Know NFT Smart Contracts And The Way It Works

The article sheds light on various aspects of NFTs including the concept of smart contracts, their benefits, the process of creating smart contracts, their necessity for NFTs, and the associated costs involved in transactions.

Imagine you want to buy a used smartphone from someone you don't know, and you want to ensure that both parties stick to their agreement. Traditionally, you would need to rely on a third party (like a lawyer) to handle the transaction and ensure its fairness. However, with a smart contract, you can do this directly without an intermediary.

Smart contracts run on decentralized blockchain networks. They eliminate the need for trust in a transaction. By cutting out intermediaries, smart contracts reduce transaction costs and processing times. There's no need for manual verification, paperwork, or delays, making the process faster and more cost-effective.

Let’s understand Smart Contracts in detail and how they are created.

Table of Contents

1. What are NFT Smart Contracts?
2. How to Create NFT Smart Contracts?
3. NFTs: Do They Require Smart Contracts?
4. NFT & The Cost Involved

What are NFT Smart Contracts?

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They run on blockchain platforms like Ethereum, enabling trustless and decentralized interactions between parties.

Once deployed, they are immutable, meaning their code and execution cannot be altered, providing a high level of security and preventing fraudulent activities. The decentralized nature of smart contracts enhances security. 

Smart Contracts are highly versatile and can be applied to a wide range of use cases, from simple transactions to complex decentralized applications (DApps) like decentralized finance (DeFi), supply chain management, voting systems, etc.

How to Create NFT Smart Contracts?

Creating NFT(Non-Fungible Token) Smart Contracts need the expertise of a kind. Before creating an NFT smart contract, it's essential to grasp the concept of NFTs and familiarize yourself with relevant standards. Thus, having a strong understanding of blockchain development, and security best practices is crucial to implementing NFTs’ smart contracts.

Research: Learn about the NFT market and the underlying technology. The most widely used NFT standard on Ethereum is ERC-721, but there are others like ERC-1155 and ERC-721x. These standards define the basic functionalities and interfaces expected in NFT smart contracts. 

Write the Smart Contract Code: Create a new Solidity file containing the code for your NFT smart contract. This code will implement the NFT standard you've chosen (e.g., ERC-721). The contract should include functionalities like minting new tokens, transferring ownership, and querying token details.

Deployment: Deploy the smart contract to the Ethereum network using tools like Truffle or Remix IDE. You'll need to connect to a testnet or the mainnet depending on your requirements.

Testing & Integration:  Test the smart contract for security vulnerabilities and functionality.  NFTs often include metadata (e.g., name, description, image) associated with each token. Store this metadata on decentralized storage like IPFS (InterPlanetary File System) and link it to the token's unique identifier.

Minting NFTs: Determine who has the authority to mint new tokens—this could be the contract owner or restricted to specific addresses. The minting process should emit events to reflect the creation of new NFTs.

NFTs: Do They Require Smart Contracts?

Yes, smart contracts are necessary for NFTs (Non-Fungible Tokens). On blockchain networks, smart contracts specify the guidelines for producing, acquiring, and transferring NFTs. They guarantee safe and transparent transactions, while NFT standards like ERC-721 offer consistency and compatibility. NFTs wouldn't work on decentralised networks like Ethereum without smart contracts.

NFT & The Cost Involved

NFTs may have several expenses for both sellers and buyers. The following are the main cost elements related to NFTs:

Gas Fees: To execute a smart contract, each operation on the blockchain needs "gas," which is a cost paid in cryptocurrency (often Ether on Ethereum). The cost of gas fees can fluctuate depending on network congestion and the complexity of the smart contract.

Minting Fees: Creating an NFT, known as "minting," often incurs a minting fee. This fee covers the cost of deploying the NFT smart contract and recording the metadata associated with the unique asset on the blockchain.

Platform Fees: For listing NFTs or enabling transactions, several NFT markets impose platform fees. These fees could differ from platform to platform and could be a fixed sum or a percentage of the sale price.

Royalties: In their smart contracts, several NFT developers include royalties. These expenses come out of the money made from the NFT's secondary sales. Every time a creator's NFT is sold again in a secondary market, they get paid royalties.

Storage Costs: Storing NFT metadata, such as images, audio, or videos, on decentralized storage networks like IPFS (InterPlanetary File System) may have associated costs, depending on the amount of data and storage requirements.

Cryptocurrency Exchange Fees: To buy NFTs, buyers must have cryptocurrency, such as ether. Exchange costs are frequently incurred when buying cryptocurrencies using fiat money.

In conclusion, NFT smart contracts are essential within the NFT ecosystem, ensuring security, transparency, and automated functionality in transactions. Creating NFT smart contracts requires expertise in blockchain development and a strong understanding of NFT standards, such as ERC-721. They serve as a cornerstone for the creation, exchange, and administration of non-fungible tokens, though users should be mindful of the associated costs when engaging in the NFT market.