Non-fungible tokens (NFTs) have quickly become an essential building block of the rapidly emerging web 3, offering a novel technique for tokenizing and commercializing digital assets. Interestingly, while NFTs were initially designed to exist as a permanent record on the blockchain, they have evolved dramatically to become more adaptable than ever, thanks to the scaled-up version of NFTs known as Dynamic NFTs (dNFTs).
Unless you are unfamiliar with the NFT space, you probably have stumbled across the term ‘Dynamic NFTs or dNFTs,’ which describes the next stage in the evolution of NFTs. Notably, dNFTs extend the possibilities beyond the limitations of the original static NFTs while also gaining access to some of their untapped potential.
Of course, that’s not all there is to know about the phenomena dubbed living digital collectibles. This educational piece will specifically highlight the key difference between static and dynamic NFTs, why the most recent update is required, and further examine some of the current and potential use cases for dNFTs. But before we get right into the discussion, let’s look at NFTs and their underlying technology.
To understand dNFTs, one must know about classic NFTs: what they mean and how they work. Essentially, NFTs are cryptographic assets based on the blockchain with unique identification codes and metadata that distinguishes them from each other. In other words, this type of digital asset (i.e tokenized items) links ownership to a unique item, whether in physical or digital form.
Generally, NFTs are created using a similar programming method to cryptocurrency; however, unlike cryptocurrency, NFTs are non-fungible, implying that they cannot be interchanged or replaced due to the uniqueness of the encoded metadata. If you are interested in learning more about NFTs and want to explore more about the topic, then you can do so via the link below.
That said, how are the classic NFTs different from dNFTs and what necessitated the innovative extension in the first place?
Understanding dNFTs and How They Are Different from Classic NFTs
To begin, Dynamic NFTs, also known as dNFTs, are an extension of classic NFTs, which are otherwise classified as static NFTs by nature. You may wonder why.
Essentially, the classic NFT was originally designed to digitize real-world items such as real estate deeds, patents, unique cards, artwork, and various collectibles, among other unique identifiers. Sadly, this NFT model is riddled with several limitations, one of which is the technology’s permanence attribute.
In particular, once minted and stored on the blockchain, the metadata encoded in each tokenized item cannot be modified, implying that each NFT item cannot be upgraded; rather, a new variant has to be created to accommodate future changes. This is also the reason why most existing NFTs are created in batches or series to accommodate new updates or changes made in the future.
While this approach has been in use since NFTs were initially introduced, it has recently come under fire for being inefficient, particularly in terms of scalability and sustainability, which necessitated the creation of dNFTs. So what is a dNFT and how are they different from classic NFTs?
What Is a Dynamic NFT and How Does It Work?
Unlike classic NFTs, whose encoded metadata cannot be modified, dNFTs introduce the ability to alter or modify encoded metadata. To put it differently, dNFTs’ encoded metadata is programmed to respond to external conditions or, possibly, to become upgradeable based on real-time events in the real world. So, how do they work?
dNFTs are designed with built-in smart contracts, enabling them to receive secondary data from oracles, thereby implementing changes to the tokenized item’s metadata.
If you are wondering, an oracle functions similarly to an API; it essentially acts as a bridge between an on-chain and off-chain infrastructure. In this context, the oracle enables blockchain-based projects like NFTs to react to real-world events while interoperating within traditional systems as in the case of dNFTs.
By leveraging smart contracts, NFTs transition into ‘living’ tokens (i.e., dNFTs) with the capacity to change over time. Usually, the smart contract is encoded with specified instructions that determine when and how the NFT’s metadata should react (i.e evolve) based on the inputs from the oracle.
In other words, the attributes of dNFTs can be changed while their unique identifier remains permanently stored on the blockchain. In comparison, the static NFT lacks a smart contract; hence, the metadata is constant, while the attributes and appearance equally remain the same over time.
Potential Use Cases for Dynamic NFTs
Static NFTs are perhaps the most common types of NFTs you will come across online; however, dNFTs are also finding their place in the crypto ecosystem as they prove to be more beneficial by the day.
Beyond the capabilities of a typical static NFT, such as digitizing items in the real world, dNFTs with upgradable metadata offer more advanced functionalities, such as those listed below:
1. Gaming (Character Progression)
One of the most prominent use cases for dynamic NFTs is character progression, a common phenomenon among blockchain games. Specifically, some playable NFT characters are designed such that they can be continually upgraded during the course of the game. For instance, as a player advances in a gaming activity, the NFT’s metadata can be modified to reflect the evolution of the gaming character.
2. Real Estate
Metadata evolution is also useful in tokenizing real-world assets such as real estate. If you understand how real estate works, you will know the importance of keeping records of changes made to landed property, especially as it comes in handy during property valuation.
For instance, an NFT representing a property should be dynamic enough to reflect various property attributes such as maintenance history, age, market value, and much more in real time. By adopting dNFTs, whose metadata can be altered at any time, it becomes very easy to track an asset’s true value progressively.
Insurance is another area where dNFTs can serve a major role, as it can be used for tokenizing various real-life items. For example, if a dNFT card is issued for an insured item, the card can be encoded with metadata from the real-world object and easily modified to reflect real-world changes. While this is good for inventory management, it also ensures transparency among all stakeholders.
4. Automobile Resale
When looking to buy a used car, there are a few questions you typically ask the seller. For example, you may be interested in finding out the car’s manufacturing year, previous location where it was driven, car mileage, accident or repair report, and other historical reports. But what happens when these reports are unavailable or, in some situations, fabricated? One thing is certain; you may buy the vehicle for a price higher than its true worth.
However, automobile manufacturers can avoid this by ensuring that each vehicle has an integrated dNFT encoded with the car’s metadata. This way, they can increase the vehicle’s resale value or, at the very least, ensure transparency should a secondary owner reacquire the vehicle.
A prominent example of a manufacturer that has made a significant effort in this regard is Alfa Romeo, an Italian car brand that recently became famous for building NFTs into its latest hybrid car model – Tonale SUV. According to the company, the car’s in-built NFT will be able to track and store maintenance records on the blockchain and generate a certificate.
Have you ever found yourself in a situation at an immigration office because a change in a certain trait of yours, such as hair type or color, facial hair, or other attributes, prompted an official to question the legitimacy of your passport? Well, this is almost inevitable, especially if you have to use the same passport for 5 to 10 years; obviously, a lot is bound to happen between those years.
As a result, if all passports were issued as dNFTs, they could not only be stored digitally but could also be updated in real-time with both personal data and data from official websites. This way, neither the holders nor the immigration office are inconvenienced or delayed due to suspicious changes in physical attributes at the airport or during visa application.
6. Fantasy Sports
Another area where dNFTs could be very helpful is in the area of fantasy sports. If you are familiar with Fantasy Premier League (FPL), powered by the European Premier League (EPL), you will understand how fantasy sports work. Essentially, this type of game is a virtual replica of a real-life gaming event.
In the case of FPL, for instance, game players automatically assume the role of a fantasy manager of premier league players that are randomly selected. However, the game’s outcome is determined by real-time EPL gaming activities.
When it comes to how dNFTs can support or even improve fantasy sports, they can be utilized to produce sports cards that update the player’s statistics based on the real-life player’s current performance, a similar approach adopted by FPL. Essentially, the card can be encoded with metadata from the sports website and changed as long as the actual athlete is active. While this appears to be a thing in FPL already, it is a concept that can be adopted across most blockchain games.
On the Flipside
Depending on the industry and size of the organization, the cost of integrating onto a blockchain network can be extremely costly. For example, a healthcare project may require an investment of $50,000 to $150,000, whereas other industries may require an investment of $40,000 to $100,000.
Why You Should Care
Ultimately, there appears to be a thin line between the early static NFTs and scaled-up dNFTs. However, the latter offers more broad use cases while also unleashing new possibilities for the digital asset ecosystem as a whole.