What is a smart contract? 🤔
A smart contract is a self-executing contract with the terms of the agreement directly written into lines of code. The code and the agreements contained within it exist across a decentralized blockchain network. Smart contracts allow trusted transactions and agreements to be carried out among anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.
What does it have to do with NFTs?
NFTs, or Non-Fungible Tokens, are unique digital assets that represent ownership of a specific item or piece of content, such as digital artwork, music, videos, or virtual real estate. NFTs are typically built on blockchain platforms like Ethereum, using smart contracts. These smart contracts define the rules for creating, transferring, and managing the NFTs.
In the context of NFTs, smart contracts are used to:
- Prove the ownership and uniqueness of a digital asset.
- Enable the secure transfer of ownership from one party to another.
- Implement royalty payment systems, where the original creator of an NFT can receive a percentage of subsequent sales.
- Define additional functionalities, such as breeding in CryptoKitties or voting rights in decentralized autonomous organizations (DAOs).
Main smart contract types in Ethereum
ERC-20: This is the most widely used token standard for creating and managing fungible tokens on the Ethereum blockchain. ERC-20 tokens have a standardized set of rules that allow them to interact with other ERC-20 tokens and applications seamlessly.
ERC-721: This token standard is used for creating and managing non-fungible tokens (NFTs). ERC-721 tokens represent unique digital assets and allow for individual ownership, transfer, and trading of these assets.
ERC-1155: This token standard combines the benefits of both ERC-20 and ERC-721, allowing for the creation and management of both fungible and non-fungible tokens within a single smart contract. This standard enables more efficient and simplified management of multiple token types in a single contract.
DAOs (Decentralized Autonomous Organizations): DAOs are organizations that are run through rules encoded as smart contracts on the Ethereum blockchain. They allow for decentralized decision-making and governance, enabling participants to vote on proposals and collectively manage the organization's assets and direction.
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