A game changer for non-fungible tokens (NFTs)?

ERC-721 was the first Ethereum token standard that popularized non-fungible tokens (NFTs) in crypto space. This allows digital assets to be uniquely mapped on a blockchain in a verifiable manner. The token standard was first released in 2018 and over the years it has created an NFT token ecosystem that is now scarce is worth 20 billion US dollars.

But ERC-721 is far from perfect. One flaw: So far, smart contracts could not be directly integrated into it. A new Ethereum standard called ERC-6551 should change exactly that and open up a new dimension of possible applications and functions.

What is the ERC-6551 standard?

ERC-6551 is a newly introduced standard on the Ethereum blockchain that allows NFTs to act as their own smart contracts – or “Token Bound Account” – to act. In other words, an NFT can now have its own wallet address, hold assets, and conduct transactions just like a regular Ethereum wallet.

What is special about ERC-6551 is that it can be used to extend the existing functionality of ERC-721 tokens (NFTs) without having to rebuild them from scratch. The big advantage is that ERC-6551 works with almost all from the start compatible with existing NFT infrastructures that support the Ethereum Virtual Machine (EVM).

The implementation of the ERC-6551 standard makes it possible to do everything that can be done with a regular Ethereum wallet with an ERC-721 NFT. It therefore opens up the possibility, for example, of using an NFT to store other NFTs or to trade ERC-20 tokens.

Thus, the ERC-6551 standard redefines the notion of ownership on the blockchain: through it, NFTs, such as works of art, gaming objects or digital real estate, can have their own digital wallets and interact directly with other applications or tokens on the blockchain. This greatly expands the possibilities of NFTs and opens up new, exciting uses in art, gaming, finance and more. Three examples:

1st Art

NFTs with ERC-6551 functionality could serve as a means of representing digital art or intellectual property rights. An artist could create an artwork as an NFT and keep in that NFT’s wallet other NFTs representing rights such as reproduction, display, or resale, thereby transferring legal standards from the traditional art world to the NFT art world.

2.Gaming

In an online role-playing game, your character, let’s call him “Knight Zed”, collects various items. Thanks to ERC-6551, Zed becomes an NFT and gets its own Ethereum wallet. All collected items can be saved as NFTs in Zed’s wallet. In addition, Zed can now also hold ERC-20 tokens, such as in-game currencies, in his wallet. The ERC-6551 standard could thus revolutionize the world of crypto games, as it significantly simplifies the integration of NFTs into games and opens up new application possibilities.

3. DeFi

NFTs could also find use in DeFi protocols, such as using them as collateral for loans. An NFT could hold several different assets in its wallet, which then serve as total collateral. This could improve risk management in the DeFi space.

Conclusion

The importance of ERC-6551 is enormous. The standard brings significant benefits for various use cases and has the potential to revolutionize the use of NFTs. What is listed here is just the tip of the iceberg, as the potential for applications is almost limitless.