NFTs capitalize on the growing demand for collectible digital assets. This creates a new financial ecosystem for investors, collectors, and speculators. But when we say: NFTs follow a decentralized system, that does not mean that all the transactions are verified up in the air. With decentralization comes the Smart Contract technology, which records every transaction on the Blockchain. Every transaction over the Blockchain network is verified and recorded via a Smart contract which is secure and not easily hampered by external parties.
Here in this article, we will understand everything about the NFT Smart contract.
What is an NFT Smart Contract?
Smart contracts run on the Ethereum network—a blockchain platform for building decentralized applications. Blockchain Smart Contract is a distributed ledger that records all transactions within the system. When something is added to the ledger, it can’t be changed or removed, so the information remains accurate and trustworthy. However, Smart contract security is still critical in avoiding any impairment.
The smart contract is an agreement between two parties involved in any crypto transaction. However, smart contracts are problematic: they’re often not very secure. In 2016 alone, over $200 million was stolen from smart contracts!
Benefits of Using Smart Contract
Smart Contracts follow an automated, complex process for registering and verifying the data. Consequently, there are negligible chances of any errors, as it is a cost-effective and time-saving way to verify transactions over traditional contracts.
Although there is more to the Smart Contract benefits:
- Smart contracts ensure complete liability for the transaction; hence two parties can perform the transaction without interacting with each other, following a trustless system.
- It is cost-effective and faster than the conventional ledger system, resulting in no paperwork and third-party involvement.
- Smart contracts are complex coded digital ledgers that cannot be altered after the deployment. Hence they are immutable and more secure.
- Smart contracts are open to the public, meaning everyone can see the transaction. This ensures the transparency of the system.
- It removes the possibility of human error as they are automated software.
That said, smart contracts are not legally binding, unlike traditional contracts. This means that while these lines of code help execute outcomes on a blockchain, they cannot enforce off-chain agreements.
Use-Cases of NFT Smart Contract
Verifying Ownership & Authenticity
When an NFT is sold, the Smart contract enforces the ownership transfer and authenticates the data. All the NFTs are deployed over the public Blockchain network, so everyone on the Internet can see the NFT details and ownership information.
NFTs are the best option for unique documents and objects as a college degree, which will be a unique NFT for all students. So these NFTs can be accessed by everyone over the public Blockchain but cannot be altered by anyone. Anyone concerned with the student’s degree can confirm its authenticity over the relevant Block explorer.
Maintaining Scarcity to Avoid Counterfeiting
Smart contracts register every NFT transaction with a unique key, maintaining the scarcity. The issue of counterfeiting and copying does not occur. The time and date of the NFT creation are already recorded on Blockchain and automatically updated on the Smart contract with the NFT address.
Speedy Business Transactions
As we have already mentioned, it is automated software, so the transactions are speedy and without human error. This keeps the transaction more secure as well. A Smart Contract is made between two parties involved in the NFT transaction. The Smart contract ensures any delays due to trust issues between both parties.
Smart Contract Security
Smart contracts are a powerful tool for automating business logic, but they’re not always as secure as we’d like them to be—as the recent Parity Wallet hack showed us. Once a vulnerability in a smart contract has been exploited, it’s too late to fix it. This will result in all your funds going with the wind.
Smart contract security is one of the Blockchain’s most critical and challenging topics. Because smart contracts allow forms of automated value transfer, their misuse can result in losing a large amount of money. Solidity is the most popular smart contract language, but it is new, and the bugs are only beginning to be discovered.
It works because hackers can identify security loopholes in smart contracts before deployment, and then they use those vulnerabilities to steal money after deployment.
Here are some ways you can protect smart contracts against attacks and vulnerabilities:
Rigid Coding & Testing
First, you’ll want to ensure you use strong security measures at every development stage. Then, you should use a rigorous set of testing tools before and after launch. Ensure all these points in your smart contract code:
- Use a unique address for each interaction
- Don’t rely on the transaction hash as a random number
- Don’t use block hashes in your transactions
- Avoid using fixed-point arithmetic
- Use the SafeMath library
- Don’t trust oracle data that multiple parties don’t verify
- Do your obfuscation
- Don’t use block hashes in your transactions
Be Vigilant after Deployment
Once your smart contract is live and running on Ethereum, you’ll want to keep an eye on it for any suspicious activity or unusual traffic—and have alert systems in place so that no weirdness goes unnoticed.
It’s also best to make sure that your code is straightforward to read by humans—that way, it’s easier for people who aren’t cryptographers to tell if something’s amiss. You can always use code coverage tools to help ensure that no nooks and crannies of your code go untested!
Automated Vulnerability Scanners
An automated security vulnerability scanner can help you analyze the hidden security threats of your smart contract. It will scan the Smart contract code thoroughly to identify bugs in the code that can lead to security vulnerabilities and help you prevent various attacks.
Smart contract security is a relatively new field of study, and many large companies have not yet adopted the technology. These contracts need to be secure because they can affect money or property.
Frequently Asked Questions about NFT Smart Contract
How to create NFTs with smart contracts?
NFTs are not created with a Smart contract, though every transaction associated with the NFTs is registered with the Smart contract making it more scure and transparent.
Is there a standard for creating NFTs?
NFTs are created based on the token standards; if your NFT is based on the Ethereum Blockchain, then it follows the ETH 20 token standards.
How much do smart contracts cover?
Smart contracts cover every NFT transaction, ownership transfer, and details of the NFT trading. This makes the whole process very transparent and trusted for the users, also reducing the hassle of the minting process.
How can smart contracts be verified for authenticity?
Smart contracts follow a trustless system where user does not need to trust any third party. However, Smart contracts can be verified by running their source code over the Blockchain network. Source code of the smart contract is used to verify the authenticity of the smart contract address.
Can I sell NFT without a smart contract?
Yes, you can sell NFT without a smart contract. However, this will be limited in scope and will not be as secure as a smart contract.
Is NFT based on smart contract?
NFTs are not based on smart contract, but they can be executed through a smart contract.
For example, in the case of a tokenized equity or debt security, the smart contract will be used to issue and transfer ownership of the asset.
Who owns a smart contract?
Smart contract is an automated coding agreement available over public Blockchain and is between the NFT trading parties, so technically, it is not owned by any particular person or party, or platform. But anyone can create a smart contract and deploy it over the Blockchain network.
NFT Smart contracts are a way to create digital assets on the Blockchain. This is a way to store and transfer digital assets, such as art, collectibles, and other virtual items. The main benefit of using NFT Smart contracts is that they can be used to trade any virtual item between users without any trust or third-party intervention. The transactions are entirely transparent, secure, and fully automated.
You can use NFT Smart contracts to buy and sell digital goods without worrying about fraud or scams. All transactions will be stored on the Blockchain, which means they cannot be tampered with or corrupted by hackers.
They also provide an easy way to verify ownership of virtual items using your private keys, making it easy for anyone who owns them to prove their ownership status whenever they want.