Blog post

Dynamic NFTs

2023-11-18

5 minute read

Dynamic NFTs

Digital Scarcity, Ownership and Fungibility

For an asset to be considered scarce it requires some form of peculiarity or uniqueness. Something to distinguish between the 'Fungible' and the 'Non-fungible' - more on this later. Consider for now the setting you are in. Look around yourself and see if you can spot things that you wouldn't mind exchanging for something thats visually or/and functionally identical. Chances are that you'll find yourself surrounded by things that may or may not inherently hold any value but you'd still be unwilling to exchange them for an identical one. Your reasons could vary from emotional attachment to your unwavering belief in holding onto an old piece of pottery or a painting because you feel it could be worth something in the future.

Now consider the alternative and see if you can find some loose change in your pocket. A pound coin, a nickel or a dime. Regardless of what you may find, it'd be safe to assume that you wouldn't mind exchanging that coin with an exactly identical (in form, function and value) coin. That is to say that if two people hold a pound coin each, they typically won’t care if they exchange the coin with each other. Why so? Because neither pound coin is worth more than the other; they can be exchanged without either party sacrificing any value. That right there is what we call Fungible. An asset that can be exchanged with an identical asset without losing any of its value is called a fungible asset. Most common examples include our everyday currencies.

A non-fungible asset on the other hand is a unique asset that cannot be exchanged equally for an asset of like kind. An example of a non-fungible asset could be one of Goya's paintings or a rare stamp or a piece of memorabilia. A football or a jersey signed by Messi cannot be equally exchanged for a regular jersey or football, even though they are similar objects. An original Goya cannot be equally exchanged for a replica Goya, even though they may appear identical yet one is scarce and the other isn't.

Bearing that in mind, the simplest explanation of NFTs is that NFTs are rows of arbitrary, project-specific, and non-interchangeable data that can be cryptographically proven to "belong" to someone. Prove ownership & to an extent its scarcity. This data can be anything - a painting, or a concert ticket, attendance badges, avatars, or plots of land in a metaverse, audio clips, house deeds, mortgages, and more.

NFT Standards

A general-purpose blockchain is not built to natively understand the concept of NFTs. It is only natively aware and optimized for its own native tokens, but implementations built on such a chain are essentially "hacks".

For example, Ethereum is a general-purpose blockchain that does not have the concept of "tokens" (fungible or not) built-in. Tokens in Ethereum are quite literally spreadsheets of information to be interpreted and read in a certain way by various user interfaces. This way of "reading them" is called a standard. The most widespread fungible token standard you may have heard of is ERC20, while the most widespread NFT standard is ERC721, followed closely by ERC1155. The downside of having to define these standards is that they are always instructions for how to read a spreadsheet pretending to serve information in a certain way, which by definition cannot be optimized. For this reason, even on a good day of extremely low network congestion, interactions with NFTs on any EVM chain will cost a few dollars but were on average around $100 per interaction (transfer, mint, sale) in 2021 on Ethereum.

This prevents use cases that go beyond the inexplicable craze of digital dust gathering NFTs on Ethereum which seems to thankfully be subsiding now. These static NFTs or profile pictures, the most generic "look once and then put away" art, ENS addresses, and proof of attendance badges etc served no special purpose except to be the next trend on a new reading standard in Ethereum.

Dynamic NFTs

The next evolution in NFTs is moving from static NFTs to dynamic NFTs. A perpetual NFT smart contract that could live on Dijets utility chain and use oracles or verification proofs to communicate with and react to external data and systems. The proofs allows the NFT to use external data/systems as a mechanism for minting/burning NFTs, trading peer-to-peer, and checking state. For example, a smart contract that automates the minting of a limited edition digital football card if the proof informs it that a player scored a hat-trick. (Doing these for the Saints would be really fun tbh). I digress. Those NFT football cards will absolutely be considered the definition of non-fungibles. Something that holds an inherent value which can be traced back to the source of its scarcity including an information trail of player stats (Consider a day Adam Armstrong scores a Hatrick for saints and that information gets appended to the NFT in real-time).

NFT 2.0

Dijets heterogenous network allows developers & applications to natively optimise for complex NFT use cases without tradeoffs or worrying about bottlenecks. Dynamic & complex NFT usecases can only be achieved on networks with speeds that can keep up with real-time data and securely connect these NFTs to IoT data, web APIs, and any other data provider without costing a fortune or having to wait for the transactions to get processed. Additionally, purpose built ECCs deployed on Dijets Chief Network can interface with existing backend systems, or trigger cyber-physical systems. All these connections can be used to create dynamic and complex NFTs that react to data and fully integrate with existing infrastructure.

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