TL;DR
Within the broader class of non-fungible tokens (NFTs) there is a subcategory of tokens called dynamic NFTs. These NFTs are fundamentally different from their static counterparts. They can change and evolve, thanks to smart contracts and conditions encoded by their creators.
Introduction
NFTs are unique and irreplaceable cryptoassets on a blockchain. These unique assets are often created using a guideline, also known as a token standard, that ensures each NFT has a unique token ID.
In addition to crypto collectibles and NFT art, static NFTs can digitize real-world assets such as passports, certificates, and property deeds. However, these experimental use cases for NFTs — although they are already a reality — may be unable to fully represent real-world assets, which have non-static information.
When smart contracts create static NFTs, these assets are issued with permanent, immutable token data — in other words, this data cannot be changed. Therefore, regardless of external circumstances, static NFTs remain unchanged and become outdated if the information changes.
Dynamic NFTs, however, can eliminate this limitation. While the token IDs of these NFTs remain the same, dynamic NFTs have the unique ability to change under certain conditions.
What are dynamic NFTs?
Dynamic NFTs are a subcategory of NFTs whose characteristics can be changed when certain conditions are met. Every NFT contains information called metadata, which describes its characteristics.
Metadata can include names, descriptions, and even features specific to NFTs. For example, NFT game metadata may include an avatar's characteristics, such as its strength or toughness. For an NFT artwork, the metadata may contain information about the colors or accessories.
You may have heard of the Ethereum-based game CryptoKitties, one of the first NFT projects that quickly gained popularity after its launch in 2017. CryptoKitties is a blockchain game where players can collect, play and trade dynamic NFTs in the form of virtual cats.
Unlike static NFTs, the metadata of dynamic NFTs can be changed and translated visually. This is because while static NFTs are typically created using the ERC-721 token standard, dynamic NFTs are designed using the ERC-1155 token standard.
According to Ethereum, tokens created using the ERC-1155 standard have similar characteristics to fungible ERC-20 tokens and non-fungible ERC-721 tokens. ERC-1155 tokens are therefore technically semi-fungible and can be changed if necessary.
How are dynamic NFTs changed?
Let's see how this works:
A dynamic NFT is issued by a smart contract, using a set of metadata.
The smart contract obtains data from oracles. Oracles are third-party services that provide information from external data sources, such as Internet of Things (IoT) data and web application programming interfaces (APIs).
The NFT is then valued by the smart contract, using data obtained from oracles, to encode changes during the issuance process.
The characteristics of the dynamic NFT will be updated when necessary.
Applications of dynamic NFTs
Identity
If blockchain-based identity becomes a reality, dynamic NFTs could be used to represent digital identity cards or passports around the world. The flexibility of these NFTs would allow changes to be updated automatically, eliminating the need to replace digital identity documents. This may include information such as place of residence, marital status and contact details.
Games
The ERC-1155 token standard is primarily used in NFT games, so it's no surprise that dynamic NFTs are most commonly found in blockchain games. Players can enhance their avatars using dynamic NFTs that represent their in-game characters, enhancing the gaming experience. As a player gains more experience, the evolution of their characters can be reflected in changes to the appearance or attributes of their NFT avatars.
This concept of evolution and progression in games is essential for player engagement and dynamic NFTs make this possible. Dynamic NFTs can also facilitate the development of games in which players choose the ending, as well as other participatory experiences that require external data to function.
Virtual real estate
Although real estate tokenization has been around for some time, static NFTs are unable to reflect changes in some parameters such as real estate prices, age, and ownership. Dynamic NFTs, on the other hand, can capture the finer details of properties and have the flexibility necessary to update specific information.
until
As exemplified by the traditional Japanese aesthetic art form, wabi-sabi, which focuses on transience rather than permanence, fleeting and transient art is widely appreciated throughout the world. Thanks to dynamic NFTs, digital artists can use real-time data to encode changes to their artwork and convey this impermanence, making their artwork more unique. For example, there are works of art that are dynamic NFTs whose appearances change depending on the current weather or season.
NFT art can also be elevated by imitating real-world art installations that require public participation to be appreciated. In this case, a dynamic NFT can change depending on the token holder's interaction with their asset and, in doing so, promote engagement in digital art exhibitions.
Final considerations
Dynamic NFTs are a “smarter” class of NFTs than their static counterparts as they can adapt and reflect information from the outside world in real time. In addition to the applications mentioned in this article, there are numerous use cases for dynamic NFTs, which can easily meet the needs of changing NFTs.
Further reading
What is an NFT?
7 things you should know about NFTs | Binance Academy
How to create your own NFTs - Binance Academy
How to Be an NFT Artist: How to Get Started on the Binance NFT Marketplace
What are token standards?