, dNFT is a form of NFT that offers dynamic features.

In simple words, a dynamic NFT can change its characteristics when certain conditions are met. The change happens in the metadata because of many things – especially external conditions. Developers encode automatic changes in a dNFT’s smart contract, and these changes are based on conditions.

In the dynamic NFT era, NFTs are responsive and interactive to the environment. They not only can change based on conditions but also can be minted based on them. With the dynamic concept, the possibilities have no limits. Consider metaverse games in which NFT characters and creations can change based on interactions and even changes in the world.

Or the appearance of the NFT can change if it is sold. The change to the images may depend on many factors in the online or real world, and they can be relatively predictable or completely algorithmically generated, depending on the creator’s intentions.

A dynamic NFT that changes based on the weather of Boston, New York

Source: Chain Link

How Does a Dynamic NFT Work?

Blockchains are closed systems meaning that they execute smart contracts based on data from their native ledgers. So they need additional assistance to receive information or conduct business off-chain. The elements, called oracles, serve as intermediaries between off-chain and on-chain data sources.

Dynamic NFTs can evolve using both off-chain and on-chain computations, which are possible due to smart contracts. Whenever an NFT (non-fungible token) is requested, smart contracts evaluate off-chain and on-chain data to determine a response that is presented to the users. Here are the steps showing the process:

A request is first sent to a smart contract for an NFT.
The smart contract receives the request for processing.
The smart contract makes a call for on-chain data and processes the results.
The contract uses an oracle to make a call for off-chain data and processes the results.
Both the off-chain and on-chain data are evaluated. Then, the smart contract offers one or two suggestions to the user.

So, this means that NFTs change, update, and expand due to smart contracts over a period of time. Accordingly, smart contracts determine if a non-fungible token should change and, if so, then alters the metadata of a dynamic NFT based on the off-chain and on-chain data.

Comparison of Static and Dynamic NFTs

Today static NFTs are more popular than dNFTs. Static NFTs contain pictures, videos, music, objects in a game, and much more, and their decrees cannot be altered. In some instances, such as in digital art or digital collectible items, static NFTs can be an especially attractive choice. After all, it’s their written permanence that makes them so useful and unique.

Each NFT is created by a set of codes and connected to a smart contract which makes it unique. NFTs are connected to unique IDs that differentiate them from others. The real NFT is the code and the ID of the token, with an image attached to that code.

The metadata on an NFT that includes the image, digital art, 3D design, video, music, or any other digital item attached to an NFT, can’t be changed. But in the case of dNFTs, the metadata can change.

A dynamic NFT consists of metadata that can change based on conditions. As we mentioned above, automatic changes can be encoded in an NFT smart contract that dictates when and how the metadata changes.

Use Cases for Dynamic NFTs

As we already know, dNFTs experience progress, aging, changes based on weather conditions, etc., considering metaverse games and worlds. In these games, there are characters that improve, age, and change as the player continues playing. Dynamic NFTs may represent the characters that evolve and grow as the game continues or the player achieves something.

Another use case for dNFT is in real-world assets that change in time and need a place to store the changes. Real estate can be saved as an NFT, and the metadata on this NFT will include information like address, area, and more. But a dNFT can store the maintenance and improvement history as well. Besides, the past prices can be saved into dNFT, too.

Digital identity is another example. Consider your passport to become an NFT. In this case, you will not need to keep paper in your pocket when traveling. If this NFT becomes dynamic, you can store travel history and payments in your NFT passport. It automatically updates each time you travel.

In summary, the term Dynamic reflects the ability of a token to keep updating its metadata parameters depending on both on-chain and off-chain data.

Dynamic NFTs encompass many requirements that make them extremely useful in solving many real-world use cases such as decentralized home rental services, storage of unique data that requires updates over time, issuance of birth certificates, and storage of medical records of an individual.