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What Are Dynamic NFTs (dNFTs) And How Do They Work?

4.0
| by
Joel Agbo
-

What are Dynamic NFTs?

Dynamic NFTs are designed to change over time when certain criteria are satisfied or in response to other pre-defined triggers for a change. They use decentralized oracles and smart contract technology, respectively, to engineer a connection with the world outside the blockchain and develop a system that automates the required changes. 


Key Takeaways

  • Dynamic NFTs are in constant change. This change in their form automatically happens when specific criteria are met, such as a change in data related to the NFT.

  • A dynamic NFT encodes logic that automatically engineers a variation in their metadata in response to changes in external data.

  • A data feed system developed using decentralized oracle technology packages this data or the external changes and feeds it into the NFT’s system. A smart contract is triggered and automatically exerts the effects that follow these changes.

  • Dynamic NFTs find application in concepts or situations that require flexibility. It comes in handy for systems that attempt to connect NFT technology to the external world.


Dynamic NFTs dNFTs

NFTs need no introduction; they have become a significant part of the blockchain space and have found application in spaces beyond the realms of native crypto projects. However, most NFTs are static; their form, identifiers, and metadata remain the same and cannot be changed once minted on the blockchain. 

However, what if NFTs could change based on outside developments? 

For instance, real and virtual estate NFTs will work better if the details of the NFTs change according to developments in the estate. Even decentralized games could offer a better gaming experience with NFTs that continuously develop as the gamer progresses.

But what are dynamic NFTs?

Understanding Dynamic NFTs (dNFTs)

Simply put, dynamic NFTs are NFTs whose metadata changes in response to triggers from the external environment. These triggers could be based on pre-programmed criteria or even more flexible criteria that kick off unique changes. For instance, when used in applications like games, the gaming NFT can be designed to change its attributes when a new level is unlocked or when the player purchases an upgrade. 

Dynamic NFTs have been around for quite a while, being used in the 2017 game – Cryptokitties – and gaining more relevance now that even more use cases are emerging. More recently, in June 2021, basketball star LaMelo Ball entered the NFT space with some unique NFTs releases that featured form-changing NFTs according to external data, which includes the NFT’s rarity increasing when the player wins personal awards like Rookie of the Year. (LaMelo) Ball’s NFTs are some of the simplest instances of dynamic NFTs (dNFTs) in action. 

So how do dNFTs work?

How Do Dynamic NFTs Work?

Dynamic NFTs retain their unique identifiers on the blockchain while their metadata and appearance change according to the smart contract and in response to external data. Therefore, they are the same NFTs but possess new attributes.

Three parties are at the core of dynamic NFTs; an ERC-1155 standard non-fungible token, a set of smart contracts, and a decentralized oracle.

ERC-1155 standard NFTs sit between ERC-721 standard NFTs and ERC-20 fungible token standard: they are flexible and can respond to attempts to change through a smart contract.

Oracles are data feeds and management systems connecting a system to the external world. They obtain reliable data and feed the system with this information. Decentralized oracles like Chainlink have found applications in decentralized finance and other systems where reliable data from external sources are required. In dNFTs, they perform this same function. Oracles are the single source of data for dNFTs; they sort the data and relay the variations to the NFTs’ contracts.

The smart contract handles the metadata-changing process. The smart contract is designed to obtain information from oracles and run an automatic change on the concerned data.

In summary, the ERC-1155 standard NFTs are minted with a set of metadata and a smart contract that is connected to an oracle. The oracle, in turn, connects to the external environment and eavesdrops on data. When new data emerges, the oracle conveys them to the dNFT’s smart contract. The contract picks the information from the oracle and automatically changes the NFT’s metadata according to the pre-designed algorithm. This creates a semi-open system for the NFT and offers certain benefits.

Benefits of Dynamic NFTs

When handed a flexible system like the one dynamic NFTs create, here are some of the advantages;

Interactivity and User Engagement

Dynamic NFTs are a semi-open system; the availability of data changes and the ability to respond to them create an effective communication channel that can be fashioned into a two-way interaction system. 

For example, an NFT could reflect changes in the weather, or an in-game NFT could change its form based on a player’s development or specialization. 

Widespread Applications

Static NFTs are limited to a large extent. Thanks to their rigidity, there are only a few cases where they fit perfectly into a system, hence their popularity as profile pictures (PFP). 

Dynamic NFTs are immune to these limits and can be applied in vast systems. Dynamic NFTs fit in well with many real-world systems, such as real estate and even vehicle tracking, which we'll look at later.

Downsides of Dynamic NFTs

Here are some shortfalls of dynamic NFTs:

Resource Intensive

Anyone can mint static NFTs; contemporary minting dApps have further simplified this process for non-technical NFT creators. But this is different for dynamic NFTs. On the procedural end of the creation process, it first involves the normal minting process, and in addition, a good knowledge of smart contracts and oracle technology is required to properly develop the interactive and form-changing abilities they are known for. 

Higher Levels of Computing Resources Needed

While the normal NFT minting process might not require huge computing resources, the smart contracts, and oracles that handle the dynamic aspect are high-level computing technologies. This means an increased demand for hardware and software computing power. Sequel to creation, managing dynamic NFTs also requires higher level computing power, resulting in higher costs to maintain the NFT. 

Potential Increased Security Risk

Dynamic NFTs are designed for continuous interaction with oracles that pull off-chain data and also continuous changes to their metadata using data obtained from this interaction. Dynamic NFTs are, therefore, open to the environment and the potential threat from malicious actors.

If an oracle is compromised, the attacker can bypass the blockchain’s security measures and hack into the system, potentially gaining access to the blockchain system and interacting with the wallet

What Are Some Use Cases for Dynamic NFTS?

Dynamic NFTs have a wide range of applications. This section will only look at a few of them; more use cases for dNFTs could also emerge in the future.

Gaming

Decentralized games are one of the most common utilities for NFTs. GameFi projects use NFTs to develop their gaming and reward system, and players enjoy complete ownership of their in-game items thanks to NFTs. NFTs in games can also represent the gaming characters and their abilities. But most gaming NFTs are static and most games resort to minting new NFTs to reflect changes in attributes as the games progress.

Dynamic NFTs find an important application in cases like this. When used in place of static NFTs, dynamic NFTs could usher in a new gaming design where gamers retain a single NFT for their character or other in-game items and continuously change them as their game progresses. For instance, role-playing games could use dynamic NFTs to vary character roles and abilities instead of minting a new character when the gamer wishes to change their role. The game items can also change their form while retaining the initial identifier on the blockchain, for instance, the same sword can develop new abilities.

A ‘one fits all’ system for decentralized games could save resources and present an even more immersive experience for gamers while pioneering the future of gaming on the blockchain. 

Sui blockchain-based decentralized game, Sui Monstar describes a dynamic NFT design for its characters. As gamers play through the game, character attributes such as health, friendliness, and accessories are all updated live. While dynamic NFTs in games are still in their early stage, this could be the preferred design in the future as more projects incorporate these.

Real Estate

NFTs in real estate are a thing now, where real estate projects can represent properties as NFTs and the holder as the only true owner of the associated property. Real estate NFTs contain metadata that describes the property; this includes the size and other features at the time of minting. 

However, a property almost never stays the same forever, and that’s where dynamic NFTs come into play. The constant changes are part of the routine management and development of properties, and static NFTs are unable to reflect these changes due to their rigid nature.

Real estate projects can issue a dynamic NFT with the smart contract and oracle that changes the metadata to reflect changes in the related properties, where changes such as modifications to the property can be reflected concurrently. 

Sei network-based decentralized real estate project – Coded Estate describes a system that leverages dynamic NFTs, smart contracts, and zero knowledge to “drive innovation and advancement in the traditional real estate, short-term rental market and enable access to ownership in premier homes.” It hopes to achieve a more decentralized marketplace for real estate with increased transparency, liquidity, and efficiency.

Art

A large portion of the NFT space caters to art, and static NFTs in the vein of Cryptopunks and BAYC have dominated the space so far. But dynamic NFTs are gradually gaining the attention of NFT art creators and collectors. Art pieces like Ties that Bind and Weather Jar by Shavonne Wong and Zenavi respectively, feature dynamic NFT technology, and these artworks change their form in response to certain events. 

Wong’s Ties that Bind collection changes its metadata based on events like changes in the artist’s age, blockchain traffic, and more. Zenavi’s Weather Jar changes according to the time and weather in Jakarta, the capital of Indonesia.

Dynamic NFTs are gaining ground in the art space and could even grow into dominance as their ability to change form is a big factor in valuation. Will it be the next big thing in NFT art?

Fundraisers

Like fungible tokens, NFTs are also used to generate capital for new projects – these could be profit-oriented or charitable projects. Projects like Regenerative Resources are using NFTs to source funding for their eco-salvaging project. Regenerative Resources issued a dynamic NFT that adds a new frame each time the NFT is resold. This feature not only makes the fundraising process an interactive one but also scores a huge point of attraction for collectors who also wish to contribute to a greater course for the benefit of the ecosystem. The project hopes to deploy funds obtained in the way to salvage degraded lands and make them fit for green life.

Regenerative Resources co Mangroves

Sports

Sports teams and individuals are diving into the NFT space and exploring possible ways to connect with their fans and also make profits through NFTs. Football and basketball stars have issued NFTs with perks such as in-person meetups and live game presence. Most of these are static NFTs, LaMelo Ball’s NFT is one of the currently few instances of a dynamic NFT in sports, this has shone light on what could be achieved with a sports-oriented NFT.

Dynamic NFTs’ metadata can be designed to reflect the issuing team or individual’s progression in the sports. A handful of ideas and opportunities could be explored. Once again, dynamic brings to the table, one thing static NFTs lack – flexibility. 

Vehicle Data Tracking

According to reports, Alfa Romeo's Tonale hybrid SUV will feature a dynamic NFT that tracks information about the vehicle, like maintenance records and milestones (distance covered by the vehicle). This is in an attempt to provide a trustable, immutable record of the vehicle’s health in case the vehicle owner looks to sell the vehicle in the future. 

Also, the NFT will only keep the vehicle’s record if the owner approves. The dynamic technology will see the NFT’s metadata change each time a new milestone is achieved, or maintenance is carried out. The full details of the NFT (including the blockchain on which it will be issued) is not available at the time of writing; more information will be available when the vehicle is launched.

Digital Identity

NFTs are being integrated as vital parts of decentralized digital identity systems; these systems leverage the immutability of NFTs to keep a store of personal details and develop an easy verification system for these information. Ethereum’s Soulbound tokens seek to develop a tamper-proof, rigid identity system built on the blockchain. Static NFTs are used in some of these applications, but personal data changes frequently. Age, certifications, and other details needs to be updated as frequently as they change.

Dynamic NFTs could find an important application in this space as well. Instead of minting a new NFT each time personal details change significantly, dynamic NFTs could be used, and the metadata programmed to change in response to these changes.

Final Thoughts

NFTs are evolving in form and perception. Dynamic NFTs represent a significant evolution in the normal form of NFTs. Static NFTs have seen a positive reception from the crypto space and the world outside it; dynamic NFTs could be next to enjoy this and even better. Dynamic NFTs score a huge point in mass adoption due to their flexibility which could be applied in numerous ways. We have taken a look at some of these applications, but we might just be scratching the surface, as continuous usage could reveal even more applications for form-changing NFTs.

However, it is also important to understand that, just like any new technology, dynamic NFTs will be undergoing significant changes and evolution. Some of these might warrant risk-management measures as there could be side effects and risks, as reflected above. Also, note that this article is only for educational purposes and not financial advice.

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Joel Agbo
Joel Agbo
Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. Follow the author on Twitter @agboifesinachi

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