NFT popularity caused us to re-evaluate how we value products and bring blockchain technology to a mainstream audience. It also showed us the potential of smart contracts and how they can change the industry. Smart contracts are just as popular as NFTs, striking a chord with the public consciousness and staying that way. The first quarter of 2021 saw nearly two billion USD spent on NFTs, which was a significant increase from last year. In fact, Visa also got in on the NFT craze when it bought a CryptoPunk for more than one hundred thousand USD. Much of the NFT’s success comes through utilizing blockchain technology and smart contracts. But, many in the mainstream do not understand the term and what it entails. Hence, this article aims to shed some light on NFT smart contracts and what they can do.
Early days of NFTs
The NFT business spiked up significantly during the pandemic. Music, Gifs, Jpegs, and other digital assets changed hands and sold for vast digital dollars during that time. Here, the buyer and seller never met in person but were ready to deposit large sums of virtual money if it meant owning internet history.
So, how did one user know the other would honor the transaction?
An NFT is a piece of digital information stored on a blockchain. The blockchain authenticates a digital asset as unique and makes it non-interchangeable. This statement is the foundation every smart contract operates on. They are automated and enforceable agreement that activates under specific conditions. People trust NFTs as the blockchain checks, monitors, and enforce the transaction.
Smart contracts enable users to sell NFTs to other users. These buyers pay with Ethereum, the world’s second-largest coin on online stores called NFT marketplaces. There are several NFT marketplaces in the industry, and each of them generates significant revenue every day.
The purpose of NFT smart contracts
The objective behind smart contracts is to simplify the business transaction between buyer and seller. NFT marketplaces are where users remain anonymous, and hence, there must be a protocol to ensure the transaction occurs. This technology removes the reliance on rigid traditional methods while maintaining credibility and authenticity.
Smart contracts work on blockchain ledgers. These ledgers are distributed, making them immune and impossible to alter.
NFT Smart contracts characteristics
- Every smart contract engenders trust as no party can change terms after creating the protocol
- They are hard to hack and highly secure thanks to blockchain technology
- The lack of intermediaries means the involved parties save time and money
- Smart contracts eliminate the need for paperwork and bring in accuracy and speed
Drawbacks
NFT smart contracts sound great; however, they are not without faults. One of the most significant drawbacks is the computing power and energy required for a network to confirm these transactions. The current process used by the web is a PoW or Proof of Work mechanism. Here, a computer network pool carries out the process. This mechanic requires many resources compared to a typical debit card transaction.
The negative implications of blockchain technology caused Ethereum to change how it confirms transactions. By 2022, the network will use a Proof of Stake model, reducing the environmental impact.
The PoS model also relies on cryptography but consumes significantly less energy than the PoW model. PoS does not require a computer network pool, hence, the processing needed and environmental impact is reduced considerably.
Do note that there’s more to NFT smart contracts than collectible NFTs
National payments
Payment support is a profitable venture for banks as the process generates more than two hundred billion USD in revenue. Renowned blockchain company Ripple partnered with more than 300 customers to improve the efficiency of cross-border payments. Their solution creates a two-way communication protocol. This product enables real-time messaging and settlement and benefits both sides.
Trading and goods
Another example of NFT smart contracts is IBM. The company uses blockchain and the smart contract platform to ease the trading process for companies. This approach creates an ecosystem built on trust for global trade. Their platform has standardized rules, more straightforward trading options, lower risk, and increased trading opportunities for various organizations. Smart contracts here facilitate trade between two or more parties, remove paperwork and instantly build trust between the parties.
Will
Zweispace, a Japanese-based startup, looks to integrate NFT smart contracts for developing self-executing Wills. This system automatically distributes assets to the beneficiaries. The condition for the contract activating is the confirmation of the trustee’s passing. This approach removes the need for executors and drawn-out court battles regarding the will’s integrity.
API’s powering the blockchain network
APIs and smart contracts result in limitless possibilities for blockchain apps. APIs can enhance the in-house compliance systems, user licensing, agreements and deliver immutable transactions. Additionally, no party can alter these contracts from executing. In fact, the only limit to what is possible with APIs and smart contracts is the user’s imagination itself.
Conclusion
Thanks to blockchain technology, we have smart contracts and NFTs. Users have several standards to choose from when they create their NFTs. Smart contracts enable users to make transactions and not rely on third-party involvement. They are the building blocks for any NFT and one of the reasons behind the technology’s popularity.
The potential for using smart contracts in future transactions like home loans and other industries is an exciting prospect. The digital protocols are self-executing and can work in many businesses. The only question we should ask is how long before they become the norm and everyone starts using them? All that’s left to do is wait and see what happens next.
