What are NFTs?
An NFT, or non-fungible token, is an ownership record for a digital asset on the blockchain. It has unique metadata that is stored in a digital wallet. NFTs are unique and irreplaceable, unlike traditional cryptocurrency tokens (think Bitcoin), which are like-for-like (or, fungible) with one another.
Interest in crypto has soared over the past years, and these digital assets have become ubiquitous in Web3, beyond the Ethereum blockchain (ETH) and popular NFT marketplaces such as OpenSea. The ecosystem is growing, with startups building incredible new NFT marketplaces, DeFi apps, dApps and no-code tools for NFT creators. Projects are spreading to other blockchains such as Solana, Polygon, Tezos, and Stacks, which enables smart contract functionality for Bitcoin, with its leading NFT marketplace Gamma.io.
There are many use cases for NFTs, the most popular being digital art and PFPs, with well known collections including Cryptopunks, Bored Ape Yacht Club, Megapont, Project Indigo and more.
NFT collections are moving towards projects with more utility and longterm uses both in the metaverse and in the real world, such as real estate, deeds, patents and more. Static NFTs are currently the most common type of NFT, used mostly for digital collectibles and digital art, providing numerous benefits for digital artists who can, for the first time in the history of the internet, sell digital art to their community by giving them verifiable ownership.
While static NFTs have become one of the most prominent applications of blockchain technology, they are limited by their permanence: the metadata attached to the NFTs is fixed once the NFTs are minted on a blockchain.
What are Dynamic NFTs?
A dynamic NFT is an NFT that can change based on external conditions.
Dynamic NFTs (dNFTs) combine the verifiable, one-of-a-kind qualities of static NFTs with dynamic data inputs, allowing them to update aspects of their metadata, using both off-chain and on-chain computations.
The change in the metadata is triggered by a smart contract which allows the dNFT to use both off-chain and on-chain data, and which provides instructions regarding when and how the NFT's metadata should change, based on external data sources. They can react dynamically to real-time sport scores, real-world events, and more, by pulling data from off-chain data sources such as web APIs, other verifiable data providers and oracles, which are a system of nodes that call upon and authenticate external data for Web3 smart contracts.
On the Ethereum blockchain for example, static NFTs are defined by Ethereum's ERC-721 token standard and require smart contracts to be executed for each new token minted. The NFT's traits are place within the NFT's metadata, alongside an IPFS link to an image or video. A dynamic NFT is defined by the ERC-1155 standard, which makes it possible to alter the metadata based on external conditions.
This enables use cases such as tokenizing real-world assets, building progression-based video games, or creating blockchain-based fantasy sports leagues, which often require that data be updated. If you're interested in experimenting, many tutorials are available online to help you build your own dNFT.
Use cases and examples
Dynamic NFTs can have a huge impact on play-to-earn games, through the use of Chainlink VRF (Verifiable Randomness Function). This allows random distribution of traits and in-game items which in turn determine the rarity of the said factor. The random results are verifiable on the blockchain, and the randomness can't be swayed in anyone's favor.
This functionality can be useful for character progression in blockchain games. For example, when first starting a game with a playable NFT character, the NFT has base metadata, which will change to reflect the character's growth metadata as the player continues levelling up.
Real-world events could impact the specific traits of NFT collectibles.
For example, LaMelo Ball, a rising star in the NBA, created pioneering dNFTs that leverage Chainlink Sports Data Feeds, giving their holders benefits based on his real-world in-game performance. Each dNFT records a different set of the player's statistics, from rebounds and assists to points scored and levels up accordingly. When he won the rookie of the year for the 2020-2021 NBA season, the NFT changed color to gold, and the planet Saturn that he was holding transformed into the sun.
NFT art can evolve by using dynamic NFTs. As an example, Organic Growth: Crystal Reef are dynamic NFTs that evolved over time and based on transactions. Over the course of 3 months, crystals can grow their traits and change their appearance, and can be used in augmented reality.
Other use cases
Other possible use cases for dynamic NFTs include fundraising and passports, amongst others. Governments could issue passports in the form of dNFTs that would update as a person travels, removing the need for stamps and additional paperwork, as well as reducing the possibility of fraud thanks to blockchain technology. Builders and DAOs can leverage dNFTs to create gated communities, ultra-exclusive perks and unique gameplay opportunities.