This blog post aims to explain smart contracts in NFTs. We shall further go through the token standards like ERC-721 and others. By the end of the article, we shall also glance at the audit & verification of a smart contract.

A non-fungible token or NFT is the new form of intellectual property that is incredibly trendy right now. It is a digital asset on a blockchain network and symbolizes real-world artifacts such as art, music, images, documents, and videos. It is a digital replica of physical collectibles. The most fantastic thing about NFTs is that no two NFTs are the same. The popularity of an NFT is due to its’ scarcity and uniqueness.

Further, an NFT is a form of the digital token and essentially a one-of-a-kind proof of digital asset ownership. This means that at a time, an NFT has only one owner; however, it can be transferred from one owner to another. NFTs are crypto-tokens built on the blockchain networks like Ethereum, Cardano, Solana, etc. Therefore, an NFT’s functioning is based on smart contracts.

What are Smart Contracts in NFTs?

To create an NFT, you need to mint it on the blockchain network. In this process, the user registers on the minting platform and performs the minting operation. The minting platform executes a code that complies with the digital standard, such as ERC-721. Further, upon executing the code, a new block is added to the blockchain network that contains information regarding NFT ownership and transferability. Hence, a smart contract is a code that assigns ownership and manages the transferability of the NFTs.

To explain the smart contract in more detail, consider it a self-executing program or protocol in which the contents of an agreement are inscribed directly into lines of computer code to facilitate the performance of the agreement. It is a blockchain-based piece of code. Moreover, it eliminates the mediators or central authority in the ownership verification and transfer process from one owner to another.

An analogy to a smart contract is the vending machine. A vending machine dispenses drinks, candies, chocolates, etc., upon receipt of money. As you put the coin into the slot, the machine identifies the coin through a mechanism. Upon verification of the coin, another mechanism gets triggered that dispenses the goods. In this system, there is no need for a shopkeeper to take the money and give you goods.

Other than the NFTs, smart contracts have many other uses, such as acting as a deed in real estate, e-commerce, supply chain, etc. Further, smart contracts can activate other smart contracts.

Token Standards

ERC-721 is the most commonly used standard for NFT minting. For gaming purposes, the ERC-1155 standard provides ideal semi-fungible tokens. A relatively new standard EIP-2309 aims to make the minting of NFTs much more efficient by allowing multiple minting at once.

ERC-721

ERC-721, or Ethereum Request for Comments-721, is an open standard for minting NFTs on the Ethereum network. It came into existence in 2018. Every NFT has a unique pair of contract addresses and token IDs (uint256). This helps in ensuring the uniqueness and ownership of the NFT. Moreover, the standard approves the third party to move tokens from an account.

The advantage of using ERC-721 is that a single smart contract can handle multiple NFTs, each having a unique pair of contract addresses and token IDs. In addition, it is a proven standard that protects intellectual rights from counterfeits.

ERC-1155

The ERC-1155 standard is one step ahead of the ERC-721 standard. For example, storing the information takes less space as it uses minimum data to differentiate one token from another. In addition, it uses a single smart contract for many NFTs.

Games have thousands of items, from different player attributes to skins. In addition, gaming items like ammunition, first-aid kits, etc., are dealt with in bulk, and gamers don’t care about their uniqueness. Hence these items can be fungible, which saves data storage.

In continuation, With ERC-1155, it becomes easier to manage each of them and save time and cost. The ERC-1155 sends data to multiple recipients in a single transaction, improving efficiency. It can handle 100-200 operations at once.

EIP-2309

The EIP-2309 is a scalable solution to the ERC-721. It is possible to perform 2^256 NFT operations in a single transaction. However, with ERC-721, it is not possible. The EIP-2309 aims to push the boundaries of ERC-721 and save time and cost.

How does Smart Contract Work?

By now, you must have got an idea of the working of a smart contract. If you haven’t, we got you covered on this.

Smart contracts essentially follow an if/when/then condition. If x happens before/after y, then do z. The computers connected to the blockchain network verify the x & y conditions. If the conditions are met, the z action is executed. Further, the blockchain collects the information regarding the executed action, creates a new block, and adds it to the network.

For example, suppose you transfer the price of an NFT to buy it from its owner. Consequently, you get the NFT, and the ownership transfers to your name (wallet). In hindsight, the smart contract verifies the transaction of money and ownership of NFT, deletes the NFT from the owner’s wallet, and adds it to your wallet. Also, the smart contract updates the metadata in the block. This process is automated and needs no mediation.

How to Audit/Verify a Smart Contract?

If you want to audit or verify a smart contract, you must understand the authenticity checking mechanism. Smart contracts can verify the token’s ownership and authenticity. The NFT Smart Contract Ethereum platforms verify the authenticity of an NFT systematically. First, the platform traces the creation of an NFT on the blockchain network. Further, it checks the development and minting.

In addition, NFT Smart contract solidity secures NFT transactions while token uniqueness registers it as a distinct digital asset on the public blockchain. Each transaction data has been collected and stored in the blockchain since the inception of the NFT. Therefore, the metadata stored in these NFT Smart Contract codes aids in tracking the wallet address and its activities on the blockchain. However, identifying the wallet owner in the real world is not easy without the help of the NFT platforms that offer these wallet services

The NFT Smart Contract makes it simple to identify the creator of an NFT, track the purchase, and validate the entire trade legitimacy. In addition, the public can review the transfer of ownership and transaction history on the Ethereum blockchain because it is transparent.