NFT Smart Contracts Explained – Here’s Why They’re Important

NFT Smart Contract

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One of the biggest benefits of the NFT rave is that it allows creators to be acknowledged for their work. However, if you want to benefit from this feature as a digital art creator, you need to understand how NFT smart contracts work.

When you become a successful NFT artist, smart contracts can help people locate you wherever they see your work. Smart contracts also control other aspects such as NFT royalties, transfer of assets, and lots more without the need for a third party. 

In this article, you’ll learn all about NFT smart contracts, how they’re created, and so much more.

What are NFT Smart Contracts?

A smart contract is a blockchain programming used to implement a sales agreement between the owner of an NFT and a buyer. This programming is important because it ensures that the blockchain stores the information indicated in that NFT transaction without the need for a third party.

NFT Smart Contracts explained

Once this has been executed, the underlying information becomes transparent and unchangeable. This information is what ultimately forms the building blocks of all NFTs and allows for their control.

As such, we can say that NFTs are controlled by these smart contracts, which allows them to perform various actions, including;

  • The verification of the ownership of an NFT.
  • Coordinating the transfer of an NFT.

Of course, the capabilities of NFTs are not limited to this. You can also program them to execute new actions like coordinating royalty payments or linking the non-fungible token to other digital assets. 

Smart contracts also make it impossible for anyone to break NFTs into smaller units and sell them after their creation. They attach a unique identification number to the asset, making it one-of-a-kind and irreplaceable. 

You can also say that smart contracts are the main reason why NFTs are valuable because they make them rare. 

How are Smart Contracts Created?

It is already known that minting is how NFTs are created. However, during this minting process, the underlying code for the smart contract is written. 

When you are minting an NFT, the smart contract decides the qualities of that token and includes them in the blockchain on which the artist created that NFT. 

Standards of Smart Contracts for Creating NFTs

A lot of standards have been established for the creation of smart contracts. However, Ethereum, the first and most popular NFT blockchain, offers the most widely used standards. 

The Ethereum blockchain’s standards include the ERC 721 and the ERC 1155 standards. 

The ERC 721 Standard

The ERC 721 standard describes how an individual can build an NFT on Ethereum. This standard coordinates the workings of a smart contract. You can also use a single ERC 721 standard to manage multiple tokens. 

The ERC 1155 Standard

The ERC 1155 standard functions as a multi-token standard and allows each token ID to contain its own supply and metadata.

What do Smart Contracts cover?

Smart Contracts

A smart contract covers many things, including the ownership of the digital asset being sold. However, NFTs are unlike your real-world assets.

When you sell your house, car, computer game, music lyrics, or any other asset to another individual, that individual assumes full ownership of those assets. This ownership comes along with the copyright. 

Do you know what this means? It means that you can no longer claim ownership or copyright to those items, and the buyer is free to do with those items as they wish. 

However, NFTs do not function like that. Purchasing an NFT grants the buyer the ownership of that token, but the copyright remains with the token’s creator. Of course, if it is outlined in the contract that the copyright is transferred when the NFT is sold, then that would be an exception. 

How do Smart Contracts verify Authenticity?

One of the main functions of a smart contract is to establish the authenticity of an NFT, but not many people are aware of how that works. 

Well, smart contracts do this by tracing the history of how artists created that NFT and how it was linked to that blockchain. It can also verify a token’s linked metadata and its wallet’s address. 

While smart contracts can do these, they cannot verify if a creator can link an NFT to a specific work. Neither can they verify if an NFT has links to someone in the real world. This job is the work of the platform that sells the NFTs.

How do Smart Contracts prevent counterfeits?

The purchase or ownership of an NFT provides the buyer with access to the information contained in the smart contract. This ownership or purchase is registered on that blockchain and visible to the public. 

As such, the production of counterfeits would be nigh impossible. Of course, when a buyer displays the image or artwork that is connected to that NFT, it can get copied by unscrupulous individuals. 

However, each registered NFT has its unique token from when they were created. As such, the transfer of an NFT is only acknowledged when that unique token or key is used. 

So, copying that NFT wouldn’t produce that unique token, making it impossible for it to be sold. This is because the blockchain would invalidate that transaction.

The uses of a Smart Contract 

uses of smart contracts

A smart contract is most useful in those business transactions where specific terms have to be enforced. Thus, there is no wiggle room for any changes or a need for an intermediary as a witness. 

Basically, this means that there is no fear of either the buyer or the seller defaulting on their end. The smart contract ensures that the transaction would only be successful when both parties fulfill the stipulated terms. 

A smart contract’s usefulness could be said to be a result of the following characteristics;

  • Buyers and sellers can save money since no intermediaries are involved.
  • Both parties can trust the transaction since they cannot change the terms.
  • Smart Contracts are nearly impossible to hack.
  • Both parties can conduct the transactions rapidly and accurately since paperwork is avoided.

Frequently Asked Questions for NFT smart contracts explained

What is an NFT Smart Contract?

An NFT smart contract is an unchangeable, self-executing line of code that forms the basis of a non-fungible token. They govern the creation, purchase, and sales of NFTs on a blockchain.

How do NFT Smart Contracts Work?

NFT smart contracts work by assigning ownership or managing the transfer of that NFT. They also execute different actions coded into the asset, such as NFT royalty payments, without the need of a third party.

Is NFT a Cryptocurrency?

No, NFTs are not cryptocurrencies, although they exist on a blockchain. Rather, they are unique tokens that indicate digital or real-world asset ownership.


Going by this explanation, you would understand that smart contracts are the basis of every NFT. They control everything related to the creation and transfer of that NFT. Whether you’re just getting started with NFTs or you’ve been flipping projects for a while, understanding how smart contracts work can help you make the most of your journey in the space.

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