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What is a smart contract

What is a smart contract

The Non-Fungible Token (NFT) industry can be traced back to the early days of the internet. The first NFTs were digital collectibles created on forums and message boards. These tokens were simply images or text used to represent a unique asset.

However, it wasn't until the development of blockchain technology that NFTs really began to take off. Blockchain provided a way to securely and permanently store data on a decentralized ledger. This made NFTs much more secure and trustworthy than traditional digital collectibles.

Since then, the NFT industry has exploded in popularity. Millions of dollars worth of NFTs have been sold, and the market is only getting bigger. With the help of blockchain, the NFT industry is revolutionizing the way we think about digital ownership.

This article discusses NFTs, including where they came from, important milestones, and what to expect in the future.

The Origin of NFTs

The first-ever known non-fungible token (NFT) was created in 2014 by Kevin McCoy and Anil Dash. It was called Quantum and consisted of a video clip of digital art created by McCoy’s wife, Jennifer. Originally, the technology was called “monetized graphics,” and Quantum was registered on the Namecoin blockchain and sold to Dash for $4. Today, it’s on sale for $7M.

In October of 2015, three months after the launch of the Ethereum blockchain, the first NFT project, Ehteria, was launched and demonstrated at DEVCON 1 in London. Most of the 457 NFTs went unsold for more than five years until March 13, 2021, as interest in NFTs was renewed. These remaining pieces sold out in 24 hours for a total of $1.4M. At the time of their launch in 2015, their cost was only $0.43 each.

Increased public awareness began in 2017 when an online game CryptoKitties monetized cat NFTs. During 2020, the value of the NFT market exploded, tripling to $250M. During the first quarter of 2021, more than $200M was spent on NFTs.

Or Was the Origin in 2012?

There is another origin story out there on NFTs worth discussing, known as Colored Coins. Colored Coins, created in 2012-2013, are made of small bitcoin denominations–known as a single satoshi–which can be used to represent a multitude of assets and have multiple uses, including:

  • Coupons
  • Property
  • Issue shares of a company
  • Ability to issue your own cryptocurrency
  • Digital collectibles
  • Access tokens

Unfortunately, the whole Colored Coin system carries several flaws. But, they played a significant role in laying the groundwork for NFTs. You can learn more about them here in the “Overview of Colored Coins.” 

Counterpoint: “Counterparty”

Another early consideration for the creation of NFTs is Counterparty. Counterparty is a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain. It allowed asset creation and even included a trading card game and meme trading, where Rare Pepes originated.

Rare Pepes

In October 2016, “rare pepes” were issued along the Counterparty platform. A rare pepe is a meme featuring a frog character that has developed an intense fanbase. Besides being incredibly quirky, the uniqueness of these images makes them such desirable NFTs. 

How the NFT space has evolved

In simple terms, an NFT is a unit of data stored on a variety of digital ledgers called a blockchain, which can be sold and traded. But, what started as a simple video clip has evolved into many use cases across various industries. But, perhaps none is more compelling than the art industry.

The History of NFT Art

Art is perhaps the most common way to use NFTs, as auctions from high-profile NFTs have made the biggest splash in public attention. Currently, the most expensive NFT ever sold was at an auction price of $91.8M–work by artist Pak, entitled The Merge.

The merge

The Merge is both a single piece of artwork and a series of artworks. When it launched, buyers could purchase an NFT, called a mass, for a set amount of money ($575). However, for buyers who purchased more than one mass, instead of receiving another NFT, their current mass actually increased in size. The price of a mass NFT grew throughout the sale, and buyers who bought a lot of mass were rewarded with free mass. 

It sounds a little confusing, but if you can picture a tiny ball of mercury as one mass, then add other tiny balls of mercury to it, you can see how each comes together to get bigger and bigger. That’s what The Merge is and was before the sale was brought to a close. Now, even though the launch is over, buyers and traders can still sell or trade their NFTs to grow their mass bigger, making their NFT more valuable. 

In the end, more than 28,000 buyers spent over $91M on what has been one of the most compelling NFT art concepts to date.

Everydays: The first 5000 days

The second most expensive (at $69M) was a piece of artwork by Michael Winkelmann–known as Beeple–called Everydays: the First 5000 Days.

Beeple is a graphic designer and motion artist from South Carolina who is well-renowned in the digital art world. However, his rise to fame reached a new height with his NFT collage created from 5,000 images created daily for 13 years. The images were put together and formed one NFT unit that sold for almost $70M making it the third-most-expensive piece of art ever sold.

CryptoPunks

Perhaps, the most well-known NFT digital art pieces are the collection of CryptoPunks, which is credited with starting the NFT craze of 2021.  

CryptoPunks is a series of 10,000 unique collectible characters stored on the Ethereum blockchain. Each character is created using an algorithm and no two are identical. The images are 24x24 pixels and feature some combination of guys, girls, apes, zombies, and aliens. While some of the images share attributes, the rarest ones feature the fewest attributes. For example, on the current marketplace, CryptoPunk 5822 is on sale by the owner for $34.89M. It features one attribute–a bandana–which is only shared by 481 punks. 

Perhaps the wildest part of CryptoPunks is that initially, they were all free. One simply had to claim them. Now they sell for hundreds of thousands to multi-millions of dollars.

CryptoKitties

In the 90s, we had Tomagotchi–a handheld digital pet that you could feed, love, and–if neglected–kill. In the 2020s, we have CryptoKitties! CryptoKitties are digitally created breedable and collectible cats. Each is one-of-a-kind and cannot be replicated, taken away, or destroyed.

It turns out that breeding digital pets is big business for at least a short period of time. While CryptoKitties was the first widely recognized blockchain game and featured astronomical growth, the popularity was short-lived. In fact, it reached its peak on December 10th, 2017. But, by the beginning of 2018, the game’s popularity fell by 90% of users. However, for those that were fortunate during that short time. One CryptoKitty fetched $1.3M, another $566,000, and the third most expensive CryptoKitty was sold for $107,000.

Bored Ape Yatch Club

Similar to CryptoPunks, Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique, algorithm-created images. Except instead of aliens, zombies, and humans, BAYC features images of–you guessed it–apes. In March of 2022, sales of BAYC made up more than a third of total NFT sales. In January of 2022, BAYC surpassed $1B in total sales.

Who Can Create & Purchase NFTs?

The easy answer is that anyone can create or purchase NFTs. Some companies help guide you through the process of creation, connecting your content through blockchain, and getting the proper paperwork done to develop your own NFTs. Purchasing is also as easy as connecting with an online marketplace and working with vendors to purchase or acquire the NFTs you want.

You can launch your NFT collection in seconds with Mantial. We assist everyone, from entrepreneurs to celebrities and large companies throughout the whole process of conception, sales, and management of NFT collections.

In Conclusion

The future is wide-open for the NFT industry. As it becomes more and more popular, creators and even NFT experts are still exploring the possibilities of this technology and how it collides with our everyday lives. While the exact future of NFTs is uncertain, the market is expected to continue growing, and NFTs worth millions of dollars today could be worth billions in the future. 

And, when money like that is involved, everyone will want a piece of the action.

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The Walking Dead

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Rick’s NFT

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The Walking Dead

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Michonne’s NFT

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What is a Smart Contract?

A smart contract is a computer protocol that allows two or more parties to interact and exchange data or value in a transparent, conflict-free way. Nick Szabo first proposed smart contracts in the 1990s as a way to facilitate trustless digital interactions.

The key feature of smart contracts is that they are self-executing, meaning that once the contract conditions are met, the contract will automatically execute the agreed-upon terms. This eliminates the need for a third party to mediate or enforce the contract.

They work by encoding the contract's rules into code stored on the blockchain. This immutable code is then executed by the nodes in the network when the conditions of the contract are met.

The most popular languages for developing smart contracts are Solidity (used by Ethereum) and Viper (used by EOS).

How to Make a Smart Contract?

While the concept of a smart contract is quite simple, the actual implementation can be quite complex. If you're interested in creating your own smart contract, there are two ways you can go about it.

DIY

The first option is to create your smart contract from scratch. It is a complex process that requires a good understanding of programming and Solidity. Programmers can probably teach themselves Solidity after a steep learning curve, but it would be difficult for someone with no programming experience to do so.

This option is only recommended for experienced developers who are willing to put in the time and effort required to learn a new programming language. The downside of coding your smart contracts is that you risk running yourself thin if you're handling other aspects of the project, such as marketing, etc.

Smart Contract Platforms

The second and more recommended option is to use a smart contract platform. These platforms allow you to create smart contracts without writing any code. They also provide a variety of other features, such as templates, development frameworks, and testing tools.

More on this later.

How to Make a Smart Contract

Smart Contract vs. Dapps

One common question we often hear is, "what is the difference between a smart contract and a decentralized application (Dapp)?". While both are built on top of a blockchain, the key difference is that a Dapp has a user interface while a smart contract does not.

A Dapp is essentially a front-end application that interacts with a smart contract on the back-end. The smart contract is responsible for storing data and executing transactions, while the Dapp provides an interface for users to interact with the contract.

Let's take the popular NFT marketplace Opensea as an example. Opensea is a Dapp that allows users to buy, sell, and trade NFTs in the range of billions of dollars. Opensea simply provides a user-friendly interface for users to interact with the contract, but the transactions are executed by a smart contract on the Ethereum blockchain.

What Are The Most Popular Smart Contract Platforms?

Smart contract platforms essentially do most of the heavy lifting for you so that you can focus on building the user interface and other parts of your project. Here are some popular examples:

For NFTs

The best smart contract platform for NFTs is Mantial. Mantial is an end-to-end solution for NFT launches that makes it easy to create, mint, and manage your NFTs. With the platform, you can launch your NFT project in minutes without writing any code.

We take care of all the technical aspects of launching an NFT, including generative art generation, community rewards, etc. All you need to do is focus on building your community and marketing your project.

If you're interested in launching an NFT project, we recommend checking out Mantial.

For DeFi

Decentralized finance is poised to take the financial world by storm, and Uniswap is leading the charge. Uniswap is a decentralized exchange built on Ethereum that allows users to trade ERC20 tokens. The platform is completely trustless, which means that there is no need for a third party to hold your funds.

Uniswap has quickly become the most popular DEX on Ethereum, generating over $1B in fees. Going back to Dapps, we should mention that Uniswap is a Dapp that interacts with a smart contract on the Ethereum blockchain.

The smart contract is responsible for storing the data (balances, prices, etc.) and executing transactions, while the Dapp provides the user interface that allows users to buy and sell cryptocurrencies.

For DAOs

The most popular smart contract platform for DAOs is Aragon. Aragon is a decentralized application that allows users to create and manage Decentralized Autonomous Organizations (DAOs).

In the case of Aragon, smart contracts are used to manage community funds but also to vote on proposals and manage permissions.

What Risks Are Associated With Smart Contracts?

You now officially know what smart contracts are and how they work. But before you start building your own, there are a few risks you should be aware of.

Public Display

One of the biggest risks associated with smart contracts is public. This means that if you don't build them well and securely, your vulnerabilities will be exposed.

Hackers are free to probe your smart contract for weaknesses, and if they find any, they can exploit them to steal funds or data. That's why it's so important to have your smart contract audited by a reputable firm before you launch your project.

Complexity

Another risk to be aware of is the complexity of smart contracts. Because they are immutable, once a smart contract is deployed, it cannot be changed. If you make a mistake, there's no going back.

Of course, you can always create a new smart contract and redeploy your project, but that comes with its own type of setbacks. For example, let's say you accidentally mint the wrong jpeg file for an NFT. There's no way to change it, and you'll have to live with the mistake forever.

Vague Terms and Conditions

Computers talk in code, and that's how smart contracts are written. However, the terms and conditions of a smart contract can often be open to interpretation.

This is because natural language is not well suited for writing code. As a result, it's important to be as clear and concise as possible when writing a smart contract so that there is no room for ambiguity.

What Are Common Smart Contract Vulnerabilities?

Since DeFi hacks are so common, we'll look at a few examples of smart contract vulnerabilities that have been exploited in the past.

Infinite Mint Glitch

The first vulnerability we'll look at is the infinite mint glitch. This error was exploited on the Cashio stablecoin smart contract and allowed hackers to mint an infinite number of coins.

A glitch like this can occur when the mint function of a smart contract is not programmed correctly to check if the recipient has enough tokens to cover the amount being minted.

As a result, hackers were able to make off with $52.8 million in Cashio tokens and sell them on exchanges for a profit.

Reentrancy

Reentrancy is a vulnerability that allows an attacker to call a function multiple times before it has finished executing. This can be exploited to drain funds from a smart contract.

The most famous example of this is the DAO hack, where hackers were able to siphon off millions of dollars worth of Ether by calling the withdraw function over and over again.

To prevent this type of attack, you need to make sure that your smart contract can only be called once at a time.

Calculation Errors

Calculation errors are another type of vulnerability that hackers can exploit to drain funds from a smart contract.

It occurs when a programmer makes a mistake in the code that calculates how many tokens a user should receive. As a result, the user ends up receiving more tokens than they should have.

Sometimes, the programmers might forget to account for exceptions, like when a user tries to withdraw a negative amount of tokens. Other times, they might make a mistake in the math itself. Either way, these calculation errors can be exploited by hackers to steal funds from a smart contract.

How Can You Make Money With Smart Contracts?

How can you make money with smart contracts

Now that you know what smart contracts are and the risks associated with them, you might be wondering how you can make money with them.

There are a few different ways to make money with smart contracts. The most popular way is to create an Initial Coin Offering (ICO).

An ICO is a fundraising event where you sell tokens to investors in exchange for cryptocurrency. The funds raised during an ICO can be used to finance the development of a project or business.

NFTs

Another way to make money with smart contracts is to create Non-Fungible Tokens (NFTs). NFTs are digital assets that are stored on the blockchain. They can represent anything from artwork to concert tickets.

The most popular way to sell NFTs is through auctions. For example, the recent sale of an NFT called 'The Merge' set a new record for the most expensive NFT, selling for $91.8M.

For artists, you can use smart contracts to secure royalties. For example, if you create an NFT and sell it for $100, you can program the smart contract to send you 10% of the sale price every time it changes hands. This way, you'll still receive a cut of the profits even if you no longer own the NFT.

DAOs

As mentioned above, DAOs use smart contracts to automate the decision-making process. The organization's rules are encoded into the smart contracts, and anyone can participate in the DAO as long as they follow the rules and hold a community NFT or token.

The original founders of the DAO can receive a percentage of the profits generated by the organization. For example, if the DAO generates $1 million in revenue, the founders might take 10% as their cut.

Smart contracts will automatically transfer this money from the community fund to the founders' wallets. This way, there's no need for a central authority to distribute the profits.

What Are The Most Popular Types of Smart Contracts?

The language, platform, and use case will vary depending on the project when it comes to smart contracts. However, a few general types of smart contracts are used more often than others.

The two most popular types of smart contracts these days are ERC-721 and ERC-20.

ERC-721 is a type of smart contract that is used to create NFTs. These smart contracts are used to track the ownership of digital assets and ensure that each NFT is unique.

ERC-20 is a type of smart contract that is used to create tokens. These tokens can be used to represent anything from currency to loyalty points. ERC-20 tokens are fungible, meaning they can be traded or exchanged for other ERC-20 tokens.

Both of these smart contract types are based on the Ethereum blockchain. That's because Ethereum is the most popular platform for creating and deploying smart contracts.

Do It Safely With The Best in The Industry

That's it! You are now ready to get started with smart contracts. Just remember to do it safely by working with a reputable platform. Mantial is the leading end-to-end solution for NFT launches. We provide everything you need to launch your own NFT, including everything that has to do with smart contracts.

Feel free to contact us if you have any questions or need help getting started. We’d be happy to help you launch your collection.