NFT Smart Contracts Explained

Smart contracts are integral to the functioning of NFTs. So you may be wondering what are smart contracts and how do they influence non-fungible tokens? That’s what we are about to find out!

A non-fungible token often referred to as an NFT, is unique and can’t be replaced with something else. For example, bitcoin is fungible, you can trade one bitcoin for another one, and you’ll have exactly the same thing. Whereas you can’t trade an NFT for another one.

NFTs are digital assets that are available in limited quantities. They represent real-world objects (such as art, music, videos), and there is a lot of excitement around using the tech to sell digital art.

People buy and sell NFTs online. We may say that NFT is a digital proof of ownership of any virtual item.

Most NFTs are created and stored on the Ethereum blockchain, though there are also other blockchains (such as Flow and Tezos) that support NFTs.

If you’re planning to buy an NFT as an investment, know that there’s no guarantee it will increase in value. Some NFTs sell for thousands or millions of dollars, but other NFTs may remain or become worthless.

How are NFTs Created?

Unlike blockchains and cryptocurrencies, NFTs are very simple to create. There are a number of NFT marketplaces, such as OpenSea, Raible, or Mintable, that allow users to freely create an NFT and no programming knowledge is required.

A nonfungible token is a digital asset on the blockchain created through minting. After being minted the digital item becomes tamper-proof, more secure, and difficult to manipulate.

Non-fungible tokens can be bought, traded, resold or collected again in the future. These marketplaces cater for just creating art NFTs as it is particularly popular.

How to Buy or Trade NFTs?

For buying NFTs, you should, first of all, choose the right marketplace among the numerous marketplaces that cater to different areas of the collectible world. For example, Axie Marketplace is the official marketplace for the game Axie Infinity.

Sorare is a fantasy soccer marketplace, where you can manage, buy and sell virtual teams.
CryptoPunks is another marketplace that has 10,000 uniquely generated characters. And each of the characters can be officially owned and proof of ownership is logged on the Ethereum blockchain.
Those who want to purchase an NFT will need an NFT wallet in order to store any purchased NFTs.

NFT wallet providers are numerous in the marketplace. As with cryptos, NFT wallets must store the purchased NFTs securely protecting them from hackers.

Take into note that when purchasing NFTs, some marketplaces support purchases with a credit card. Others, however, require purchases with Ethereum. And for purchasing with Ethereum you will need to fund your NFT marketplace account with Ethereum to proceed.

Most marketplaces sell NFTs in an auction. And for buying NFTs you will simply need to place your bid and wait for the conclusion of the auction.
Your account would be debited and your NFT wallet credited with your newly purchased NFT if your bid is successful.

Interactions Between Smart Contracts and NFTs

Smart contracts and NFTs interact with each other in two ways. NFT’s can be integrated into smart contracts and vice versa:

  1. Smart contracts can own NFTs within them which are then transferred to a user or another contract based on the rules defined in the smart contract.
  2. A smart contract can be embedded in an NFT. For example, a song can be embedded in an NFT and a user can access the song through a smart contract. This process will run in the background when users hit play on their applications.


Combining NFTs with smart contracts may enable the creation of complex contractual structures and agreements and will simplify and speed up any arbitration process in the future.

What are NFT Smart Contracts?

Smart contracts are digital contracts where the terms of the agreement between users are set in the form of code. A smart contract contains information regarding the NFT and is one of the powerful features of blockchain technology.

Storing much data on the blockchain is expensive and consumes a lot of electricity and this is the reason why most NFTs are not stored on the blockchain. Therefore, the owner can access the work by the link of the smart contract.

We may say that a smart contract implements a sale agreement between the NFT owner and the buyer. Smart contracts execute the terms without the need of an intermediary or central authority. They are able to verify if the terms of the contract have been met or not.

As soon as the smart contract is logged on the blockchain the code becomes immutable. Anyone having the requisite coding skills can inspect the code and verify the authenticity of the smart contract.

Every sale contract has 3 essential elements to be valid:

  1. two parties: seller and buyer;
  2. goods;
  3. the price.

A smart contract contains all the 3 essential elements of a sale contract: it has a willing seller and buyer, an object (NFT), and a price.

Why Smart Contracts are ‘Smart’?

Smart contracts carry out the terms of the contract automatically: the code checks for certain conditions and then performs the relevant actions for making a transaction.

Transactions and remittances are made instantaneously in the case of smart contracts. Smart contracts are highly secure and transparent as they’re stored on the blockchain: no paperwork is needed for the process thus there is no chance of making a mistake. Moreover, you do not need to pay a middleman.

We may say that a smart contract has its advantages:

  • You don’t have to rely on a broker or lawyer, you make the agreement alone.
  • There is no fear of trusting. Documents are encrypted on a shared ledger.
  • Smart contracts are faster and cheaper and help to avoid the errors that come from manually filling out the forms.
  • Smart contracts save your money as you don’t have to pay an intermediary.


After being created smart contracts cannot be modified. They have a unique address on the blockchain and if you want to verify the authenticity of an NFT, you should check its contract address.

Token Standards

Different standards mean different token properties and capabilities. What the term “ERC-721” means? ERC-721 is a token interface standard that is used specifically for non-fungible tokens.

When buying an NFT artwork, your token contains a smart contract that determines the functions of the NFT. These functions allow applications to interact with it and need to be standardized so that all NFTs can be used in the same way. Otherwise, if every NFT smart contract uses different functions with different names, applications won’t know what to look for.

ERC stands for Ethereum Request for Comments. An ERC standard is essentially a set of rules that all tokens of that type must adhere to.

ERC-721 is the main standard used for NFTs as it requires all tokens to be non-fungible, and have unique token ids. Whereas other standards do not have this requirement.

ERC-721 was the first non-fungible token standard to be developed on Ethereum. Most NFTs follow this standard.

ERC-1155 is used mainly in gaming because games have fungible assets like in-game currency and non-fungible assets like unique items.


NFT Smart Contract Provides Proof of Ownership

Smart Contract controls actions such as certificating the ownership or the rights of transferring NFTs. NFT Smart contract includes unique metadata such as owners’ identity, secure file links, processes of works, etc. This information is in a secure and transparent blockchain-based storage.

The proof of work (where and how authors produce the works, story behind the work, materials used for work) and authenticity to potential buying parties are recorded and recognized based on the metadata that the smart contract contains.

As we know, each non-fungible token has different metadata and codes, which make them unique and unexchangeable. If all preconditions in the smart contract are not met, no one can affect NFTs.

It is possible for an NFT’s owner to self-program a smart contract by following the ERC-721 standard. People may use the existing free smart contracts templates in virtual libraries and add additional codes about names of tokens, authors’ information, transferring rights, links to works, etc to enhance the security of an NFT.

Smart contracts may have lots of different applications, including:

1. Financial agreements and financial services

Smart contracts can manage financial documentation and settle safe trades.

2. Legal contracts

Smart contracts can facilitate the payment of funds and impose financial penalties if certain conditions are not satisfied.

3. Real estate transactions:

Smart contracts can be used by real estate agents to automate the closing process for home purchases.

4. DAO governance

Smart contracts are a good option for decentralized autonomous organizations to facilitate broad-based decision-making.

5. Non-fungible tokens (NFTs)

Transactions and the storage of non-fungible tokens are facilitated by smart contracts.

6. Health care management

Smart contracts will help to automate the management of medical records and systems.

7. Supply chain documentation

Smart contracts can facilitate supply chain documentation increasing transparency.

8. Public-sector record keeping

Smart contracts can be used by governments to automate the collection and maintenance of public records.

9. Voting

The usage of smart contracts can help to conduct elections by verifying voter identities, recording votes, and determining outcomes.

To sum up, smart contracts can be used to establish and complete almost any agreement since they save time, are a cheaper, faster, and more secure way of payment as compared to the traditional system. And understanding smart contracts will help you make more informed decisions about NFT creation and collection.

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