Dynamic NFTs: A Generation of Ever-Evolving NFTs

Did you know that NFTs come in multiple types and styles? Though many people describe NFTs as a type of digital artwork, the reality is that they have far more variety than their real-world equivalents. One of the most exciting types of NFTs to consider is the dynamic NFT. These unique NFTs have an extensive range of uses and features. Keep reading to learn what dynamic NFTs are, and why they're so important.

Key Takeaways:

• Dynamic NFTs are a type of non-fungible token that can be altered when the owner meets certain requirements.
• A dynamic NFT is unique because the NFT itself changes over time.

What Are Dynamic NFTs?

Dynamic NFTs are a type of non-fungible token that can be altered when the owner meets certain requirements. Also called a living NFT, these NFTs are popular for games, social media and NFTs based on real-world assets.

How Do Dynamic NFTs Work?

A dynamic NFT is unique because the NFT itself changes over time. It can begin to look or function differently, while still retaining the same data that identifies it as the original. If traditional NFTs are paintings, you can think of dynamic NFTs as interactive art experiences. Dynamic NFTs may change when a user purchases an upgrade, gains experience in a game, adds a new accessory or otherwise meets some alteration criteria.

To illustrate how dynamic NFTs work, take a look at one of the most popular digital assets, Bored Apes. Early Bored Ape Yacht Club (BAYC) users could hold an NFT that looked like an ape in profile with its own unique design. Users could choose to keep their standard Bored Ape, or they could mutate it into a Mutant Ape by exposing it to a vial of Mutant Serum. BAYC NFT holders can even add additional M2 or M3 serums, mutating the ape further. The resulting Mutant Ape retains the same base features of the original NFT, but looks vastly different.

How do NFT creators make an NFT that works in this fascinating manner? The underlying design of a dynamic NFT includes editable data, along with several smart contracts and oracles. A typical dynamic NFT change involves the following steps:

1. The NFT fulfills whatever external conditions the designer set up to trigger a change.
2. A blockchain oracle confirms this data and sends the off-chain data to the chain.
3. This new blockchain data triggers a smart contract that changes the NFT’s metadata.
4. The NFT's appearance, characteristics or features alter to reflect the new metadata.
5. Essential data, such as the token's unique identifier and owner, remains unchanged.

Pros of Dynamic NFTs

The unique ability of dynamic NFTs to change makes them a useful tool for decentralized finance (DeFi) developers. Here are some of the advantages of working with dynamic NFTs.

Increased User Engagement

When your actions and environment can change your NFT, it's a lot easier to get excited about the NFT. Many developers have noticed that users better engage with their NFTs when they're dynamic. In addition, dynamic NFTs are often traded more frequently, interacted with more often and mentioned with more frequency online. They're an excellent choice for people who want NFTs to go viral, or who have very loyal fan bases.

Enhanced Creativity

The flexibility of dynamic NFTs allows developers to create truly unusual, exciting projects with them. Unlike a static image or GIF, a dynamic NFT can be adjusted to suit the needs of almost any project. Whether a developer's goal is monetization, player immersion or project development, dynamic NFTs can help because there are constantly new and better ways to incorporate these items into the digital landscape.

Cons of Dynamic NFTs

Though dynamic NFTs are effective in certain situations, they aren't always the best option. Using a dynamic NFT does come with some potential downsides.

Reduced Security

The mutability of dynamic NFTs comes with many security risks. Because each dynamic NFT is associated with multiple information files, it's much harder to verify. Furthermore, the fact that these NFTs involve tools like oracles and smart contracts makes them a little easier to manipulate. It can take time for a dynamic NFT’s changes to appear, during which scams or errors can happen. Compared to other types of NFTs, dynamic NFTs carry more risk for counterfeiting or fraud.

Excessive Data Usage

In order to properly keep track of how dynamic NFTs change and evolve, more bandwidth is required. When a static NFT is created, it's stored in a single location, no matter how many times it changes hands. Meanwhile, a dynamic NFT has to be stored anew each time it’s traded or updated. This involves greater data usage, which can put more pressure on a blockchain.

Dynamic NFTs vs. Static NFTs

The main competitor to dynamic NFTs is static NFT. Both of these types of NFTs are unique digital assets that can be stored and transferred within blockchain ecosystems. Each type holds a lot of data and comes in the form of digital objects, such as images or GIFs.

However, the two have many differences. Static NFTs do not change once they’re minted. Their blockchain data remains the same, no matter how external conditions change. Decades from now, a static NFT will look and function entirely the same. Meanwhile, a dynamic NFT can adapt and alter itself to address external conditions. Thus, the same dynamic NFT can differ drastically in appearance and behavior as it goes through multiple upgrades.

Due to the differences in their designs, each style of NFT has its own specific uses and advantages. The static NFT model is a popular choice when it comes to security and reliability. Static NFTs are easy to authenticate and fast to transfer. Simple digital collectibles, such as fine art, often do well as static NFTs. Dynamic NFTs, however, are the preferred option for situations where flexibility and creativity are desired. For example, they’re effective for getting users involved in NFT creation, so they’re common in games and metaverse systems.

Use Cases of Dynamic NFTs

As you can see, the main reason dynamic NFTs are intriguing is that they have so many different applications. These creative digital assets have an extensive range of features, and can thus be incorporated into all sorts of projects. Following are some examples of the most popular ways in which people use dynamic NFTs.

Identity

Since a dynamic NFT can grow and change alongside its user, it's a terrific way to represent a person's identity. In projects where individual people need a token to represent themselves, dynamic NFTs are an excellent solution. Thanks to their mutability, you can upgrade these NFTs to represent changes such as haircuts or new outfits.

Even more importantly, dynamic NFT elements can be altered to represent a user's level of authority or clearance. For example, in a metaverse environment where only select players are allowed into a certain space, a player's NFT avatar can be adjusted to give them entry once they reach a certain level of experience or investment.

Gaming

Dynamic NFTs link the massive gaming industry with decentralized finance (DeFi) by allowing players to interact with blockchain ecosystems. A smart contract can take off-chain data, such as a player winning a battle against an opponent, and create blockchain data that upgrades the player's NFT to the next level. In fact, dynamic NFTs are used in a variety of popular games. For example, Axie Infinity lets you breed NFT digital pets. Meanwhile, Battle Racers allows players to create custom NFT cars to race against each other. Other games, like Sorare, even use the dynamic NFT model to build entire fantasy football teams with NFT cars.

Apps like STEPN show how real-world assets can end up affecting dynamic NFTs, and vice versa. Players track their motion with a GPS and earn tokens, which they can then use to upgrade NFT sneakers. The upgraded NFT sneakers allow players who equip them to earn more tokens for each future step they take.

Art

Though most people think of digital art as being a type of static NFT, the reality is that you can actually use dynamic NFT elements to make compelling artworks. In some cases, dynamic art can be a way for users to interact with the art itself. For example, creators can design digital art NFTs in a series of collaborations between the creator and the owner. With each new NFT upgrade, the artist can add more artistic elements that meet the owner's specifications.

Another fascinating use for dynamic NFTs is to create artwork that’s constantly changing and shifting. A creator can design an NFT that changes its color throughout the day, or adjusts its design to suit various events and holidays. This artwork can mimic real-world assets, and may include whatever conceptual elements the creator prefers. The end result is dynamic art that's expressing new ideas instead of staying entirely the same.

Virtual Real Estate

The virtual real estate market is incredibly trendy right now, and a huge amount of its success is due to dynamic NFTs. Dynamic NFTs allow individual pieces of real estate to be sold as NFTs. The new owner can then build whatever they like on the virtual real estate, the data becoming part of the NFT itself. Users can design their own buildings and landscaping, potentially increasing the value of their original NFTs.

An example of this concept is the popular VR platform, Decentraland. Built on the Ethereum blockchain, each of its virtual plots of land is an NFT. Its complex design allows people to purchase individual plots, or even bundle small plots into a single estate. They can then design on the land and sell their designs within the Decentraland Marketplace. You can also find other similar concepts in The Sandbox, Somnium Space and other metaverse organizations.

Are Dynamic NFTs A Good Investment?

With so many fascinating features, it's no surprise that dynamic NFTs have been included in some of the latest, trendiest projects. Making NFTs dynamic is one of the biggest reasons NFTs have transitioned from a fun little curiosity into a must-have component of web3 development. A lot of industry experts are even calling dynamic NFTs "the future of the NFT industry."

Dynamic NFTs provide some great opportunities for investors. They often become increasingly rare as they grow and change. For example, there are only 2,492 M2 Mutant Apes, so these evolved NFTs are extremely rare and can sell for around 80 ETH. The dynamic aspect also allows investors to use their skills, instead of relying entirely on random chance. An investor who plays a game the right way, or applies the right upgrade to the right NFT, can make significantly more on their investment.

However, keep in mind that this doesn't necessarily mean every dynamic NFT is automatically a smart investment. Like any other creative tool, dynamic NFTs are used for both incredible startups that disrupt the digital landscape and mediocre experiments that immediately flop. A dynamic NFT system often shows promise, but it doesn't guarantee that the project will do well.

Wise investors need to take the time to research a project thoroughly, instead of relying on trendy industry buzzwords. Before investing in any NFT, you need to consider its uses, look at the project's road map and carefully consider the NFT's trading volume, rarity and price. As long as you take these factors into account, it’s possible to find promising dynamic NFT investments.

The Bottom Line

Dynamic NFTs have a unique capacity to change, which makes them ideal for both games and digital collectibles. Despite some small issues with storage and security, they still seem poised to take over the NFT landscape. Not only are they fun and engaging for users, but their many potential evolutions and combinations can create rarity and value. Anyone interested in working with non-fungible tokens will benefit from exploring this important and innovative type of NFT.

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