Most NFTs currently available in marketplaces are designed as static NFTs; meaning, once they’re minted on the blockchain, their metadata isn't supposed to be changed or altered. Although the unchanging nature of static NFTs makes them easy to identify and verify, they are potentially limited when considered for use in games or environments with additional data.
Under this model, NFT use cases which require external data, like progression-based video games or blockchain-based fantasy sports leagues, are problematic as they can't communicate outside of the blockchain or "off-chain." Retaining unique identifiers is crucial to establishing authenticity, but a “static” nature severely limits practical applications of new information.
Thus, dynamic NFTs (dNFTs) have risen as a potential solution to those limitations.
What Are Dynamic NFTs?
Unlike static NFTs, dynamic NFTs are tokens that can change due to external events or data. Often, this change occurs in the dNFT’s metadata, triggered by external input and parameters built into smart contracts. By encoding automatic changes within the NFT smart contract, dynamic NFTs keep their distinctive identifiers while receiving instructions on when and how metadata will change.
Dynamic NFTs’ potential for evolution can extend beyond metadata as well. For instance, instead of encoding predetermined “hidden traits” within metadata, dynamic NFTs can allow holders to reveal or obtain traits through user interactions. However, updates that don’t extend to metadata won’t be easily visible to non-technical users so dynamic NFTs must implement some form of metadata modification for readily apparent visual differences.
They can also use specified conditions to determine a catalyst for minting. Causal instances might include achieving fundraising goals, an event’s conclusion, finding a hidden object in an online game, or other preset circumstances.
How do Dynamic NFTs Work?
Blockchains are closed systems that execute smart contracts based on data from their native ledgers. Consequently, they can't receive information or conduct business off-chain without additional assistance. Thus, blockchains need oracles as intermediaries between off-chain and on-chain data sources.
Oracles are a system of nodes that call upon and authenticate external data for Web3 smart contracts. Essentially, they’re communication hubs that filter, secure, and validate information before distributing the new data to blockchains - a bridge between disconnected worlds.
Dynamic NFTs use off-chain and computation services provided by oracles through inputs that trigger updates predetermined in their smart contracts. Therefore, a blockchain’s oracles must have accurate data at all times. Compromised oracles jeopardize all protocols and smart contracts on blockchains they communicate with.
Although oracles are required to facilitate communication necessary to most dynamic NFTs, they're far from complete. Oracle providers like Chainlink and Band face criticisms on network scalability and centralized validation methods, and there’s a genuine concern over data manipulation through the monopolization of these channels. These fears, criticisms, and concerns are collectively known as "The Oracle Problem."
What's the Future for Dynamic NFTs?
Despite current problems facing oracle providers, dynamic NFTs could significantly affect various markets and industries. Establishing a synergized relationship between blockchains, oracle providers, and creators will likely be the key to maximizing dynamic NFTs’ development and utility. It’ll be interesting to see if speculations come to fruition as the technology expands...
Progression-Based Blockchain Gaming
Dynamic NFTs could revolutionize blockchain gaming with unforeseen depth and complexity. The impact of seemingly small choices and events could ripple through an online world without much effort beyond initial encoding.
Blockchain-based gambling or fantasy-sports leagues could also be possible through dNFTs, with oracles providing the up-to-date data necessary for functioning.
Celebratory dNFTs could be programmed to mint at specified fundraising goals. Or, a dNFT minted for fundraising purposes could include hidden content unlockable by meeting fixed, monetary goals.
Dynamic NFTs could allow buyers to become stakeholders of pre-established endeavors. For instance, a band could sell dNFTs to crowdfund upcoming-tour expenses with the agreement that holders will receive a percentage of ticket sales at the tour’s conclusion.
Admission to Events
A dNFT could be the ultimate, secure ticket to an event; metadata could be encoded to change a ticket’s appearance based on RSVP status or usability post admittance. Some events have already used dNFT tickets, such as the Miami Crypto Experience in November 2021.
Real-estate dNFTs could show market value, past sales, maintenance history, price fluctuations, or other dynamic values. Because dNFTs can use external data to update their protocols, real estate could be bought and sold entirely on the blockchain.
Rental and vacation homes could also use dNFTs with metadata that dictates updates when properties are available for use or triggers payouts after guests’ stays.
Student dNFTs could include transcripts, test scores, or unlockable achievements encoded in smart contracts. For example, meeting a specified GPA requirement unlocks academic honors while completing predetermined classes unlocks a diploma.
Dynamic NFTs might be a helpful tool for demonstrating growth during college or job applications while making more information easily accessible to students and administrators. They could even mitigate fraudulent or deceptive practices in higher-education admittance.