ERC-6651: The New Game Changer for NFT Token Standards

Article summary

• ERC-6651 is a new standard for the development of NFT tokens, which aims to improve functionality, security and interoperability.
• It introduces token-bound accounts (TBAs) that can hold tokens and other NFTs, interact with smart contracts, and change based on external factors or user input.
• The standard enables composition, identity, origin and dependency for NFTs, expanding their use cases and value. However, its use of existing NFT projects and platforms may face challenges.

In the dynamic realm of blockchain technology, Non-Fungible Tokens (NFTs) have emerged as a breakthrough innovation, revolutionizing the way we perceive ownership, digital assets and collectibles.

As NFTs continue to gain widespread recognition and adoption, the need for robust token standards is becoming increasingly apparent. Enter ERC-6651, a promising new standard that has the potential to reshape the NFT landscape.

Ethereum Request for Comments (ERC) standards have long been the cornerstone of token development and interoperability on the Ethereum blockchain. They provide guidelines and specifications for developers to create tokens with consistent features, making it easier for platforms, wallets and marketplaces to manage these tokens.

ERC-20 and ERC-721 are the most well-known standards for fungible and non-fungible tokens, respectively. However, as the NFT ecosystem evolves, a more comprehensive and versatile standard was needed to handle its new complexity.

ERC-6651 has stepped up and brought with it a number of innovative features and improvements that position it as a game changer for NFT token standards. Focusing on improved functionality, security and interoperability, ERC-6651 aims to address the limitations of existing standards and pave the way for the next phase of NFT adoption.

What you need to know about ERC-6651

ERC-6551 enhances the functionality and value of NFTs by providing them with smart contract capabilities. ERC-6551 tokens act as smart contract wallets. That means ERC-6551s can hold tokens and other NFTs just like a regular smart contract wallet can.

The same applies to transactions. These so-called token-bound accounts (TBA) are created and managed through a permissionless registry compatible with existing ERC-721 NFTs.

EIP-6651 is co-authored by Benny Giang, who was a founding member of Dapper Labs, which worked on the ERC-721 token standard and early projects such as Crypto Kitties.

It is important to remember that ERC-721 is a standard for creating unique digital assets on the Ethereum blockchain. These assets are called NFTs and are different from regular cryptocurrencies because each one is unique and cannot be exchanged for another one-for-one.

NFTs can represent anything from art to virtual real estate, and their value can be determined by factors such as rarity or utility. ERC-721 provides a set of guidelines for creating these tokens, making it easier for developers to create and trade unique digital assets on the Ethereum network.

However, the problem with the regular ERC-721 NFTs is their limited scope. They can only be owned and transferred. They cannot own other assets, such as tokens or other NFTs. Furthermore, they cannot interact with other smart contracts or change or evolve based on external factors or user input.

ERC-6551s use a permissionless registry compatible with existing ERC-721 NFTs to solve this problem. A registry is a smart contract that acts as a factory and a directory for TBAs. Anyone can create a TBA for any ERC-721 token by calling a function in the registry and paying a small fee. The registry then distributes a proxy contract that acts as the TBA for the token.

The proxy contract representing the TBA inherits all the properties and metadata of the original ERC-721 token. It also implements the EIP-1271 standard, which allows it to sign messages and verify signatures on behalf of the token.

This enables TBA to interact with other smart contracts and accounts on the Ethereum network, such as decentralized exchanges (DEX), lending platforms, gaming environments and more. The TBA may also contain other assets, such as tokens or other NFTs. These assets can be transferred to or from the TBA by calling functions on the proxy contract.

Why this is important

The new standard comes with many use cases for NFTs that we have never seen before. Here are a few.

Composability

Composition means that you can collect your NFT with associated assets such as other NFTs and tokens in one profile. If you sell or transfer the ERC-6551 NFT, all assets in it will also be transferred.

For example, with TBAs, you can build “inventories” of game-related assets that can be stored in the ERC-6551 token and greatly improve the user experience of a Web3 game. Before TBAs, all assets (NFT) collected in a game would sit as separate tokens in your wallet.

Identity

Identity means that each of your NFTs has its own identity and can interact with DApps independently. It does not depend on the wallet that holds it and can be associated with your identity on the chain.

This opens up new opportunities for loyalty programs or in-game rewards based on an NFT’s past behavior. This may also have an impact on the value of your NFT, as platforms may use your NFT’s identity and reputation to determine your creditworthiness or reduce counterparty risk.

Provenance

Provenance means you can get a full picture of the asset’s transaction history or utility beyond proof of ownership. Currently, NFTs do not provide much information about what the NFT has done in the past or how it has been used.

If you have sold your NFT over the counter, you usually do not have much information about the buyer or the price. With TBAs, you can get more insightful and specific information about the NFT’s past transactions and interactions.

Addiction

Dependency means that your NFT can interact by itself with other assets or platforms in the chain, improving its functionality and value. An ERC-6551 NFT may own other assets or tokens that may improve its performance or appearance. It can also interact with other platforms or smart contracts. This is similar to NFT having its chain personality and history, which makes NFT more interactive.

Conclusion

However, while this is promising for the NFT space, it does not come without its limitations. One of the main challenges for ERC-6551 is to get support from existing NFT projects and platforms. Not all NFT projects are on board with the ERC-6551 standard, especially those that do not follow the proprietary method, such as CryptoPunks. This means that some of the most popular and valuable NFTs cannot enjoy the feature of token-linked accounts.

Also, some NFT platforms may not be eager or able to integrate with the ERC-6551 standard, either due to technical issues or business reasons. So, ERC-6551 NFTs may not be immediately available to all collectors and creators.

Ultimately, ERC-6551 could revolutionize the NFT world. It gives each ERC-721 token a smart contract wallet that can own assets and interact with applications, making NFTs more dynamic and interactive than ever before.