Dynamic NFTs (dNFTs) are unique tokens with a variable structure that can be changed when their owner meets specific conditions. Also known as “Living NFTs,” these digital assets are highly popular in games, social media platforms, and NFT projects based on real-world assets.
HOW DO DYNAMIC NFTs WORK?
The most striking feature of dynamic NFTs is their ability to change over time. Their appearance or functions can differ, but the core identity data that makes them unique is preserved. If we think of classic NFTs as a painting, dynamic NFTs are like an interactive art experience. For example, an NFT can change when a user purchases an in-game upgrade, earns experience points, or adds a new accessory.
To illustrate this, let’s take the Bored Ape Yacht Club (BAYC) example: Initially, users could hold a monkey profile NFT with a unique design. While some could keep this NFT as is, others could use a “Mutant Serum” to transform it into a “Mutant Ape” version. Furthermore, with different serum types (M2, M3), this mutation could be taken even further. Thus, the NFT’s appearance changed completely while retaining its core characteristics.
Technically, this change process works as follows:
- The NFT meets external conditions set by the creator.
- A blockchain oracle verifies this data and transmits it to the chain.
- The new on-chain data triggers the smart contract that changes the NFT’s metadata.
- The NFT’s appearance or properties are updated according to this new metadata.
- The token’s unique identity and ownership information remain unchanged.
ADVANTAGES OF DYNAMIC NFTs
- Increased User Engagement: Knowing that your NFT changes based on your actions and environment significantly boosts user motivation. These types of NFTs receive more interaction, are traded more frequently, and are talked about more on social media.
- Fosters Creativity: The flexible nature of dynamic NFTs allows developers to create groundbreaking projects. Not limited to just an image or a GIF, these assets can be adapted to almost any type of project. Whether for in-game interaction, a metaverse experience, or a digital collection, they are a powerful tool for developers.
DISADVANTAGES OF DYNAMIC NFTs
- Security Risks: Due to their modifiable nature, the verification process for dynamic NFTs is more complex. Additional elements like oracles and multiple smart contracts increase the risk of potential manipulation. Furthermore, delays that may occur during updates raise the risk of fraud or errors.
- High Data Consumption: Dynamic NFTs need to be re-stored with every update or change of ownership. This consumes more bandwidth and storage space compared to static NFTs, thereby creating a greater load on the blockchain.
DYNAMIC NFTs VS. STATIC NFTs
Both NFT types are unique, can be stored on the blockchain, and are transferable. However:
- Static NFTs: Are unchangeable after they are created. They look and function the same even years later. They are advantageous in terms of reliability and ease of verification. They are generally preferred for simple collections, such as artworks.
- Dynamic NFTs: Can change based on external conditions. Their appearance and functionality can evolve over time. They are ideal for games, metaverse platforms, and interactive projects.
USE CASES FOR DYNAMIC NFTs
- Identity: Avatars that change based on the user’s appearance, authority level, or status.
- Gaming: Evolving characters or items in games like Axie Infinity, Battle Racers, and Sorare.
- Art: Digital artworks that change color and form based on the time of day, weather, or special occasions.
- Virtual Real Estate: Land plots in platforms like Decentraland or The Sandbox that gain value through design and development.
INVESTING IN DYNAMIC NFTs
In the right projects, dynamic NFTs offer the potential for rarity and value appreciation. For example, the fact that there are only 2,492 NFTs in BAYC’s M2 Mutant Ape collection has led to these assets finding buyers at around 80 ETH. However, this does not mean every dynamic NFT will be profitable. Investors must carefully examine a project’s use cases, roadmap, transaction volume, and rarity level.
CONCLUSION
Thanks to their ability to change, dynamic NFTs are making a difference in many areas, from digital collectibles to gaming. Although there are some disadvantages on the storage and security side, they are poised to hold an important place in the future of the NFT ecosystem with the flexibility and user engagement potential they offer.
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