NFTs have served as a pivotal instrument to redefine digital ownership, art, collectables, and even real-world assets. They have been used to represent ownership of unique digital art, collectable cards, virtual real estate, and even tweets. The blockchain ensures the provenance and ownership history of the NFT, making it transparent and immutable. This has democratized art and collectables, allowing artists to directly monetise their work and providing a new form of asset for investors.
One of the most compelling aspects of NFTs is the community element. Owning a particular NFT often grants access to exclusive communities, events, or content. These communities have flourished because they offer more than just ownership; they offer a sense of belonging and engagement. For example, owning a Bored Ape Yacht Club NFT grants access to virtual parties and real-world events, creating a holistic experience around the digital asset.
Despite these advancements, NFTs in their current form have limitations. Currently, their utility is mostly confined to buying, selling, and trading. They are largely static, two-dimensional assets with limited interactive capabilities. While they have enabled new forms of digital ownership and community engagement, they have not fully realized the potential for dynamic, interactive experiences. NFTs still have much to prove in terms of long-term value and utility. Yet, the intrigue surrounding them is undeniable, hinting at an underlying potential waiting to be fully realised. Breakthroughs like ERC-6551 could be pivotal in this journey, shaping the next chapter of NFTs and solidifying their place in the digital landscape.
ERC-721: The Blueprint for NFTs
The current standard universally adopted by the developer community for NFTs is ERC-721.
This standard governs the creation and management of NFTs, which are unique cryptographic assets on a blockchain, distinguished by individualized codes and metadata.
The ERC-721 standard provides a blueprint for creating non-fungible tokens on the Ethereum blockchain, specifying a set of standard functions that smart contracts can implement. It allows for the ownership and transfer of these unique assets using Ethereum’s existing infrastructure, and it’s fully compatible with Ethereum wallets that support the ERC-721 standard.
Legacy of CryptoKitties
The standard was first introduced in 2017 with the launch of CryptoKitties, starting the craze around NFTs that turned into NFT spring in 2021 with digital art and collectables largely propelling the ERC-721 standard forward, beyond the crypto native audience.
CryptoKitties was a pioneering game built on the Ethereum blockchain by Dapper Labs that allowed users to purchase, trade, and breed unique digital cats. It was the first mainstream application of NFTs, setting the stage for other popular collectables such as NBA Top Shot [Dapper Labs], Bored Ape Yacht Club [Yuga Labs], Cryptopunks [Larva Labs] and Sorare. Unlike traditional games, each CryptoKitty is a unique NFT, with distinct traits and characteristics, even if they share the same parentage.
CryptoKitties was more than just a game; it was a phenomenon that had a significant impact on the Ethereum network itself. At its peak, CryptoKitties accounted for 13% of all transactions on Ethereum, causing noticeable congestion and highlighting the network’s scalability issues. This led to an increase in Ethereum’s gas fees and forced CryptoKitties to adjust its breeding fees temporarily. The game’s overwhelming popularity and the challenges it posed to Ethereum’s infrastructure accelerated the development of Layer 2 solutions aimed at improving scalability.
When we talk about NFTs and their history, CryptoKitties serves as a seminal chapter. It not only popularised NFTs, it pushed the boundaries and established a standard that is widely used to this day.
The first NFT project on Ethereum is Cryptopunks, a precursor to the ERC-721 standard. A collection of 10,000 Cryptopunks, with 6,039 male NFTs and 3,840 female NFTs, with the rarest Cryptopunks being the 88 zombies, 24 apes and 9 aliens. Cryptopunks opened the door for the scarcity model that drove the NFT adoption, affecting availability, and determining how many items are for sale at a time, higher scarcity can drive up prices with growing demand.
While Cryptopunks demonstrated the potential for unique digital assets, it also highlighted the standard’s focus on scarcity rather than utility or meaningful interactivity. This has left the NFT community yearning for more dynamic and functional forms of digital ownership.
The primary issue with the ERC-721 standard is its static nature, which has become increasingly evident as the NFT space has matured. While the standard has enabled unique digital ownership, most of its value has been derived from speculative trading and off-chain activities. This has led to a landscape where the social and graphical aspects of NFTs have evolved significantly, although the underlying smart contracts and on-chain functionalities have largely remained stagnant. This disconnect between social evolution and technical stagnation has created a gap in the market, one that ERC-6551 aims to fill.
Introducing ERC-6551: Adding a Third Dimension to NFTs
ERC-6551 is not just another incremental update; it’s a paradigm shift in how we understand and interact with NFTs. By introducing the concept of Token Bound Accounts, ERC-6551 transforms NFTs from mere digital collectables into functional smart contract accounts. This opens up a world of possibilities, adding layers of utility and functionality that have been conspicuously missing in the traditional ERC-721 framework. It’s a transformative standard that aims to make NFTs more than just digital collectables, turning them into versatile assets with a wide range of applications.
The concept of TBA is not entirely novel in its essence, as evidenced by Uniswap V3’s pre-existing, non-standardized TBAs, as the platform used NFTs to represent concentrated liquidity positions for LPs in a trading pool. ERC-6551 standard expands its potential applications.
For example, it can serve as:
An entity within a web3 game housing other on-chain in-game assets,
A diversified digital asset investment portfolio, or
A membership credential embedded with tickets and vouchers provides the owner access to specific services.
Backward Compatibility and Enhanced User Experience
Importantly, the ERC-6551 standard is designed for backward compatibility, requiring no modifications to extant ERC-721-compliant contracts and systems. This means that the transfer of an NFT inherently shifts control of the associated TBAs to the new owner. Additionally, the standard allows users to maintain multiple smart contract accounts with varying implementations, thereby offering a more modular approach to asset ownership.
A singleton ERC-6551 registry contract is tasked with generating TBAs upon demand. Utilizing a single, unified contract guarantees that all TBAs are catalogued and can be accessed via the authoritative registry, thereby simplifying the process of TBA monitoring.
One of the most compelling advantages of ERC-6551 is its impact on user experience and security. The standard eliminates the cumbersome and risky need for seed phrases or private keys for account recovery. This is a significant step forward in making blockchain more accessible and secure for the average user. By reducing the risk associated with account loss due to misplaced seed phrases, ERC-6551 adds an extra layer of security and peace of mind for NFT owners.
Composability Across Multiple Domains
ERC-6551’s competitive edge lies in its ability to offer composability across multiple domains. For instance, in the realm of digital fashion and customization, projects like RTFKT and CloneX can now enable users to equip digital outfits and items directly through their NFTs. Financially, ERC-6551 enables new models like ERC-20 token earning and airdrops, as demonstrated by projects like BAYC and Cool Cats. Furthermore, the standard allows NFTs to serve as on-chain identities, enabling layered social network models seen by implementation with Lens Protocol and community loyalty systems. It even extends to asset management and curation, providing the ability to mint or curate baskets of assets, ranging from art to DeFi instruments. The integration into the DeFi space means that NFTs can be used as collateral for loans or even staked in liquidity pools. This bridges the gap between traditional finance and the digital world, offering new financial products and services centred around NFTs. ERC-6551 enables NFTs to be tied to real-world assets, allowing for the tokenization of physical goods. This means assets such as real estate, art, or even intellectual property can be represented as NFTs on the blockchain, making them easily tradable and accessible to a global audience.
As ERC-6551 gains traction, the NFT market is set for a fascinating evolution. The challenge lies in balancing the newfound utility with the speculative nature that has characterized NFTs so far. The success of ERC-6551 will hinge on how well it can integrate into existing ecosystems while providing tangible benefits that go beyond mere ownership. It’s a delicate balance, but one that could redefine the very fabric of the NFT market.
ERC-6551 is poised to be a catalyst for innovation in the realms of NFTs and blockchain-based gaming. NFTs will evolve beyond mere profile pictures or static artworks, incorporating dynamic, composable, and interactive elements. When integrated with Account Abstraction [ERC-4337], a marked improvement in Web3 user experience can be anticipated.
However, the expanded capabilities of ERC-6551 necessitate heightened vigilance regarding security risks. As NFTs become more valuable and complex, they become increasingly attractive targets for hackers looking to exploit intricate mechanisms in decentralized applications and games.
Built upon the foundational framework of ERC-721, ERC-6551 is still in the testing phase. Nonetheless, its potential to significantly accelerate the evolution of NFTs is clear. The NFT landscape is on the cusp of a transformative shift, with ERC-6551 laying the groundwork for a new generation of feature-rich digital assets.
I see immense value in using the ERC-6551 in real-world real estate assets, especially if it allows for backups of the digital asset even if the user loses their password and recovery of their wallet