If you’ve been following the NFT industry closely, you’ve probably at least come across the term “smart contract.” When people think of smart contracts, they think of a technical term that has nothing to do with it. In reality, however, NFT smart contracts are very important (if not the most important) in your NFT journey. For creators and collectors, understanding smart contracts is a crucial step in minting NFTs.
In this article, we will be discussing the introduction to NFT smart contracts
What are NFT
NFT stands for Non-Fungible Tokens. It is a unique and rare digital token. NFTs are essentially the only proof of ownership for something (usually a digital asset). NFTs are digital versions of physical collectibles, and no two NFTs are the same.
Fungibility is the ability of an asset to be exchanged for another asset of the same type. For example, a $5 bill is interchangeable with all other $5 bills. They represent the same value. But, for example, Oppenheimer diamonds are irreplaceable – that is, there is only one genuine, unique version.
The internet and digital technologies have created vast amounts of data and information, like files or photographs that can be endlessly copied and shared. For example, if I take a photo of a celebrity on Santa Monica Boulevard with my cell phone, I can send that photo to thousands of people in seconds – thousands of people who will instantly create that photo version.
Blockchain technology, especially NFTs, can enable digital scarcity. Some data from NFTs can still be copied and shared, but the certificate of authenticity and legal title of the asset will be present on a single, tamper-proof NFT. NFTs exist on blockchain networks like Ethereum and provide proof of authenticity and legal rights for digital assets.
What are Smart Contracts
Smart contracts are one of the most powerful features of blockchain technology. A smart contract is a digital contract that encrypts the terms of an agreement between users. Smart contracts can also be programmed to run automatically when predefined conditions are met. Smart contracts exist on decentralised and distributed blockchain networks.
Several organisations are working to create smart contracts established in court. The solution could take the form of a smart contract interface, where the code in the smart contract would simultaneously create a document defining the terms of the contract in plain English.
Smart contracts can be programmed to trigger other smart contracts or create new events when executed. Smart contracts can also contain assets, NFTs and cryptocurrencies. These assets can be distributed at execution time when a set of conditions are met, based on the code defined in the contract.
How Smart Contracts and NFTs Interact with Each Other
There are two ways that smart contracts and NFTs can interact. NFTs can be embedded in smart contracts and vice versa:
- 1. NFTs can be embedded in smart contracts. A smart contract can contain an NFT and then transmit it to a user or another contract based on the rules and events defined in the smart contract.
- 2. Smart contracts can be embedded in NFTs to call and access assets within NFTs. For example, users can access songs embedded in NFTs via smart contracts. They would use a smart contract to agree terms, pay the agreed amount, and access the song. Most likely, when the user clicks play in their app, this process is running in the background.
Combining NFTs with smart contracts gives users the flexibility to unlock a variety of use cases. Complex contract structures and agreements can be created. The underlying blockchain mechanism makes contracts transparent, tamper-proof and verifiable in real-time. This will simplify and speed up future arbitration procedures.
How to Read NFT Smart Contracts
Smart contracts contain all the information about a specific NFT. So, just by reading a smart contract, you can learn the project’s popularity, ownership, details of all transactions and more. Additionally, you can even mint NFTs directly from smart contracts.
Now here are the steps to find a smart contract (since most NFTs are based on Ethereum, in this guide, we will look at Ethereum NFTs):
- Find NFTs that interest you on OpenSea.
- Scroll down and click the drop-down arrow on the Details tab.
- Here you will see “Contract address”. Clicking this button will take you to the smart contract on Etherscan. Etherscan is a useful website for finding data about transactions, blocks, wallet addresses, smart contracts, and more on the Ethereum blockchain.
- Alternatively, if you already know the contract address, you can find the smart contract directly on Etherscan by pasting the address into the search bar.
Using Etherscan to learn more
Now that you have the NFT smart contract, let’s see what you can understand.
First, you’ll see some general information about NFTs.
The number of coins the contract holds.
My Name Tag
This is adding your private notes to any project of interest. To do this, you must be logged in to Etherscan.
The person’s wallet address who created the contract and a link to the original transaction. By clicking this button, you can view details such as transaction hashes, blocks, timestamps, transaction fees, gas fees, and more.
Tracker or Token Tracker will tell you everything about the coin. Here you can see the minimum price, maximum offer, total transaction volume, official website and social profiles. There is also a “Holders” tab to view details like the number of users with tokens and the maximum number of tokens held.
Under the Transactions tab, you will find all NFT smart contract transactions listed in chronological order. You can click on individual transactions for more information. Now “methods” are functions that are executed based on input data. Typically, the methods are new, set approval for all, and transfer from.
In addition, you can view details such as the transaction status, the block that contains the transaction, the transaction fee, the wallet address where the transaction was made, and the wallet address where the transaction was received.
Put, internal transactions are transactions between contracts. Remember how smart contracts automatically trigger predefined actions when certain conditions are met? Internal transactions are transfers of value due to the execution of smart contracts. In other words, to execute a smart contract, a certain amount of ETH (or another token) usually needs to be traded – also known as an internal transaction.
The Contacts tab lets you find all the information related to a specific NFT smart contract. Under “Code”, you can view the contract’s source code. “Read contract” is for general contact information and all its functions. In the meantime, you can use “Write Contract” to interact with the contract. Essentially, you can perform functions like token burning, approving transactions, transferring tokens, etc. However, your wallet should have the necessary permissions for this. You can connect your wallet using the Connect to Web3 option.
Finally, under the “Analysis” tab, you can find various charts detailing transactions, transaction fees, token transfers, and more. You can also set a specific timeline. It’s a useful tool for understanding general trends in NFT projects that interest you.
Ultimately, you may not need to take advantage of all the features of the NFT smart contracts above. Still, it’s important to understand the details of your NFT and its smart contracts before making any investments.
The usefulness of the NFT Smart Contract
These smart contracts prove to be extremely useful because of the following characteristics:
- They bring in speed and accuracy as paperwork can be avoided completely
- They engender trust as no one can change the terms once it is created
- They are highly secure and hard to hack
- There are a lot of savings as intermediaries are avoided
Smart contracts are the building blocks of any NFT. The potential for implementing smart contracts into future transactions such as home loans and other business-related deals is very exciting. Imagine eliminating the lack of trust experienced when transacting with others; that’s precisely what a smart contract can do.